Most of the minimum wage increases adopted since 2016 have had no impact on inflation, a new study has found.
The research by the Economic and Social Research Institute (ESRI) did, however, detect an impact on prices from the 2024 change.
The minimum wage rose by 12.4 per cent, from €11.30 to €12.70 per hour, in 2024, which was the largest increase to date in the Republic.
This was associated with a 2.5 per cent increase in prices “in certain categories” such as hairdressing, takeaway coffee, takeaway meals and restaurant meals.
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However, the price categories affected only accounted for 11 per cent of total consumer spending, the ESRI said, while noting that minimum wage employees only account for an estimated 2.7 per cent of the total wage bill in the Republic.
“As a result, the overall impact of small to moderate minimum wage increases on inflation in Ireland is likely to be negligible,” it concluded.
The institute said that while the evidence indicates that larger minimum wage increases can lead to price increases among certain categories of goods and services, other policy measures “had a far greater impact on prices”.
It found that the two VAT adjustments in 2019 and 2023 – in each case the VAT rate for hospitality increased from 9 per cent to 13.5 per cent, led to price increases that were up to three to four times larger than the 2024 minimum wage effect, with the VAT increases being passed on to consumers almost immediately.
The first reopening of the economy in mid-2020 following the onset of the Covid-19 pandemic also led to a significant price jump.
The report’s co-author Paul Redmond said the rise in prices seen in mid-2020 was mainly driven by a jump in prices in the hairdressing sector predicated on “pent-up demand” and the increased costs associated with the use of PPE (personal protective equipment) and with the businesses having to restrict the personnel they could allow on the premises.
Small and medium-sized enterprises (SMEs) have complained that recent hikes to the minimum wage have, in combination with higher energy prices, pension auto-enrolment and statutory sick pay, accelerated costs.
There have been 10 increases in the minimum wage since 2015, lifting the rate by 60 per cent from €8.65 per hour to €14.15.
The ESRI report found that seven of the eight minimum wage increases examined since 2016 had no significant impact on prices.
“Our research shows that most minimum wage increases in Ireland in recent years were not associated with higher prices,” Redmond said.
“The 2024 increase – the largest to date – was associated with modest price increases across a small number of goods and services,” he said.
“By comparison, VAT adjustments and the Covid-19 pandemic had a far greater impact on prices,” he added.
