Issues

Low Pay Commission recommends a minimum wage increase

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eolas examines the recommendations of the Low Pay Commission’s recent report.

In its very first report to Government, published last month, the Low Pay Commission recommended a 5.8 per cent increase in the hourly rate for the national minimum wage. The recommended increase, the first since 2011, will mean a 50 cent uplift in the hourly rate from €8.65 to €9.15. The report was broadly welcomed by Government Ministers although it has been criticised by some trades unionists as offering too little and by representatives of business concerned about costs and competitiveness. Overall, however the Commission’s recommendation gives a safe landing to a potentially difficult issue.

Political background to the Low Pay Commission
The level of the national minimum wage has been a difficult issue between Irish political parties over recent years and especially difficult during the current era of austerity. In 2010 the previous Fianna Fáil-led Government actually cut the minimum wage hourly rate by a full Euro (12 per cent) although this was quickly reinstated when the current Government came to power in 2011. Nonetheless, since setting the minimum wage was likely to be equally challenging for the current governing parties of left and centre-right, the coalition Government decided in 2014 to depoliticise the issue by creating a new independent body to lead on it. The initiative was largely a Labour initiative conceded by Fine Gael in the recognition that it was difficult to resist the case for some increase with an improving economy and after four years since the previous adjustment.

The Low Pay Commission was therefore established to make independent recommendations on the appropriate level of the national minimum wage, based on evidence it would gather on the state of the economy and earnings generally, as well as assessing the capacity of the labour market to absorb a rise in the minimum wage without putting existing jobs at risk. The Commission would not actually decide the minimum wage but would instead make its evidence-based recommendation to Government with the expectation that the recommendation would be adopted.

Although establishing a new ‘quango’ to determine just one number every year might seem unduly extravagant, the initiative has proved politically astute. The Low Pay Commission formula in effect insulates both coalition parties from serious criticism, either from trades unions that the minimum wage is too low, or from employer interests concerned that the rate is too high. Also, the fine balance of academics, trade union and employer representatives the Government appointed to the Commission effectively guaranteed a reasonably balanced outcome, neither an unfair squeeze or an unaffordable hike in the recommended rate.

A modest recommended increase – which the current recommendation of 5.8 per cent (since 2011) certainly is – also allows both parties to express support for a rising minimum wage even if they do so from somewhat different perspectives. For Labour an increasing minimum wage confirms the Party’s commitment to ensuring the low paid get a decent enough wage to live on, while for Fine Gael a rising minimum wage is a practical economic lever for boosting workforce participation by ensuring that work pays.

The 2015 recommendation
The Low Pay Commission held its first meeting in February 2015 and the following month announced the commencement of its research and analytical work to determine the appropriate level of the minimum wage. On 15 March 2015 the Commission invited all stakeholders and the public generally to make submissions that would inform this work. In the event, the Commission received 49 submissions from individuals, trade unions/workers’ representatives, businesses and business sectoral representatives as well as social justice agencies and political parties. Once the work was completed, the Commission’s report “Recommendations on the National minimum Wage for 2015” was submitted to the Minister for Business and employment Ged Nash TD on 21 July 2015.

Under its founding legislation, the Low Pay Commission is required to recommend a national minimum wage which is “fair and sustainable” and which, over time “is progressively increased to assist as many low paid workers as is reasonably practicable without creating significant adverse consequences for employment or competitiveness”.

For this reason the Commission, despite a very pressing timetable, presented a ‘comprehensive’ report which indicated the wide range of considerations it had taken into account including:

• The mounting evidence that suggests that moderate increases in the minimum wage will not lead to significant job losses;
• The overall recovery in the economy although recognising that the economy still faces risks;
• Growing employment, falling (although still too high) unemployment;
• Improving competitiveness;
• Low inflation and the fact that the minimum wage has been largely static in real terms for eight years;
• The need for the tax and PRSI system to work in harmony with the minimum wage to support employment creation.

The Commission also took full account of the 49 submissions received in the public consultation.

Reaction to the 5.8 per cent recommendation
While the Taoiseach and Fine Gael Ministers have welcomed the Low Pay Commission’s report they have not yet formally supported the recommended increase. However they are almost certain to agree it in the context of the coalition’s ongoing budget discussions. The Labour Party has warmly welcomed the increase with the Tanaiste Joan Burton claiming some credit: “My goal is to ensure a social as well as economic recovery, lead by real growth in peoples’ wages”.

Some businesses, particularly in the low paid hospitality sector, have argued that the increase should have been smaller and may cost jobs while some trade unionists, including those represented on the Commission itself, have stated that the hourly rate increase should have been much higher.
Alongside that, tax experts have pointed out the anomaly that employees set to benefit from the increased wage will actually not be better off because the wage increase will be more than offset by taking minimum-wage earning workers into a higher PRSI band. Similarly, as it stands, the minimum wage increase will cost employers disproportionately more in employers’ PRSI. However, the Government is well aware of this adverse interaction with the tax system and the problem is likely to be dealt with in the forthcoming budget by a simple widening of the PRSI bands.

Overall, the Government can be content with the outcome of the work of the Low Pay Commission. The result is just about right politically and the relatively limited criticism has been largely predictable in nature.

Most importantly of all, Ireland’s 70,000 workers on the minimum wage should feel the pay increase in their pockets by January/February of next year – just nicely before the general election.

The Low Pay Commission
The Low Pay Commission was set up in February 2015 under the National Minimum Wage (Low Pay Commission) Act 2015 and operates independently under the aegis of the Department of Jobs, Enterprise and Innovation.

Membership of the Commission
The Commission is chaired by Dr Donal de Butleir, former Revenue Commissioner and currently director of independent thinktank publicpolicy.ie.

The other members are:
Vincent Jennings: CEO of Convenience Stores and Newsagents Association
Patricia King: General Secretary of ICTU
Gerry Light: Assistant General Secretary, Mandate Trade Union
Caroline McEnery: Director, The HR Suite; HR and Business Solutions
Edel McGinley: Director, Migrant Rights Centre, Ireland
Mary Mosse: Lecturer in Economics, Waterford Institute of Technology
Tom Noonan: CEO, Maxol Group, President of IBEC (2008-2010)
Professor Donal O’Neill: Department of Economics, Finance and Accountancy, Maynooth University

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