Brexit fuels debate over State’s minimum wage

Two issues have reignited Ireland’s debate about the minimum wage.

First, the Low Pay Commission, whose job it is to recommend what the hourly rate should be, effectively downed tools, complaining of political interference.

In a letter to Minister for Jobs Mary Mitchell O’Connor, commission chairman Donal de Buitléir claimed the Government’s commitment to raise the current rate from €9.15 an hour to €10.50 by 2021 undermines the group’s remit. This row has been patched up, but the issues underpinning it remain.

The second issue stoking the fire is Brexit.

Business groups have seized upon the new dynamic to oppose any further hikes.

The commission’s latest recommendation for a 10 cent increase – outlined in its latest annual report last month – met with an unusually loud chorus of disapproval from industry.

Further highlighting the divide, three members of the nine-person commission issued two minority reports, both saying that the minimum should increase by a much larger 85 cent to €10 an hour.

The three were trade unionists Patricia King and Gerry Light, who penned one of the minority reports, and Edel McGinley of the Migrant Rights Centre, who wrote her own dissenting paper. The thesis of both was the same: companies are making more money, employees deserve their share and Brexit should not be an excuse for delay.

At the heart of the debate is whether employees now deserve a share of a recovering economy, or whether in the wake of the Brexit vote, which happened before the commission’s report, the key job now is to protect employment, particularly in the indigenous sectors exposed to the Brexit fall.

Brexit risks

The majority report said Brexit would have a “significant, unquantifiable impact”and the clear sense is that they might otherwise have opted for a somewhat higher figure.

Even the 10 cent recommendation met business opposition. Ibec, Isme, and the Small Firms Association all criticised the proposal as anti-business and anti-competitive, while highlighting the risks posed by Brexit.

And yet the proposal – equating to a 1.2 per cent increase on the current rate – is modest in the context of the Government’s pledge. It would take 13 years of similar increases to reach the €10.50 rate.

The battle over what constitutes the income floor goes to the heart of the old Boston versus Berlin arguments: in other words, do we want a European-style safety net for low-paid workers or is the market to be the ultimate arbiter?

Those who take a cautious view of increases point out that Ireland still has a high proportion of households where nobody is at work, and that there will be a trade-off between creating jobs and increasing the minimum wage. And then there is the Brexit factor and – in the short term – centring on the impact of a much weaker sterling on companies exporting to Britain, or facing competition from British imports in the Irish market.

A spokeswoman said the Government remained “committed to reducing poverty levels” by supporting an increase in the minimum wage to €10.50 an hour over the next five years.

She also dismissed suggestions the Government’s objective had a bearing on the work carried out by the Low Pay Commission.

“Notwithstanding this commitment, the Government will be guided by the annual recommendations of the Low Pay Commission on the level of adjustment each year to the national minimum wage so that the rate is both fair and sustainable, helps as many people as possible without having a significant adverse effect on the economy or a significant negative effect on employment,” she said. The Government is free to accept or reject the commission’s annual recommendation, she added.

The Government’s €10.50 target rate equates to 60 per cent of the median – or middle – wage, which rights groups use as a poverty threshold.

Political accusations

In terms of the commission’s work, there now seems to be an uneasy truce between its members and the Government. The initial question from the commission to the Government was whether the programme for government commitment to a €10.50 minimum wage by 2020 effectively meant it was redundant. After all, the commission is obliged each year to produce a recommendation by the middle of July, for consideration in the context of the next budget. If the Government had already decided, why should it bother?

The Minister for Jobs told the commission it should carry on its work, leading to political accusations that the €10.50 goal was being abandoned.

And continue the commission will, albeit that the divide highlighted in its recent report among its members may be hard to close.

In fact, this appears at least as big a challenge as political direction, with the two trade unionists writing that the 10 cent recommendation was “wholly inadequate and ill-judged” and that persistence with the approach that ignore employees “would, in our view, be a serious challenge for the future work of the commission”.

The traditional business argument that raising the minimum wage kills jobs and hurts small businesses is not necessarily borne out by the research.

Several studies suggest minimum-wage increases can reduce employee turnover and have a modest stimulative effect on the economy, as low-paid workers tend to spend their additional earnings, which in turn raises demand.

Either way, the financial crisis has ratcheted up a sense of economic injustice.

The rise of Labour's Jeremy Corbyn in the UK and the popularity of Bernie Sanders in the United States can be linked to a new brand of economic populism that is forcing its agenda on to the table.

For most of his campaign, Sanders had a banner ad across his website that stated: “Nobody who works 40 hours a week should live in poverty.”

