Defending the Minimum Wage

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The vulnerability of weaker sections of society becomes obvious in times of recession. Already it is clear that those who can least afford further income reductions will be asked once again to ‘share the pain’ in December. It is clear however, that sharing – in the eyes of the Government – is a fundamentally unequal process. In a recent interview on Fox News, the Taoiseach Brian Cowen asserted that our 12.5% corporation tax rate is ‘non-negotiable’. It is interesting that such a fundamental aspect of our economy is not even up for discussion in a time when everything is supposedly on the table. Sadly, the incomes of the poorest people in our society have yet to make it into the ‘non-negotiable’ column.

Calls for a reduction in income may be carefully masked, as were the reductions in social welfare payments at the last budget (justified on the basis of a fall in the cost of living) but they can also be overt. The call for a reduction in the Minimum Wage is totally transparent and is based not on a convincing economic narrative, but rather on political expediency from well-resourced and vocal sectional interests.

Initially, the argument to reduce Ireland’s minimum wage was articulated and promoted by IBEC on the basis that we needed to improve competitiveness. While there is certainly a need for the Irish economy to become more competitive and dynamic, it is disingenuous to present wage reduction as a panacea to the competitiveness problem. For instance, our Scandinavian neighbours manage to operate highly competitive economies while also maintaining relatively high and relatively equal income levels. Furthermore, the wage reduction argument ignores a multitude of other factors that negatively affect competitiveness including underdeveloped infrastructure, high rates, chronically poor broadband and a lack of focus on research and innovation.

More recently, ISME and the catering-hospitality sector have taken up the cudgel, calling for a reduction of one Euro in the Minimum Wage on the basis of saving jobs in sectors experiencing a significant downturn in business – mainly retail services, restaurants and hotels. Holding the line on basic income is central to anti-poverty work, so it is heartening that a robust evidence-based argument has been developed by TASC. Their report, Square Deal? The Real Cost of making a Meal in the Restaurant Sector demolished the ISME argument for wage reductions in a sector that is dominated by low pay. Many of these low pay employment sectors have been regulated for many years by Joint Labour Committees. These JLCs set wages and conditions in employment sectors where normal negotiation and regulation processes are difficult, so they act as a safeguard, especially in relation to protecting the rights and entitlements of low paid employees.

Earlier in the summer, Michael Taft drafted an interesting response to Dr. Garret Fitzgerald’s argument that wages in Ireland are unaffordable when compared to our European neighbours. Taft looked at three sectors; manufacturing, retail/wholesale, and public administration. In the case of manufacturing, Taft references evidence from EU Klems Database – which measures labour costs, productivity and capital compensation – which states that Ireland’s average labour costs rank 12th out of the EU-15, with an average of €20.76 as compared with the EU-15 average of €25.03. Similarly, Taft points out that the rise in manufacturing wage costs was not out of sync with other EU countries. In fact, from 2000-2007 wages in the sector increased by €5.20 – exactly in line with the EU-15 average.

More recently TASC made a presentation on the Minimum Wage to the Oireachtas Joint Committee on Enterprise, Trade and Employment. Some of the key points made are outlined below. These are very useful for anti-poverty organisations in developing their analysis, arguments and counter-arguments to defend the meagre income of the marginalised and low paid. A more comprehensive note is available on the TASC website.

  • The ‘effect on individuals’ argument: The Minimum Wage was introduced to protect people who were living on the edge of poverty. That vulnerability remains, especially for migrants, women and young people who tend to be disproportionately represented in low paid employment. People on low pay spend a higher proportion of their income on food and a one Euro reduction would constitute an income reduction of 11.5%. Food prices in Ireland are already the second highest in Europe so this would severely impact on family poverty. The Vincention Partnership research, undertaken in 2009, demonstrates that a family of four requires an income of €578 per week. The Minimum Wage provides a weekly income of €337.
  • The economic argument: Poorer people spend most of their income on basic items like food, accommodation and clothing, therefore reducing their income will have an immediate and profound effect on demand at a time when we desperately need to stimulate demand. In addition, the tax take will be further reduced through a reduction in VAT receipts, thus further exacerbating the deficit in the public finances.
  • The competitiveness argument: Exporting firms in Ireland tend to be ultra productive because of key factors such as research, innovation and technology. These firms are thus more associated with the higher levels of pay required to secure highly skilled personnel. Minimum wage levels are not an important factor in their competitiveness.
  • The comparative labour cost argument: Ireland has many of the characteristics of a low wage economy and the hospitality sector is the largest employer of low-wage workers. When compared with other European countries, this sector has the third lowest labour cost in the EU 15 during with labour costs averaging €15.65 per hour against €12.84 in Ireland – only Greece and Portugal are lower than Ireland.

