Monday, 15 December 2014

Case for a ‘Living Wage’ gets stronger

Cormac Staunton: The recent Behaviour & Attitudes survey on inequality has some striking and perhaps surprising findings.  The first is striking: more than 80% of people think that income is unfairly distributed in Ireland.

The second is perhaps surprising: more than 90% of people want the government to take active steps to reduce the gap between high and low incomes.

It’s surprising because in the media, interventions like increasing the minimum wage are seen as contentious, with business groups in particular warning of doomsday scenarios.

The reality is that there is an extremely strong case for economic growth through increased wages, for example as reported by the UN International Labour Organisation (ILO). (Full Report or Summary Report)

The theory is straightforward: if people are paid more, they can spend more, and this leads to more jobs, in a virtuous cycle. We know that people on low incomes spend more of their money than those on high incomes (and there are more of them), so it makes economic sense to boost the incomes of people on low wages. More people working and spending in turn boosts tax revenue and allows governments to invest more in infrastructure, education, and other areas that will boost productivity, which is what makes increased wages sustainable.

The survey finds support for raising the minimum wage in Ireland is up to 84%, from 65% in 2010. The minimum wage is €8.65 and has been at that level since 2007. Originally when it was introduced it was supposed to be pegged at 2/3rds of average wages. It has now fallen dramatically behind that, which may be one of the reasons why Ireland has the highest level of market income inequality (before taxes and transfers) in the OECD.

And people get this. They may not know that 1-in-4 people are living in material deprivation, but they know something is wrong and they want to do something about it.

The sentiments expressed in the survey are consistent with a growing recognition that the minimum wage is not a “Living Wage”. In Ireland the Living Wage has been calculated at €11.45 per hour. It is based on the cost of a ‘minimum essential standard’ of living.

The gap between the minimum wage and the Living Wage represents a lost opportunity for the economy, as people go without essentials. An increase in the minimum wage would see more money being spent immediately in the local economy, as people make up for lost spending.

Personal consumption is a key driver of the economy and has shown very few signs of growth despite the alleged upturn in the economy in Ireland (recent CSO figures)

Moving the minimum wage closer to a ‘Living Wage’ is the shot in the arm the economy needs and it is a policy that the vast majority (84%) of the public supports.

Cormac Staunton is Policy Analyst at TASC. You can follow him on Twitter: @Cormac_Staunton

No comments: