TASC Submission to the Independent Review of ERO and REA Wage Setting Mechanisms

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TASC has made a very interesting submission to the Independent Review of ERO and REA Wage Setting Mechanisms, which provides “independent external economic and labour market evidence in support of the need for wage floors”. It argues strongly against the cut in the minimum wage, and highlights the fact that Ireland is unique within the EU in trying to cut low pay during the current financial crisis. This is because the majority of EU countries know that cutting those on lower wages has a negative effect on aggregate demand in the domestic economy leading to further deflation. This is because those on low income tend to spend all their money directly in the domestic economy.

Here are the main points taken from their submission, but you can read the whole thing here.

1. The empirical evidence on the employment effect of wage floors is ambiguous. Numerous econometric studies in the literature have shown no net employment effect. It is not possible to conclude that reducing the earnings of low-wage workers will generate increased employment.

2. It is anticipated that reducing the wages of low income earners will depress aggregate demand and therefore economic growth. This has implications for Ireland’s ability to achieve debt sustainability.

3. Most EU countries have raised their national minimum wage during the current crisis. Ireland is a unique exception in having decreased its national minimum wage

4. OECD data shows that labour costs in Ireland in the low-wage sectors are not high by European Union standards. The most recent EU Klems data finds that hourly labour costs in the hospitality sector (the largest low-pay sector) are the third lowest in the EU-15.

5. For an employee working a thirty nine hour week it is estimated that the annual direct cost to the exchequer of reducing a JLC rate set at €9.27 per hour down to the current national minimum wage rate of €7.65, will be €1,865 per annum per worker. This figure does not include the indirect costs to the public finances from lost VAT and other receipts and from increased social protection spending on measures such as Family Income Supplement.
6. The ERO and REA wage-setting mechanisms are about more than the setting of minimum wages. They also safeguard the minimum conditions within particular sectors and therefore safeguard a minimum standard of living.

7. The vast majority of OECD economies have already implemented the right to collective bargaining as established by article 11 of the European Convention for the Protection of Human Rights and Fundamental Freedoms. Ireland is unusual in having failed to do so. The wage setting mechanisms perform some of the same functions in Ireland.

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Donagh is the editor of Irish Left Review. Contact Donagh through email: dublinopinionAtgmail.com