I will be on a holiday break until mid-August. Hoping everyone will be able to enjoy a break.
We should not under-estimate the impact of the Eurostat ruling. It completely removes the rationale for Irish Water and the water charges. After Eurostat, there is no policy, no direction, no strategy. Ministers will downplay the ruling with a ‘move-on-nothing-to-see-here’ rhetoric, punctuated by a ‘there-is-no-alternative’ but all this does is expose the inability to grasp how fundamentally the landscape has changed.
Eurostat was never going to rule in any other way than it did. The Government admitted this last April in the Spring Statement when it put all water expenditure back on the books in its projections up to 2020. The fundamental issue is not whether enough people paid the charges. It was the ‘market corporation’ rule: did Irish Water look like and act like a commercial company in a market economy? Eurostat said no – and this is all down to the Government’s headless-chicken response after the mass Right2Water protests last October and November.
The Government capped charges, froze them until 2018, and introduced an indirect subsidy through social transfers (the water conservation grant). The lack of ‘economically significant prices’ (i.e. charges that reflect the cost of producing water) and government control led Eurostat to rightly label the whole exercise as a mere reorganisation of non-market activities. Given all this, what company in the world could be considered a market entity?
The main rationale for the Government’s water policy was not charges; this could have been introduced as a stand-alone revenue-raising measure. Nor was it the creation of a single water authority; that could have been done as a public agency rather than a corporation. The over-riding issue was to take the estimated €5.5 billion of desperately needed investment over the next seven years ‘off-the-books’. Everything flows from this: to take investment off the books you need to create a corporation, you need to charge a ‘market-like’ rate for the service.
Remember those lectures from Government Ministers and commentators with that ‘common-people-just-don’t-understand’ attitude? Without the investment there would be water shortages while we would all be walking through sewage. And the only way to get this investment was through Irish Water and charges.
Eurostat has killed that narrative. Investment will be on –the-books. With that foundation removed, the edifice – and the rationale for that edifice (the corporation, the charges) – crumbles.
What now? Whatever they say in public Ministers must know its game over. The only way to pass the Eurostat test is introduce ‘economically significant prices’. This would mean reverting to prices based on usage with no cap determined by an independent regulator. Is that likely? No, not with the potential to bring another 100,000 to 200,000 on the streets. The people didn’t win many victories during the austerity days; they won the battle over uncertain charges, PPs numbers and cut-offs. No political party is going to challenge that.
How do progressives react to this? The safe ground would be to call for the scrapping of the charges and the reform of Irish Water. Fianna Fail is already calling for that. Progressives can and must go further. We can’t effectively challenge the current ‘steady-as-it-goes’ Government approach with a ‘steady-as-it-went’ that dominated past policy. We need creative and innovative thinking that can not only address the issues but present an exciting, inclusive alternative to water supply and all public provision.
We need to increase investment to €600 million annually to modernise our infrastructure.
Water investment has been a bit of a roller-coaster ride. We are now slightly ahead of 1995 levels after peaking in 2008. We need to do better.
The New Fiscal Framework published by the Right2Water Trade unions shows how. Based on Government projections and modest increases in capital and wealth taxation (along with increases in the social wage), public investment can be doubled by 2020 to between €6 and €7 billion a year by 2020 with leeway to go further.
Prior to the crash, water and sewage investment made up 11 percent of total investment. Based on the New Fiscal Framework projections, water and sewage investment would easily rise to the needed €600 million. There are two points here:
Increasing investment is not a fiscal or economic issues – it is a political issue.
From Dog-Day Irish Water to World Class Public Agency
Irish Water should now be transformed into a new national public agency sans all the charges, billing, collection, and off-the-books machinations, save for current business charges. A working title could be the National Water Authority (NWS). A single water agency it can engage in national strategic policy while capturing the benefits of economies-of-scale. It is also less capable of being privatised since it doesn’t operate on a market basis charging for water. But we can go further.
These two measures would generate revenue over the long-term and, so reduce water and waste supply costs. But we can go further still.
