Minimum Wage helps 'working poor'
21 Feb 2005
Congress General Secretary David Begg responds to IBEC criticisms of the proposed minimum wage increase. This article appeared in the Irish Independent on Feb 21 '05
Writing in this newspaper last Monday Mr Brendan McGinty of IBEC outlined his objections to the 65 cent per hour increase in the minimum wage, as recommended by the Labour Court. The recommendation arose from a case brought by Congress and means that, if accepted by government, the minimum wage will rise to €7.65 per hour, from May 1. It will directly affect about 90,000 people, or 4.5 percent of the workforce.
Mr McGinty makes an interesting case but I disagree profoundly. To put the matter in context we can all agree that Ireland has made remarkable progress over the last decade, with GDP per capita in excess of the Eurozone average. This apparent wealth tends to disguise the fact that not everybody is doing well.
We have a relative income poverty rate of 20 percent - well ahead of the Netherlands, with only 12 per cent for example - and we are judged by the United Nations to be one of the most unequal societies in the developed world. For people on low incomes the cost of living is very high, being 18 percent above the EU average. Out of this combination of factors in recent years has come the phenomenon of 'the working poor'.
Trade unions have tried to address this phenomenon by campaigning for better public services - crucial to those who cannot afford private health care etc - increased public spending on social transfers, taking people on the minimum wage out of the tax net, negotiating higher percentage wages for the lower paid and increasing the minimum wage.
The Labour Court's recommendation for a 65 cent increase in the minimum wage was at the lower end of our expectations. And while this means it will have increased by 20 percent over the lifetime of the 'Sustaining Progress' partnership agreement, the amount is in reality small. Neither is it particularly out of line with other countries. The current level of the minimum wage is exactly the same as that in the UK and it will improve there soon too.
I wish to turn now to some specific points made by Mr McGinty. Minimum wage jobs are heavily concentrated in the services sector of the economy - hotels, restaurants etc - and so do not affect external competitiveness. It is interesting to note that services inflation has been running at up to three times the rate of goods inflation over recent years, indicating huge profit-taking in this sector.
Insofar as minimum wage jobs exist in sectors of the economy trading externally there is no evidence, contrary to what IBEC asserts, that exchange rate volatility makes a compelling case against an increase in the minimum wage. To quote the most recent quarterly commentary of the ESRI:
"We have altered our assessment on the US dollar prospects against the euro in the near term, but consider that the Irish economy remains relatively well positioned to cope with the changing exchange rate environment and the entailed loss of competitiveness for the Euro area economies."
It was interesting also to read in the 'Financial Times' of February 15 that the Eastern Mecca of free market capitalism, Hong Kong, is considering the introduction of a minimum wage. This is despite the fact that thousands of manufacturing jobs have migrated to Southern China's Pearl River delta, leaving a surplus of low-skilled workers in Hong Kong.
The climate for business in Ireland is extraordinarily good at the moment. The economy is growing at five percent per annum, interest rates are at an historic low, inflation has been brought down to European average levels, employers' social insurance costs are the lowest in the OECD and corporation tax is the lowest in Europe. And as if all that was not enough, industry has just been gifted free permits under the Kyoto Emissions Trading System. What more can business want? Certainly it should not be to deprive the most vulnerable people in the workforce of an increase of 65 cent an hour.
It would be tempting to conclude that the only thing that will satisfy the Irish business community is a totally deregulated labour market in which vulnerable immigrant workers on work permits will labour for a pittance, thereby 'putting manners' on their Irish counterparts. I am not so cynical as to believe that this is in fact the case for all, or even a majority, of employers. I know from personal contacts that there are business people who care about the type of country we are creating and want to achieve a measure of social justice. But attacking a modest increase in the minimum wage is no way to achieve that objective.
ends
