Employers unconvinced by ‘living wage’ argument

Ibec says proposal would hurt employment and not address real challenges of poverty

Employers’ group Ibec has said the introduction of a “living wage” would hurt employment but would not address the real challenges of poverty.

Last week Tánaiste Joan Burton backed the "living wage" initiative, which calls for the introduction of an hourly rate of €11.45 to provide workers with an acceptable standard of living. This is higher than the national minimum wage of €8.65 per hour.

However she told the conference of the Irish Congress of Trade Unions that the living wage should operate "as a voluntary benchmark as has happened successfully in some major cities" rather than be put in place on a statutory basis.

The trade union movement said a living wage of €11.45 per hour would leading to increased domestic demand and generate higher tax revenue. However Ibec said the concept came “with a fiscal cost as it will hurt employment”.


Indirect taxes

“The somewhat simplistic commentary suggests that as the income of low income households increases, they will pay more income taxes and social insurance. They are likely to spend a larger proportion of their income and the Government gains through additional indirect tax revenues.

“This ignores the attendant social welfare costs associated with job losses or jobs not created by small firms and businesses with low margins and high employment intensity. In a competitive market anything that artificially raises the price of labour to a significant extent will curb demand for it, and the first to lose their jobs will be the people the intervention is supposed to help – the least skilled.”

Ibec said signatories to the living wage charter in the UK were mainly public service bodies, financial institutions and consultancies which had few, if any, low-paid staff.

“It is reasonably easy for companies to adopt the living wage if they have high margins and a low headcount. It will be more difficult for businesses with low margins and high employment intensity.

“ Given the structure of Irish business – 45 per cent of private-sector jobs are in companies with less than 50 employees and 21 per cent in firms with less than 10 – this is an unrealistic proposition for most companies . . . ”

Ibec said the living wage concept failed to address the real poverty challenges.

"For example, Ireland has a high level of household joblessness compared to other European countries, almost one quarter (23 per cent) of households in Ireland described as jobless (in 2010). The next highest countries were the UK and Belgium at 13 per cent, with an EU-15 average of 11 per cent. A distinguishing feature of Ireland's jobless households is the likelihood that they contain children.

“While fewer than 30 per cent of adults in jobless households live with children in other EU 15 countries, more than half do in Ireland at 56 per cent.”

Martin Wall

Martin Wall

Martin Wall is Washington Correspondent of The Irish Times. He was previously industry correspondent