And finally, how about a new democratic dispensation? If public enterprises and agencies are truly ‘public’, meaning ‘ours’, why shouldn’t there be popular elections of consumer directors to complement the election of workers’ directors on their boards? I will develop this in a subsequent post, but a democratic innovation could be ESB customers electing 2/3 consumer directors; ditto for RTE. So why not elect consumer directors’ on the new NWA? This could start to recapture the ‘public’ in public enterprise and agencies.
Progressives should take up the opportunity that Eurostat has given us – to radically rethink in new and innovative ways of how we do public business. In this way we can recapture the excitement of nation and economy-building that took place when people came out to offer cups of tea and cheer the ESB workers as they brought electricity to towns and villages throughout the country – pole by pole.
Pipe by pipe investment, conservation and renewable energy, a player on the international stage, incorporating new democratic inputs – we can transform our water utility from a dog-day corporation to a reinvigorated public agency fit for people’s purpose in the 21st century.
At the end of the day, Eurostat has done us a favour.
You might think that the fight against poverty would involve considerable resources, a mix of various social and economic policies and a lot of political will. Sure, you could do it that way but it’s a lot of work. Why not just reduce poverty statistically? Hundreds of thousands can be taken out of poverty with the stroke of an excel sheet – and all without breaking a sweat.
Every once in a while a Government spokesperson or some commentator will point out that Ireland’s at-risk-of poverty rate has remamined steady during the recession and compares quite favourably with European averages.
And on a surface reading it looks true. Irish at-risk-of-poverty rates were falling prior to 2008 and continued falling over the course of the recession. Irish rates are below that of EU-15 rates.
Yet, CSO and Eurostat data show deprivation rates in Ireland to have nearly doubled since the recession started. So how can we square rising deprivation with falling at-risk-of-poverty?
Deprivation rates are a subjective measurement; that is, people are asked whether they have suffered any or all of a list of deprivation experiences. In this respect, it cannot be independently or objectively measured. This doesn’t make it any less reliable or instructive.
At-risk-of-poverty, however, is a relative measurement. It doesn’t survey the actual living conditions of people. It makes an assumption: people are at-risk-of-poverty if they have income which is 60 percent or less than the national median income (median income is that point at which 50 percent earn above and 50 percent earn below). In other words, it is relative to the median. And this is where the problem starts.
In normal times, when there is stable economic growth and stable income rises, the relative measurement is fairly straight-forward and uncontentious. However, we can get perverse readings during abnormal times of falling growth and incomes.
The median income has fallen by 17.1 percent since 2008. Therefore, the poverty threshold has fallen (since it is relative to the median income). Let’s see what perversity this creates.
So, you’re poor in 2008. Your income falls. But now you are not considered poor. Why? Because national incomes fell faster than your income.
Ireland was the only country in the EU-15 (bar poor Greece) to experience a fall in median incomes and, so, the poverty threshold. For single persons, median incomes in the EU-15 increased by 7 percent; in Ireland it fell by 17 percent.
So to say that Ireland has not experienced an increase of poverty since the crash is technically correct but amounts to a statistical three-card trick.
Fortunately, there is another at-risk-of-poverty measurement that can give us a better insight. This involves ‘anchoring’ thresholds to remove the perversity outlined above:
‘To allow for these sudden fluctuations in poverty thresholds and in order to avoid misleading results in periods of rapid and general economic deterioration, Eurostat calculates the at-risk-of-poverty indicator anchored in time. This indicator keeps the poverty threshold fixed in real terms over a longer period of time and therefore controls the effects of a moving poverty threshold.’
In the following, the relative poverty thresholds are anchored or frozen at 2008 levels – the year the crisis broke. It’s as though the median income and the poverty threshold only increased by the rate of inflation since 2008. What do we find?
The picture looks dramatically different. We find that 25 percent of the Irish population are below the poverty thresholds frozen at 2008 levels (with only an inflation increase). It is well above the EU-15 levels. Relative poverty has increased by 64 percent, against a rise of 17 percent for the EU-15. Ireland had the highest growth rate in poverty, apart from Greece.
The rise in anchored poverty rates and deprivation rates are now more in sync.
