There’s a dismal rule in public debate: if you don’t have evidence to substantiate your claim, make it up – or spin whatever you can get your hands on.
Employer organisations claim that domestic sectors – hospitality and retail, especially – are close to closing down because of government measures to raise the minimum wage (to 60 percent of the median wage) and expand in-work benefits such sick pay and parental leave. As I point out here and here, there is little evidence of this. Indeed, what evidence there is shows low business failure rates, high employment growth and increasing profits in these sectors. There is further analysis to be found in ICTU’s excellent deconstruction of employer claims.
NOTE: this might seem abstract but just note – current Government policy would see the minimum wage increase to approximately €15.00 per hour – an increase of €2.30 over the next two years. If employer organisations get their way, this increase would be reduced to 55 cents which would mean no increase after inflation. For the lowest-paid workers, the debate is far from abstract.
Still, employer organisations keep repeating mantra-like their unsubstantiated claims, hoping this will gain some purchase in the debate (unfortunately, this seems to be working). They have now resorted to spinning analysis to suit their arguments.
Enter the Government’s recently published ‘An Assessment of the Cumulative Impact of Proposed Measures to Improve Working Conditions in Ireland’ (Report). This is an impressive 170-page analysis of the impact of the Government’s labour market measures: minimum wage, sick pay, auto-enrolment pensions, parental leave, etc.
On RTE, Maeve McElwee from IBEC claimed:
“Government have actually published a report . . . They have projected that employers will experience a nearly 20% rise in labour costs over the next two years and that’s before factoring in any of the subsequent pay pressures or standard wage growth that’s coming through. You can’t say that that is modest – a 20 to 25% increase in labour costs is really substantial.”
According to McElwee, the Report projects that the Government’s measures would add 20 to 25 percent to payroll expenditure. There is only one thing wrong with this assertion.
The Government report never said this, never projected this, never measured this.
Let’s go through what the Report actually did. It sets up ‘highly-stylised’ examples of businesses to assess the impact of labour market measures. The word ‘stylised’ should provide a hint (dictionary definitions include ‘non-realistic’ or ‘not natural)’. This is not a quantitative analysis either at enterprise or sectoral level.
The Report estimates that in 2024 the Government’s Living Wage* measure will raise payroll expenditure by 4.5 percent in highly-stylised hospitality firms. Over the three-year period up to 2026, this rises to 15.5 percent.
But here’s the problem: these stylised examples assume that all hospitality workers are on the minimum wage. In reality, only 28 percent are on the minimum wage (this comes from Report). Therefore, in real life, the cost would be substantially less than 4.5 and 15.5 percent.
Why did the Report use these stylised examples?
‘To highlight the heterogeneity of potential impacts by sector, we present an assessment of impacts on highly stylised firms . . .’
These highly-stylised examples allow a comparison between sectors – with hospitality experiencing the biggest impact from the Government’s Living Wage while ICT firms experience almost no impact. The Report uses these examples, not to quantify the impact on the sector, but to compare the impact between different sectors in a highly simplified form.
So is there any reference to the actual impact of the Government’s Living Wage at sectoral level. Thankfully, yes. The Report references the Maynooth University paper commissioned by the Low Pay Commission - Research on the Introduction of a Living Wage in Ireland. It estimated, using wage data from the Survey on Income and Living Conditions, that raising the minimum wage to 60 percent of the median wage (the Government’s policy) would increase hospitality payroll expenditure by 4.5 percent.
That is a long, long way from the 15.5 percent used in the highly-stylised examples where all hospitality workers are on the minimum wage.
And the Maynooth paper goes further. Given that hospitality pay makes up approximately 37 percent of all operating costs, the Government’s Living Wage policy will raise operating costs by 1.7 percent.
1.7 percent. And this would be spread over three years.
In short, the impact on hospitality operating costs would be fractional. There is one caveat. The Maynooth University estimate was based on 2019 wage data. Inflation could have increased these costs; maybe. But let’s assume a worst-case scenario.
Let’s say that instead of 4.5 percent, the Government’s Living Wage policy raises payroll expenditure by 7.5 percent over three years. Operating costs would still only increase by less than 1 percent annually.
And this is a static measurement. It doesn’t factor in increased turnover over the three years or the benefits to businesses highlighted by the Report – notably, the reduction in recruitment and retention costs:
‘High staff turnover and the associated recruitment costs can be burdensome for many firms, particularly smaller and more labour-intensive firms.’
When we factor in the benefits (increased sales, reduced expenditure), operating costs would increase by less again.
* * *
This is how spinning works. A measure that would increase costs by less than 1 percent annually is turned into a measure that would increase costs by 20-25 percent. In this case, it comes from extrapolating from highly-stylised examples (which were never intended to measure actual cost increases) and mis-applying them throughout the sector.
One can understand why employer organisations resort to these tactics. There is little real evidence to vindicate their claims. If the Government starts rolling back on their labour market measures, it won’t be because of evidence-based policy.
It’ll be because they were taken in by the spin.
___
* The Government’s Living Wage is not actually a living wage. It falls short of the Living Wage Technical Group’s estimate. However, that’s a story for another post. The Government’s Living Wage - 60 percent of the median wage - is still a positive advance.
Comments