Friday, 24 July 2009

Minimum wages and low pay

Michael Taft: The latest swing in the debate has turned on those earning the minimum wage, though in truth this is a continuation of the call last year by the Small Firms Association to cut the statutory minimum wage by €1 (or an 11.6 percent cut). We shouldn’t expect this phase of the debate to be any more illuminating than what we’ve been used to.

Take one example: comparative levels of minimum wages. It is a fact that Ireland has the second highest statutory level in the EU-15 (there are only eight other countries that have statutory minimum wages). But there’s a complementary measurement that is important to note. Using purchasing power parities helps quantify what each wage level means in a particular country (the how-much-bread-you-can-buy-with-a-€1 measurement). When we look at this, we find Ireland falling down the league tables.

We no longer have the ‘second highest’ minimum wage. We fall to fifth place, behind our economic peer group barring the UK . This is unsurprising – Ireland has higher living costs so that a Euro goes further in most other countries than here.

There are other facts. For instance, there are few workers on the minimum wage employed in the traded sectors (except for outsourced functions such as cleaning, etc.). Given the concern over cost competitiveness in this key sector, it should be noted that cutting the minimum wage will have little if any impact – and that’s even if you buy into the highly contestable argument that Irish wages are uncompetitively high.

Unfortunately, the debate over minimum wages – like the debate over the McCarthy Committee proposals – will be detached from the economic impact any proposal that such wage cuts will have. We will get some employers asserting they need wage levels cut (though not all – as one restaurant owner made clear on Live Line, opposing wage cuts as being inequitable and irrelevant to business costs). But where will be the commentators to point out the deflationary impact on the economy – reduced consumption (which will hit businesses) and reduced tax revenue.

Still, there are many who are genuinely concerned that Irish workers are raking it in – putting economic recovery in peril. We should try to comfort them. The OECD tracks the incidence of low pay (below two-thirds of median wage). Ireland ranks at the top of the EU-15 – along with that other Anglo-American economy, the UK. That should gladden the hearts of even the most robust of real devaluationists.


Anonymous said...

There are 2 sides to every story.

By restating the minimum wage levels in PPP you are looking at the figures from the point of view of the worker. Which is fine. However you should also make the figures nett of taxes to complete the trip to the workers point of view. I'd imagine that in our low (income) tax economy that may very well bring us back up the rankings.

Anyway comparisons to other countries are all well and good but the real issue with min wage is that it may reduce the demand for labour. If a company does not find it economical to hire at the minimum wage level and there are people who are willing to work for below that level then neiter employer nor employee are well served.

A min wage as a tool to stop outright expoitation of the ignorant or isolated is one thing. But to prevent working-poverty is not so good.

Brian Woods said...

Forget the comparisons. Compare costs (goods and services in THIS state, with the relevant wages/salaries in THIS state.

It matter not whether we (in Ireland) are taxed less (are we really?) than other states. What matters is that each and every citizen of this state has an income to purchase the necessaries to maintain a dignified existence. This is what is under threat from thick, ignorant and arrogant individuals and vested interests who have a delusional belief that 'growth' will solve all problems.

When Dickens wrote of Oliver, bowl in hand, approaching the Top Table, pleading for 'more' he had in mind the wealthy, who already had plenty, demanding that their masters (the politicians) give them 'more' - at the expense of the poor! Plus ca change!

Brian P