The growth in deprivation rates (using Eurostat’s measurement) and anchored relative poverty mirror each other.
Arguing that poverty has not increased over the recession is based on a statistical illusion. The reality on the ground – and the reality when we use more appropriate measurements – is that poverty has increased and increased substantially.
So when you hear a Government spokesperson going on about how we have ‘protected’ people from rising poverty, know that they are just avoiding the hard work of actually fighting poverty – relying instead on eliminating poverty through a statistical sleight-of-hand.
One more example of official detachment from the real world.
The Nordic model, or at least the public services and income supports associated with that model, has got some airing largely owing to supportive comments made by the TDs who launched the new Social Democrats. Good. There is much to learn from the Nordic model and its emphasis on social solidarity and universalism; an emphasis which produces higher equality, less poverty and deprivation and more prosperous economies and societies.
But there’s a catch: there is little appreciation of the resources the Nordic model devotes to public services and income supports. It is substantial, well above Irish levels (light years above) with very high levels of taxation and, in particular, the social wage (employers’ PRSI) and indirect taxation.
Let’s go through some of the main spending and tax features to see just how much of a challenge we would face in moving towards this model.
To say that the Nordic model spends a lot on public services is a massive under-statement. Remember, this only refers to public services; it doesn’t include social protection payments (e.g. pensions, child benefit, unemployment benefit, etc.).
Ireland trails badly in expenditure on public services. In 2014, Ireland spent €30.5 billion on public services (all Irish comparative data uses a hybrid-GDP, adjusting for multi-national accountancy practices). What kind of increases would be necessary to reach the levels of expenditure in other Nordic countries?
Finland: we’d have to increase spending by €11.5 billion, or 37 percent, to reach their level – and Finland is the low-spend of all the Nordic countries.
Iceland and Sweden: Ireland would to increase spending between €13.6 and €14.7 billion to reach their levels, or between 43 and 47 percent.
Denmark and Norway: to reach these stratospheric levels, spending would to increase between €17.8 and €20 billion.
On average, public service spending in Ireland would have to increase by 50 percent – or approximately €15 billion to reach Nordic levels. That is an ambitious agenda.
Public Sector Employment
Given these high levels of expenditure, it is not surprising these countries have high levels of public sector employment. Ireland has approximately 370,000 employees in the public sector (including public enterprises or Government corporations). This is 17.4 percent of the workforce. In the Nordic countries that figure is much much higher.
We’d have to double public sector employment to reach Norwegian and Danish levels – approximately 350,000 more public sector employees. To reach Swedish levels we’d have to increase employment by 50 percent, or 182,000. Compared to ‘low-spending’ Finland we’d have to increase employment by nearly a third, or 119,000.
Not only is spending on public services generous, Nordic levels of income support are similarly substantial. Here are the levels of unemployment benefit a worker on €35,000 would receive if they were suddenly jobless. They are enumerated in purchasing power parities.
Norway: Irish levels would have to rise to €400 per week, or more than double the current payments
Denmark, Sweden and Iceland: Irish levels would have to rise to between €310 and €340 per week, or 65 to 81 percent higher
Finland: Irish levels would have to rise to €282 per week, or 50 percent higher
These rates will be phased out over a year to 18 months and, so, fall to a lower level. But this is the system of pay-related benefit. Imagine if you were an average paid worker made unemployed. You’d get €188 from the dole. If you lived in a Nordic country you’d get, on average €322 per week for the first year. Your living standards wouldn’t crash, the economy would benefit from your continued demand (automatic stabiliser) and you wouldn’t have to rush out and grab the first job, regardless of whether it matched your skill or life-expectation.
Supports for Elderly
Here is another difference between Ireland and the Nordics. This is the Eurostat category for old age expenditure which includes pensions, in-kind supports (e.g. home help, subsidised equipment such as walking frames), recreation and leisure supports, and specialist medical care. It doesn’t include general hospital costs.
