The employer representatives on the Low Pay Commission (LPC) have effectively resigned from the minimum wage. This left the trade union representatives - no choice but to resign from the Low Pay Commission itself. 10 cents per hour increase, or one percent, was the most employer representatives were willing to propose. This was the lowest increase, in percentage terms, since the introduction of the minimum wage in 2000, bar the short-lived cut in 2011 which was quickly reversed when the new government took office.
There will be all manner of arguments for why the minimum wage should effectively remain the same in these uncertain times but they will miss the point. Increasing the wage floor, increasing pay and working conditions for the lowest paid, is not a cost – it is an essential part of a recovery strategy. Raising people’s living standards is a pathway towards a stronger, more resilient economy.
For instance, many sectors and companies were forced to close down or were negatively impacted by the fall in turnover. But we have moved on from the low point in the crisis. 63 percent of businesses are operating at normal capacity, with 75 percent of wholesale and retail businesses – where a sizeable proportion of minimum wage employees work - trading at full capacity. The latter should not be surprising given that retail sales have recovered and, in some cases, are now exceeding levels at the start of the year. 50 percent of businesses report no impact on turnover (and some of these have even seen increased turnover).
Of course, there are wide variations in the economy, with some sectors (e.g. hospitality) taking big hits – and continuing to do so in areas like Dublin. To compensate for this, the Government has engaged in substantial subsidies to the business sector – and rightly so. 46 percent of all businesses have received a pandemic-related state subsidy, with most of these being businesses relying on domestic demand. The Temporary Wage Subsidy Scheme alone delivered €2.9 billion to businesses. But that’s not all. As of July, there has been €6 billion worth of loan breaks for SME’s. Then there are the restart grants (€0.5 billion), Local Enterprise grants, sector-specific grants (childcare, arts, sports, beef), commercial rates waiver, VAT cuts, etc.]. More will be coming on stream in Budget 2021.
So let’s do the crudest of back-of-the-envelope calculations. In the last quarter of 2019, there were 122,000 workers on the national minimum wage. My own rough estimate is that minimum wage earners work, on average, 27 hours per week. Therefore, every one percent increase in the minimum wage would increase total payroll for all minimum wage workers by €18 million per year (including social contributions). Therefore, a three percent increase would come in at €54 million on total payroll increases.
I emphasise – this is crude. There will be further impacts as raising the wage floor also lifts wages which are slightly higher than the minimum wage (e.g. maintaining differentials, etc.). However, even if this cost is doubled given knock-on effects higher up the wage scale, we’re looking at costs of under €120 million.
Now set that against (a) companies that are maintaining billions of Euros turnover and operating at normal capacity, and (b) the billions being spent on subsidies. An overall and decent pay rise for minimum wage workers is only a small percentage of normal turnover and subsidies.
And, yes, there are still businesses that would find it difficult to pay a three percent increase. But there is relief for these firms. They can avail of relief through the Labour Court and be exempt from paying the increase for up to a year. Indeed, businesses that can’t afford to pay would get relief from those businesses who can afford to pay. This is because minimum wage earners are spenders, not savers and, so, would recycle their wage increase back into the economy and back into the turnover of those firms who are temporarily exempt from paying the increases.
It is possible to connect labour market policies (such as minimum wage increases) and business subsidies. But the conflict is deeper than just a monetary analysis; it poses alternative ways of viewing the purpose of enterprise. For some, the business primarily exists for the benefit of owners and the production of goods and services is instrumental to that benefit. For most, the business exists to provide employment and living standards, to provide the goods and services that we need or want to purchase.
For some, business is primarily a private concern; for most, business is a social agency. By refusing to go beyond 10 cents an hour, the employers’ representatives have staked out their position – that they do not see themselves as part of a wider social process; even if, in objective terms, enterprises perform better when they embrace that embrace that process.
The Government has a chance to rectify this. The LPC recommendation is only that, a recommendation. The Government can see fit to vary the minimum wage according to wider social and economic criteria than the employer representatives. In particular, the Government can signal that wage increases are not a drag on growth but actually one of the primary engines that will drive recovery. In addition, the Programme for Government commits to:
‘Progress to a living wage over the lifetime of the Government.’
Here is the first test of that commitment – to raise the minimum wage significantly above 10 cents per hour.
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