Monday, 1 February 2010

Guest post by Michelle O'Sullivan: Minimum wage regulation

Michelle O'Sullivan: Last week the Tánaiste, Mary Coughlan, announced that legislation will be introduced allowing employers to claim an inability to pay the rates set by Joint Labour Committees (JLCs).

JLCs are statutory bodies which set legally binding minimum pay and conditions of employment in low paid employments where collective bargaining is poorly developed. The JLCs owe their origin to the Trades Boards, which were introduced in 1909 by the British Parliament for Ireland and Great Britain in an attempt to eradicate ‘sweated’ working conditions. At the time Winston Churchill declared the necessity for such machinery because the laws of supply and demand could not eliminate sweating or prevent the undercutting of wages.

JLCs have remained in existence since 1909 and today mostly cover services sector employments like cleaning, catering, hotels, security and hairdressing. In addition to setting minimum pay rates, often above the National Minimum Wage, JLCs also set minimum conditions some of which employees would not get through other employment legislation like sick pay.

Mary Coughlan’s announcement comes following constitutional challenges against JLCs by two sets of employers: first the Irish Hotels Federation (IHF), then a fast food employers body, the Quick Service Food Alliance. The hotels case was settled out of court, perhaps unsurprisingly as the IHF is an employer representative on the JLCs. Before a decision could be reached on the fast food employers’ case, the Tánaiste introduced an Industrial Relations (Amendment) Bill 2009, which would make JLCs constitutional. Employers had argued that the Labour Court’s power to confirm JLC proposals was unconstitutional because it was making law without legislative or parliamentary control.

While the Bill would rectify this anomaly, the Tánaiste is now going to allow sub-JLC rates be paid through an inability to pay clause. On Today FM’s Sunday Supplement show of 24th January, Minister Mary Hanafin insisted that under the inability to pay clause, employers and employees within organizations would have to agree on lower rates of pay but she could not say by how much lower. The likelihood though that low paid, non-unionised and migrant employees would refuse an employer's request for lower pay rates is highly unlikely. An inability to pay clause for JLC rates had been proposed before by the Commission of Inquiry on Industrial Relations in 1981. The Department of Labour was very critical of the inability to pay proposition, saying “any proposal which would allow for a ‘fall-back’ position weakens the principle in such a serious way as to make a nonsense of the entire concept”.

The implications of the proposed inability to pay clause may depend on the take-up. A similar clause exists for the National Minimum Wage but has not been used.
Dr. Michelle O'Sullivan lectures in Industrial Relations at the University of Limerick


Michael Taft said...

Michelle - thanks for that excellent summary of the JLC issues. Two things are worth noting: first, there is no impact assessment on the fiscal deficit arising from allowing opt-outs. Lower wages will result in lower tax revenue (income tax, income levies, employers' and employees PRSI, etc.). That such a move would have deleterious effect on public finances has gained little attention in the debate.

Second, reduced wages will reduce demand. Ironically, this will hit the very enterprises that are clamouring for opt-out clauses. Less sales and turnover will create more demands for opt-outs and wage cuts, which will in turn impact ever further on public finances and demand - and down and down we go.

Calls for opt-outs veil the fundamental problems, especially as our labour costs - even at low levels - are less than our EU peer group. These problems are lack of demand (exascerbated by Government deflationary policies), commercial rent levels which appear to operate on a different plane to the economy, and lack of access to credit. To ignore these and focus on wage cuts is to ignore the herd of elephants in the room.

One question: given the growing clamour for cuts in low wages, why do you think, Michelle, that employers have not availed of the minimum wage opt-out? Is it that relativey few enterprises pay wages this low? Is there something within the operation of the opt-out that makes it difficult to avail of? Or could it possibly be that calls for cuts in low pay are intended to have a macro-political effect, whatever about the micro effect?

Michelle O'Sullivan said...

Michael, without data on it, I think there are a couple of possible reasons for the non-take-up. 1. for many years there was no need during the boom. Employers paid above NMW rates. 2. up until 2008, enforcement of minimum wage rates by labour inspectors was very poor so employers who paid sub-min rates had a better chance of doing so. 3. the exemption under the NMW Act requires an employer to apply to the Labour Court with a hearing etc. - an arena perhaps familar to unionised employers but how realistic a small shop owner will go through that? hard to tell also if many employers were aware of exemption clause 4. perhaps employers laid off people/reduced hours rather than go through Labour Court process.