Spending in Sweden and Finland on each elderly person is nearly doubled that of Ireland, with Norway close behind. The Danes spend nearly 40 percent more. Iceland looks strange – at almost half that of Irish levels. But this is due to their pension system which is based on mandatory occupational pension provision – not social insurance. This means payments are not attributed to state expenditure. But don’t worry about elderly provision in Iceland – they have the lowest percentage of severe material deprivation among the elderly in all of Europe: only 0.2 percent. In Ireland, it is 3.6 percent.
Paying for These Services
My, oh, my. How do the Nordics pay for all this? They are, of course, very highly-taxed economies but not in the way that is discussed in the popular debate.
The biggest difference with Ireland is the social wage, or employers’ social insurance (PRSI). Nordic employers pay extremely high levels of PRSI to fund public services and income supports.
Swedish employers pay nearly four times the amount of PRSI as Irish employers. Finnish employers pay close to three times the Irish levels while Norwegian employers pay more than double. There is no data for Iceland and Denmark doesn’t have a social insurance system (see below). If Irish employers paid the same rate as other countries this is the revenue it would raise:
Swedish levels: Irish revenue would increase by €13.6 billion
Finnish levels: Irish revenue would increase by €8.9 billion
Norwegian levels: Irish revenue would increase by €5.4 billion. But Norway takes a huge chunk of revenue through a much higher level of corporate tax (it raises nearly four times the amount raised in Ireland – one of the benefits of having natural resources like oil under public control).
Let’s be clear: there is no Nordic model without very high levels of employers’ PRSI. In Ireland we would have to at least double employers’ PRSI and, more likely, increase it close to three times. Now that is an economic and political challenge (business organisations are going spare having to pay 50 cents an hour more for minimum wage workers – imagine their response to a doubling of their social insurance?).
Another significant difference is indirect tax – VAT and excise. Nordic countries raise significantly higher revenue through this channel than Ireland.
Ireland is close to Icelandic levels. However, we would have to raise between €3.2 and €4.4 billion in VAT and excise to reach Finnish, Norwegian and Swedish levels. To reach Danish levels we would have to raise an additional €6 billion, or 40 percent more. These levels of indirect tax are highly regressive. But the organisations of public services and income supports means they are redirected back into supporting low and average income earners.
And personal taxation? Actually, Irish levels of employee taxation (Income tax, USC, PRSI) are already close to Nordic levels. We found a similar situation with France.
Personal taxation on employees’ income would have to rise by €1.4 to €2.5 billion to reach Nordic levels (this was in 2012; the gap has most likely narrowed since then). This may seem like a lot but reduction in regressive tax expenditures and keeping indexation of tax thresholds below the rate of wage increases should see Irish personal tax rates rising to Nordic levels over the medium term without increasing rates.
[Note on Denmark: Denmark doesn’t have a social insurance system. Instead, it relies heavily on personal taxation. In Denmark, the effective rate of personal taxation on employee income is 37 percent compared to Ireland’s 24 percent. To reach Danish levels, personal taxation would have to rise by nearly 60 percent, or over €9 billion. They can achieve this through much higher wage levels but this is countered by high prices and high indirect taxes. It can work for Denmark. However, it is probably not a model for Ireland to follow.]
Some might respond that these comparisons aren’t fair; that the Nordic countries are wealthier – that is, they generate more income as measured by GDP. Well, actually, no.
Irish hybrid-GDP is well ahead of Finnish levels and approximately equal to the other Nordic countries (apart from Norway with its wealth of oil revenue). The reason we don’t have public service and social protection expenditure at the level of Nordic countries is not that we are poorer; it’s a policy choice.
So what have we got? To follow a Nordic strategy in Ireland would mean a substantial increase in expenditure on public services and public sector employment. It would also require substantially increased expenditure on social protection and income supports.
But to achieve this would require doubling or trebling employers’ social insurance rates and substantially increasing indirect taxes (if we don’t follow the high personal tax model of Denmark).
But these tax and spend issues are only one part of the Nordic model. Another important feature is the labour market; in particular, the strong level of labour rights and collective bargaining coverage. Workers’ rights and dense layers of employee participation are an essential ingredient to building a consensus over high levels of taxation and expenditure as well as a very high level of enterprise performance.