Corporate tax avoidance plays into the same sense of injustice. In just the latest example, The Irish Times this week reported a Dublin firm set up during the crash by US hedge fund Davidson Kempner principally to snap up distressed assets was found to have paid just $125 in corporation tax here last year on income derived from assets of $8 billion.

A minimum-wage worker in Ireland, working full time and earning €9.15 an hour, pays €887 in tax each year, comprising PRSI, income tax and USC.

Ibec’s Maeve McElwee said the business lobby supported the idea of having a Low Pay Commission to inform policy measures.

“The purpose of the Low Pay Commission is to set a rate that shouldn’t affect competitiveness or lead to a situation where jobs might be lost.”

However, she said her organisation was concerned at “the political direction” seemingly being given to the commission, noting the body itself was unhappy with the situation.

Ibec’s opposition to its latest recommendation stems from the fact that businesses had just absorbed a 6 per cent hike in the minimum wage – awarded in early 2016 – the effects of which have yet to be assessed.

This was also well above the 2 per cent increase in wage rate seen across its membership, she said.

McElwee said the competitive pressures on the restaurant and retail, which typically employ the largest number of minimum-wage workers, remain intense despite improvements in the State’s overall competitiveness ranking.

She said the latest rise heaped additional pressure on already vulnerable sectors.

The other plank of Ibec’s argument centres on Brexit.

She noted the commission’s recommendation was only up to July 1st and therefore pre-dates the likely fallout from Brexit.

“The economy is facing into a currency crisis and when you look at those sectors of the economy that use the wage as the minimum point on their pay scale – they have the biggest dependency on sterling and British customers.”

She also noted that if the euro rose to 90 pence sterling the Republic’s minimum wage rate would be 14 per cent higher than the UK’s rate.

Workers’ rights groups, however, believe the Republic’s minimum wage is still too low and the latest recommendation will not even account for inflation, let alone the annual increase in rents.

"A 10 cent increase would actually result in a real pay cut for minimum-wage workers," said Edel McGinley, noting the Government and Central Bank both projected inflation to be 1.7 per cent in 2017.

She said the proposed increase of 10 cents represented an increase of 1.1 per cent while both the Government and the Economic and Social Research Institute projected average wage increases per employee would be 2.5 per cent.

“The proposed [minimum wage] increase is less than half that,” she said.

Cautious tone 

Picking up on the more cautious tone coming from Ministers in the wake of Brexit, McGinley said: “It is extremely disappointing to hear that an increase in the national minimum wage will potentially not being given by the Government. The current economic climate, projected growth and increase in consumer spending and confidence show the need to increase minimum wages at this time.”

She also claimed using Brexit as a reason to limit minimum-wage increases without any evidence or tested projections on the impact on the economy and on the sectors where minimum-wage workers are concentrated was not fact-based.

According to research by the Nevin Economic Research Institute, almost three-quarters of the 70,000 Irish workers on the minimum wage are female. Other data put the figure as about two out of every three. This issue of why more females are paid at the minimum levels is one the commission is examining in a report due out in November, along with consideration of rules that allow companies pay trainees less.

The Nevin study also found employees earning the basic €9.15 per hour comprise about 5 per cent of the total workforce.

The research suggests some 34,000 of those who earn the minimum wage were also working full time, and most low-paid in the State are in their 20s and 30s, seemingly disputing the conservative argument that many minimum-wage earners were teenagers in part-time employment.

Also gathering momentum of late is the Living Wage Campaign, which suggests €11.50 an hour, a third more than the minimum wage, is necessary for a basic standard of living. Discount retailers Lidl and Aldi are already paying staff at this rate.

The commission is likely to find itself in the unenviable position of being in the middle of this turf war for some time to come.

But first the Government must decide what to do, in the face of political argument ahead of the budget. Does it go with the majority 10 cent recommendation? Or go for something like 15 cent which would fully adjust for expected inflation? Or bow to the calls for a move to €10, effectively snubbing the commission and the business lobbies who feel it will cost jobs.

If Brexit had not happened, the push for a bigger rise would have been all the greater. But if weak sterling continues to put pressure on business here in the run up to the budget, the dilemma is all the more acute.

With the Government needing the support of Fianna Fáil, its own backbenchers and a significant number of Independents to get the budget through, this will be one of the big debates as the big day in October approaches.

Given the balances of political forces, the Government may be encouraged to introduce an increase of more than 10 cent, regardless of the outcry from business or the implications of Brexit.