National Minimum Wage – it is important to get the balance right

5 March 2015
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National Minimum Wage Debate
The government has announced the formation of the Low Pay Commission to provide advice on the appropriate rate for the National Minimum Wage. At the labour Party conference this week end, the Tanaiste Joan Bruton created the expectation that the NMW will be increased. She is quoted as saying “fair wages and decent working conditions are essential; workers are entitled to a minimum wage and an increase in the NMW could be on the cards”.

No pressure on the Low Pay Commission!

We have the second highest NMW in Europe, higher than the major economies UK, Germany and Holland, should the Commission be open to the possibility that €8.65 is too high?

Competitiveness and job creation
The primary objective in introducing a NMW rate was to establish a floor for the payment of people in low-skill jobs in our economy. It is hard for a fair minded person to disagree with the Tanaiste’s view; however, if the rate is pushed to a very high level it will have negative implications competitiveness and job creation.

It is a basic economic principle that ‘as the price of something increases, then the demand for that product or service will fall’. When the price of the low skilled workers is pushed up, then particularly in labour intensive businesses, like hotels and restaurants, employers will require fewer of them.

The Mushroom Industry is an export orientated sector which sustains significant employment in the rural economy. It has the potential to continue to develop export markets and increase employment if costs are kept under control. Labour represents 40% of direct costs of production, so it is imperative that wage costs are set at a level which is competitive with the UK and Holland.

The expansion of the EU has created more options for companies to do business in other member states. As we push up the costs in the Irish economy, we will accelerate the export of investment and jobs to the lower cost economies – last week Cadbury’s decided to relocate part of their operation to Poland.

There is plenty of anecdotal evidence of increasing black market activities employing illegal immigrants. They are illegal because they are employed for less than the minimum wage and are not paying tax and social insurance and are therefore much more open to exploitation.

Getting the balance right!

The programme for National Recovery 2011 to 2016 approved by the Troika includes a commitment to improve competitiveness and bring Irish labour costs in line with other European Economies.

The Plan makes the following reference to the National Minimum Wage;
“Introduced in 2000 at a rate of €5.59 the national minimum wage is currently €8.65. It has been increased 6 times since its introduction and is now 55% higher than the original level. By the end of 2010 the consumer price index is forecast to have increased by approximately 28% since 2001”.

Source: National Recovery Plan 2011 to 2016

Implicit in this statement is that the NMW has been pushed too high and that wage costs are a key element in international competitiveness. It is important to find the correct balance between the social objective of providing the minimum earnings for people in low paid employment and ensuring that we do not damage our capacity to create jobs.

To avoid the Low Pay Commission becoming a mechanism for rubber stamping increases in the NMW, then the competitiveness of food producers, hotels and restaurants needs to central to the debate.

Vincent Turley