To pursue Northern dreams will require long-term and sophisticated strategies designed to win people over to a different vision about how we organise taxation, expenditure and the economy. It will also require taking on hostile corporate forces and right-wing political parties. It will require creative thinking, persuasive arguments and a determined political will.
Let’s hope this gets traction.
So you’re young, ready to take up work, make a bit of money and, most of all, make the social contribution that is expected of all members of the homo economicus species. There’s only one problem. You live in Ireland.
Following on from my previous blog on the weakness of our market economy to produce jobs – except in the construction sector – let’s look at employment growth by age. Overall employment is rising, even if it is patchy. But not for young people. For young people, the jobs recession continues apace.
Employment grew by 2.2 percent overall. But for young people – between 20 and 34 years – it fell by 1.5 percent. Among older groups – over 50s – employment grew by 5 percent.
When we drill down further, we find that those aged between 30 and 34 years saw employment fell by 3.1 percent.
This is part of a longer trend.
Since the crisis began, employment has fallen by 10 percent. However, for those aged 20-34, employment fell by a third. For other age groups, employment has recovered and increased – with employment among 50s and over increasing by 14 percent.
There has been some discussion about bringing Irish people back from abroad. It has been suggested that a main obstacle is our ‘high’ tax regime (sigh). As we see above, the problem remains what it has been some time ago – lack of jobs (though there will be some sectors that are undergoing growth).
Young people face more problems than just falling employment. Since 2008, nearly 475,000 people have emigrated. Unsurprisingly, the majority who left were young people. Over 300,000 men and women aged between 20 and 34 years have left the country – or 65 percent of all those emigrating.
For those who stayed behind it’s still tough out there in the labour market. The unemployment rate for those aged between 20 and 24 years the unemployment rate is 19.6 percent – twice the national average. No wonder Eurostat estimates that 40 percent of young people are at risk of poverty or social exclusion (for the age group 18 – 24 years).
And it gets tougher still. If you’re young and haven’t found a job, haven’t left the country and are on the Live Register, your unemployment assistance has been shredded. For those 24 years and under, the Jobseekers’ Allowance is €100 per week, well below the standard €188. If you’re 25 years old, your dole rises to €144, still well below the standard payment.
I’m always amused when Government Ministers come on to the public plinth to announce that the next budget will start to compensate people for the sacrifices they have made. But rarely are young people mentioned in this discourse. Why?
Because Ireland is no country for young people.
Who said the following?
‘ . . . if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth.’
‘The poor and the middle class (middle income) matter the most for growth.’
‘ . . enhanced power by the elite could result in a more limited provision of public goods that boost productivity and growth, and which disproportionately benefit the poor.
The Socialist Party of the World? The European Zapatista League? The People's Front of Judea (or the Judean People's Front or the Judean Popular People's Front)?
No, it was the International Monetary Fund, that crazy gang that gave us poverty, deprivation and economic deterioration to just about wherever they went (now playing in Greece).
The IMF has recently published Causes and Consequences of Income Inequality: A Global Perspective – a strongly argued study that concludes that increasing equality is one of the best things a country can do to promote sustainable growth (that, and investment). They propose a number of channels – fiscal redistributive policies, investment in education and health, and financial inclusion policies (e.g. basic bank accounts, etc.).
A particularly noteworthy finding is an estimate of the impact of redistribution on growth.
If the income share of the poorest 20 percent increases by one percentage point, GDP grows by 0.4 percentage points. However, if the income share of the highest income group, the top 20 percent, increases, GDP growth actually falls.
In other words, redistribution that leads to greater equality is good for the economy; redistribution that favours the highest income groups is bad (Britain after the Tory budget, take note). You want to grow the economy? Do a Robin Hood on it – take from the rich and give to the poor.
So what can we make of the Minister for Finance’s latest comments?
‘I use the Budget for economic management purposes and I’m going to cut personal taxes in this Budget . . . I’m going to cut the Universal Social Charge (USC) by at least 1 per cent and maybe a bit more.’
The ESRI estimated the impact of cutting the USC’s standard rate of 7 percent on income groups. This is what they found.
