Minimum wage rise in 2016 did not increase joblessness, study finds

ESRI study suggests move reduced average hours worked by minimum wage employees

The ESRI found found there had been a reduction in the average hours worked by minimum wage employees as a result of the Government’s decision to raise the State’s lowest legally allowed wage. Photograph: Frank Miller

The ESRI found found there had been a reduction in the average hours worked by minimum wage employees as a result of the Government’s decision to raise the State’s lowest legally allowed wage. Photograph: Frank Miller

 

The increase in the national minimum wage in 2016 did not lead to greater unemployment as some critics had forecast, a study by the Economic and Social Research Institute (ESRI) has found.

However, the research found there had been a reduction in the average hours worked by minimum wage employees as a result of the Government’s decision to raise the State’s lowest legally allowed wage from €8.65 to €9.15 per hour.

This was driven by an increase in the number of part-time workers joining the labour market, the ESRI said.

Using data from the now-defunct Quarterly National Household Survey, the think tank’s study focused on whether the increased cost of wages had led employers to reduce their number of employees or the number of hours worked.

While there was no evidence that the increase led to a rise in the rate of job losses among minimum wage workers, the research found the average number of hours worked fell by 0.7 hours per week.

Among minimum wage workers on temporary contracts, there was a more pronounced reduction of 3.3 hours per week, the study found.

The fall-off was attributed to employers reducing the hours of existing employees because of higher labour costs. At the same time, there was a rise in part-time minimum wage employment, including a rise in the incidence of voluntary part-time work.

This suggests that the decline in average hours worked by minimum wage employees may have been driven in part by an increase in the incentive to work part-time following the rate rise, the ESRI concluded.

‘No negative effects’

“The results indicate that at least some of the reduction in the average hours of minimum wage workers may be due to more part-time workers being drawn into the labour market by the higher minimum wage,” the ESRI’s Séamus McGuinness said.

“ Our analysis revealed no negative employment effects because of the 2016 increase,” he said. “There is little evidence that the 2016 increase in the national minimum wage rate had any immediate adverse impacts on low-paid Irish workers.”

Donal de Buitléir, chairman of the Low Pay Commission, said the report provided much-needed evidence of the impact of the 2016 increase in the national minimum wage on both hours worked and overall employment trends of minimum wage workers.

Traditional economic theory suggests state-imposed minimum wage rates will have negative employment consequences with labour demand falling short of supply due to the higher wage. However, studies have not borne this out.

The national minimum wage currently stands at €9.55 per hour, which corresponds to average monthly take-home pay of €1,613 before tax. More than 120,000 workers in the Irish economy are estimated to be in receipt of the statutory minimum.

The Living Wage Technical Group last year raised what it considers the minimum hourly pay rate a worker needs to cover basic cost of living expenses from €11.50 to €11.70.