Minimum wage increase did not lead to rise in labour costs - ESRI

Research assesses impact of minimum wage increase in 2016

Fears that hiking the minimum wage in 2016 would lead to a significant increase in labour costs proved unfounded, a study by the Economic and Social Research Institute (ESRI) has shown.

The research, commissioned by the Low Pay Commission, assessed the impact of the government's decision to increase the minimum hourly rate from €8.65 to €9.15 per hour five years ago.

It found that while this led to higher labour costs among companies where more than half of the employees received the minimum statutory rate, these types of firms accounted for just 3 per cent of all businesses here.

The study found that for 90 per cent of companies with minimum-wage employees, average labour costs increased by roughly the same amount as businesses with no minimum-wage workers.


The increase did, however, lead to some reduction in overtime hours offered to part-time employees, but only in a small number of firms with more than half of their employees on the minimum wage.

The ESRI said there was no evidence that firms reduced their headcount in response to the minimum-wage increase.

The think tank noted that 2016 was a period of strong economic growth and that earnings, in general, were increasing.

“It is possible that a similar increase in the minimum wage could have different impacts on average labour costs if introduced during a period of lower wage growth,” it said.


The report's author Paul Redmond said: "Labour costs are a key indicator of country-level competitiveness and our research shows that the 2016 changes to the minimum wage had no significant impact on the labour costs of the vast majority of Irish firms that employ minimum-wage workers."

“However, it is important to continue to monitor such impacts following any future changes to the minimum wage,” he said.

The national minimum hourly rate was increased to €10.20 on January 1st this year.

“Our research showed some reduction in overtime hours among firms with a high number of minimum-wage workers, but there was no evidence of reduced employment within these firms,” Donal de Buitleir, chairperson of the Low Pay Commission, said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times