A cut equivalent to €500 million (cutting the USC standard rate from 7 to 5.35 percent) has almost no impact on the poorest 20 percent. There’s not much of an increase in the second quintile group (the 3rd and 4th deciles). However, the greatest gains go to the highest income groups – the 9th and 10th deciles.
In effect, what the Minister proposes to do is forgo promoting growth and provide resources to income groups which will depress growth.
Now let’s play fantasy Budget 2016 and pretend that Robin Hood is the Minister for Finance. Here’ s what he would say.
‘I use the Budget for economic management purposes and I’m going to promote economic growth through greater income equality . . . I’m going to increase social protection payments by at least 2 percent.’
Ah, now that’s more like it. The ESRI shows that a 2 percent increase in social protection payments , costing €330 million, gives the greatest boost to the lowest 20 percent income group and, unsurprisingly, the least to the highest income groups. This is a policy that would promote equality and, therefore, have a more positive impact on GDP.
And there’s another positive spin-off. The USC cut, which promotes greater inequality and, so, lower growth, costs more than the egalitarian, growth-promoting social protection increase - €170 million more. What could we do with that extra money? We could
All of these would put people back to work, help businesses to expand (or start up new businesses) and increase our productivity.
These are the benefits of a more egalitarian policy choice.
Small steps, yes. But steps in the right direction.
You’d think, listening to Ministers reeling off employment numbers and media reports of new job announcements, that Ireland was some lean, mean job creation machine. Well, in comparison with other EU-15 countries we are neither mean nor lean. Indeed, we fall well behind in key sectors.
Let’s leave aside the arguments over the 2013 employment numbers. I suggested that they were inflated due to a statistical re-alignment between the Quarter National Household Survey and the Census (you can read those arguments here and here). If people want to believe that job growth in 2013 (when domestic demand fell) was higher than in 2014 (when domestic demand rose by nearly 4 percent) – well, sure, go ahead. I prefer to take on board the CSO’s warning about interpreting job creation trends in 2013.
Robust comparisons can only start with the last quarter of 2013. That’s when the CSO finished its statistical re-alignment. Therefore, we have two year-on-year periods to compare. We should be cautious interpreting this data; it would be preferable to have a longer time-series. Therefore, any conclusions are tentative and subject to revision.
The following looks at the market, or business, economy. This is essentially the private sector, excluding the public sector dominated sectors (public administration, education and health) and the farming sector. Here are the year-on-year figures for 2014 to 2015 Quarter 1.
This doesn’t look so bad. Ireland’s employment growth is above the EU-15 average and ranks 4th in the table. However, something interesting happens when we exclude the construction sector which is non-traded and which in the past the Irish economy overly-relied on for job creation.
Ireland falls well down the job creation table when construction is excluded - below the EU-15 average.
In the last year, the Irish market economy generated 29,700 jobs. Of this, 19,500 jobs were in the construction sector – or 66 percent.
When we look at the previous quarter – the 4th quarter of 2014 – we find a similar pattern.
There are two noteworthy aspects of this. First, it could be argued that construction is due a substantial rise. Prior to the recession we saw construction employment grow well beyond the European average (in Ireland it made up 40 percent of all market economy jobs growth between 2000 and 2007). Then it collapsed. The rise we are witnessing is merely construction heading back to European norms.
However, construction employment is already at the European level. Construction employment in the EU-15 makes up 5.9 percent of the labour force; in Ireland, it is already at 5.7 percent – even after years of decimation.
But beyond the construction element, there is a wider question to be asked about our economy’s ability to generate jobs. In a previous post, it was observed that while the economy grew by over 4 percent, living standards fell further behind EU averages. Here, we find a similar pattern.
The Irish economy grew at four times the rate of the EU-15. Yet, it could only generate the same amount of jobs in the market economy when construction is excluded. When the first quarter data is published for this year, the comparison will be even worse.
Ireland’s lean mean job creation machine looks a bit more flabby, not so mean and content to let construction drive the market economy.
Let’s hope this doesn’t continue.
