Cut in minimum wage mooted by Department of Finance

The Department of Finance has argued against increasing the minimum wage in a submission to the Low Pay Commission. Officials in Michael Noonan's department said any increase could reduce employment and put gains made since 2008 at risk.

In a submission, the department called for a system to allow the minimum wage to be reduced in future.

It said: “The combination of a too-high cost base and a collapse in global demand had severe consequences for Ireland from 2008 on. This suggests the need for a ‘competitiveness buffer’ to allow the economy absorb potential adverse shocks with as little impact on employment as possible.

“In practical terms it means striving to ensure labour costs do not rise above either productivity at home and/or those in trading partners.

“In principle, this suggests that adjustment of the minimum wage should be symmetric and allow for consideration of a reduction in the rate in response to a shock to demand or a sudden loss in competitiveness.”

Submissions

The Low Pay Commission has been examining a series of submissions from various interest groups about the possibility of increasing the current €8.65 rate.

In its proposals, the Department of Finance said economic output in Ireland was still “particularly volatile, due in part to the openness of the economy”. It said Ireland was highly exposed to global shocks and urged the commission to bear that in mind when making its decision.

The department’s submission said the establishment of the Low Pay Commission was welcome and an improvement on the previous approach.

But it pointed to the taxation system as the issue rather than the increase in pay. “Arguably what matters to employees is their disposable income, not gross pay. In considering adjustments to the minimum wage, the relatively favourable treatment of low-paid workers under the Irish tax and welfare system needs to be borne in mind.”

Minimum wage It said

evidence suggested the minimum wage in Ireland was out of line with other countries.

The department said the commission should contribute to a pattern of more frequent, but smaller, changes in the minimum wage. “This will be of benefit to both employers and employees and should allow for changes in underlying economic conditions to be taken into account.”

Minister of State at the Department of Jobs Ged Nash has been fronting the Low Paid Commission and is expecting a report by July 15th. He and his Labour colleagues have been pushing for a series of pay increases over the next number of years. But Minister for Jobs Richard Bruton has disagreed, insisting this is not the time for wage rises.

The Department of Finance document also said the economic recovery in Ireland had been uneven across the country. It said the recovery had been concentrated in Dublin and other urban areas.

“To the extent that a market clearing wage is likely to be lower in weaker performing regions, consideration might be given to the differential effects of any adjustment in the national minimum wage on employment at a regional level.”