The Poor Can’t Pay – a coalition of NGOs, trade unions, and academics are also preparing a highly visible campaign against cuts to social welfare rates and the minimum wage in the next budget. As part of the 2010 campagin, the coalition has released a series of documents to support arguments for the retention of current rates. In the case of the minimum wage, you can download ’10 reasons not to cut the minimum wage’ on the Poor Can’t Pay website.

Ireland has a poor record in setting income standards for its most vulnerable citizens and in providing protection for migrant workers, who tend to be employed in relatively low pay sectors. The baseline has traditionally been set by social welfare rates, specifically means-tested allowances. The introduction of social employment schemes in the 1980s (another time of recession) brought rates of allowances that were firmly tagged to social welfare rates, so the income standard remained at a low level.

The introduction of the Minimum Wage, on foot of concerns that poverty could also be associated with employment, brought the income benchmark for those in employment to a higher level. There is now a concerted effort to bring the income benchmark back down towards the social welfare rate. While this is fairly typical of the type of onslaught that poorer people are subject to in times of recession, it is nevertheless heartening to see the formulation of a robust, evidence based defence of income rates for the lower paid emerging from the community and voluntary sector. For anti-poverty groups, the battle will focus on holding the line on income levels.

Visit www.eapn.ie for up to date information on poverty, social exclusion and inequality in Ireland and Europe.

Aiden Lloyd is the temporary Coordinator of the Irish Network of the European Anti-Poverty Network and a member of the board of the Society of Cooperative Development Studies Ireland (CDSI). He was previously the national community development & equality coordinator with Pobal, an organisation that manages social inclusion and equality programmes on behalf of Government and the European Union. He has been involved in a range of community development, local development and regeneration initiatives in Ireland and Europe.

This article was originally published in On The Line, the blog for European Anti-Poverty Network Ireland

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One Response

  1. Hugh Green

    August 12, 2010 11:50 am

    Thanks for this.

    Would like to draw readers attention to series of talks on economics by Michael Perelman, whose writing I believe has appeared here before.

    http://www.ustream.tv/recorded/8702391

    Regarding the minimum wage, toward the end of the first talk he makes the following comment:

    .. you can have the deflationary type economy in which prices go down and down and down, and as prices go down and down and down, you see employment going down, and fewer people able to buy, and that creates further downward pressure, and then people have to pay off their debts when prices are lower which means the debt burden becomes larger, and it’s a recipe for disaster.

    Now alternatively, if you could increase energy prices, wages, that would cause pressure that would create a motive for business to innovate, and it would not have deflationary consequences. And to the extent that labour would be paid more, it could buy more. So one of the things an economy can do is increase the minimum wage and keep increasing the minimum wage to force business to modernise.

    In Ireland, ‘competitiveness’ in media is held to be largely synonymous with ‘poverty’: that is, in order to make exports attractive, the principal cost to be driven down is that of labour, so that workers will produce more for less. But the pursuit of this removes the incentive for firms to innovate. Is there any evidence that indigenous Irish firms are particularly good at innovation? Not as far as I can see.

    So why provide them with further incentive not to innovate by driving down the minimum wage when the sectors that are actually showing strong export growth at the moment – Medicinal and Pharmaceutical products, Chemicals and related products, labour costs form a relatively small proportion of overall costs?

    Managers of Irish firms are lazy scroungers. They should be forced to get on their bikes and get innovating.