Given the release of the new Living Wage estimate for 2015 – €11.50 per hour - most people would agree that, in an ideal world, all work should pay at least a Living Wage. Certainly, many good things would flow from this: a substantial reduction in working poverty, higher consumer spending and investment and improved public finances (through higher tax revenue and reduced subsidies to low-pay employers). On every level, things would be better.
But that ideal world seems a distant place. Today, one-in-five in the workforce suffer multiple deprivation experiences – approximately 360,000. According to the Nevin Economic Research Institute (NERI), 25 percent of employees earn less than a Living Wage – one-in-four. These are grim statistics. But the ugly truth is that many of our domestic sectors are reliant on low-pay and poor working conditions to survive. If we tried to move to a Living Wage overnight, thousands of enterprises would collapse, resulting in higher unemployment and poverty.
So are we trapped in this unacceptable space, only capable of making incremental improvements within narrow parameters that lock us in a low-road economy? No. A Living Wage is possible. But we have to employ a number of strategies to achieve this.
Let’s start with a simple exercise and assume our goal is to raise the statutory floor – the national minimum wage – to the Living Wage within seven years. How much would the minimum wage have to increase every year to achieve this? We don’t know by how much the Living Wage will increase over the next seven years. So let’s make two assumptions.
If the Living Wage increased annually by 1 percent, an average annual increase of 4.5 percent in in the minimum wage would be necessary – or 46 cents per hour.
If the Living Wage increased annually by 2 percent, an average annual increase of 5.5 percent in in the minimum wage would be necessary – of 57 cents per hour.
At first, these might seem like big increases. However, between 2000 and 2007, the minimum wage increased annually by 6.5 percent – well above the increases necessary out to 2022 to bring the minimum wage in line with the Living Wage. Of course, in that period we had strong economic growth, strong wage growth, increasing consumer spending – much of which resulted from the speculative boom. But the climb up the mountain isn’t as steep as one might think.
But it's not just a matter of making upward adjustments in gross pay to achieve the Living Wage. There’s another way of looking at this issue – how can we limit increases in the Living Wage? After all, the increase in the 2015 Living Wage was only 5 cents, or less than a half a percent. If this were maintained out to 2022, the average annual increase in the minimum wage would only need to be 4 percent, or 40 cents per hour. This would be quite do-able.
However, the 5 cents increase in the Living Wage in 2015 is largely down to our deflationary environment. Prices are not rising. When normal economic service resumes, this situation will change.
So what other steps can we take? We can begin to socialise living costs. In other words, we can use the state to intervene in key markets to reduce living costs. If this were to occur, people would not need as high a Living Wage to obtain an adequate income and businesses would not need to increases wages as high.
Let’s take one example: rents. This makes up a substantial proportion of expenditure.
In Dublin, 42 percent of all expenditure for someone on a Living Wage goes on rents, rising by 9 percent in 2015. This proportion reduces outside Dublin but even in the cities (Cork, Limerick, Galway and Waterford) rents make up a third.
If rents – especially in Dublin – were reduced, this would have a major impact on the Living Wage. A back-of-the-excel-sheet calculation shows that if rents were to fall by just a €50 per month, this would reduce the Living Wage in Dublin by over 40 cents per hour. Put another way, workers in Dublin could see the Living Wage drop by over 40 cents per hour without any impact whatsoever on their living standards – if rents were slightly more affordable.
How could rents be made more affordable? Many will claim that if supply was increased, rents would fall. This is true – at least in supply-demand models. But a housing policy which rolled out public provision of affordable-rent accommodation for the low-paid would ensure that rents would fall while quality could be increased. This is what socialising living costs means – public intervention in markets to provide cost-based goods and services.
Public transport is another example: higher subventions into public transport could lower fares. A modest reduction of 20 percent in Dublin Bus fares would result in a fall of 20 cents per hour in the Dublin Living Wage.
There are other examples: costs for healthcare, education, energy and insurance are all amenable to public sector interventions with a view to socialising costs – reducing high living costs and, so, reducing the Living Wage. For families, affordable childcare would be the single biggest public intervention that could be made to reduce high costs.
In debates over living standards we tend to focus on increasing wages to ensure a minimum adequate income. This is, of course, necessary. But let us also focus on socialising high living costs with programmes that can deliver goods and services at cost-price or even below-market rates. This would not just benefit the low-paid but all income earners and those reliant on social protection. This would have a positive impact throughout the economy and society.
The cliché is often repeated: ‘politics is the art of the possible’. That’s not exactly true. A better formulation would be ‘politics is the art of changing what is possible’.
A Living Wage is necessary. And a Living Wage is, most definitely, possible.
Question: which Eurozone government has 61 percent public support for their position in the Greek bailout negotiations? Answers on a small postcard.
Last January Syriza won 36 percent of the vote, which allowed them to enter government as the senior coalition party. Yesterday, 61 percent of the Greek people supported Syriza’s rejection of the terms laid down by the 18 other Eurozone governments. There can be no doubting the Syriza Government’s mandate.
The next week will be crucial in hammering out a deal – if that is possible given the intransigence of the creditors to date. How can we, in Ireland, provide concrete assistance to the people of Greece?
We can look to the honourable behaviour of the Greek Finance Minister Yanis Varoufakis as a guide. This is not the time, however tempting, to use the referendum result for domestic political purposes. The Greek people need concrete support. We should be calling on the Irish Government to take up the following positions in the upcoming negotiations.
First, we should demand that the Irish Government now engage constructively in the negotiations with Greece: first, by calling on the ECB to comply with their own commercial mandate and provide the necessary liquidity to allow the Greek banks to open. In the short-term capital controls and withdrawal limits would have to remain, but re-opening the banks would take the pressure off businesses and households. Failure to do this is a coercive political act. Opening the banks should be the Irish Government’s first diplomatic stop.
Second, the key short-term issue is budgetary – allowing the Greek government to run a deficit. Given the humanitarian crisis and the collapsing of the productive economy, the demand for a primary surplus (i.e. more revenue than expenditure when interest payments are excluded) is not only penal and irrational; for creditors it is the surest way to guarantee that debts will never be repaid. Greek businesses need space to start growing and employing; fiscal policy should be assisting, not thwarting this.
Third, the Irish Government should support the establishment of a European Debt Conference. This does not commit any government to a particular position but it at least provides a space, outside the day-to-day politics of the Eurogroup and the EU, to consider medium-term solutions – not only for Greece and the peripheral regions – but for the entire Eurozone. My own preferred solution would run along these lines, but the Irish Government need not take up any position prior to such a conference being held.
And, fourth, the Irish Government should support the release of structural funds already committed to Greece to kick-start a badly need investment programme. This could also involve reframing the National Strategic Reference Framework to allow Greek businesses to access the funds allocated to them but denied because of inflexible rules.
These should form the core of any progressive campaign to re-align Irish Government policy:
The Greek government would still be under strict supervision and required to make progress on reforms: rehabilitating the tax collection system, ending corruption and patronage, and ending the dominance of oligarchical control over economic sectors. But this wouldn’t pose a problem for the Syriza government. These policies already form the core elements of the programme they were elected on. These reforms will take time and can only succeed when the economy and society are given the fiscal and political space to implement them. Hard to do much when your banks are closed.
Let’s not demand too much. The Irish government does not bring the biggest battalion to the Eurogroup. But it has a potentially influential voice given our experience of a bail-out. And given the importance of this issue (keeping the Eurozone intact) it is amazing there has not been a parliamentary debate over what position the Government should adopt in these negotiations. This should change immediately.
The Irish Government should be required to come into the Dail and explain and debate its negotiating position.
We have an opportunity to push the default button. When Syriza was elected in January, the Eurozone governments should have been relieved: for finally, there was a Greek government that was intent on tackling the issues of reform – corruption, the patronage, the oligarchical controls; reforms which the previous New Democracy and PASOK failed at (or didn’t even try). That didn’t end well.
There has now been, in effect, a second election in the form of a referendum. There is no doubting Syriza’s mandate. Nor is there doubting their continuing commitment to the reform and modernisation of the Greek economy.
Let’s start anew. There is still time. And the Irish government can play a pivotal role in that.
That is the least we should demand of our elected representatives the EU.