Interrogating the Living Wage


Lughan Odlum Deane
Lughan Odlum Deane is researching and compiling a history of IMPACT’s 25 years

livingwageDr. Duncan Brown, head of consultancy at the Institute of Employment Studies UK, delivered a presentation entitled The Return of the Pay Rise and Living and Higher Minimum Wages – What’s Going On? at this month’s IRN conference. He explained that the minimum wage in the UK will rise, at the next budget, to £7.20 per hour and rise by 5% each subsequent year, reaching £9 per hour by 2020

That figure would represent 60% of median national earnings and would serve, in tandem with in-work benefits, as a living income everywhere in the UK except in London, where the cost of living would require a £9.40 hourly minimum.

The aim of Dr. Brown’s presentation was to examine the possible benefits and costs that are associated with increasing the national minimum wage. One immediate benefit would be that six million workers would have more money to spend, acting as a significant stimulus to the economy.

As women earn less than men, increasing the minimum wage means more women than men would receive a pay rise. This would reduce the gender pay gap by 18%. Some evidence suggests rises in pay correlate to an increase in staff productivity.

Employers, however, have been quick to point out the potential downsides. They claim that £4.5bn would be added to national employer costs by 2020. Employers argue that the increased cost could result in as many as 60,000 job losses.

Given the arguments on each side, various employers have responded very differently to the gradual advent of the living wage. Some, like Lidl and Ikea, have enthusiastically adopted the associated pay policies and have enjoyed a significant amount of positive PR as a result. Others, in anticipation of the rising costs, have moved to reduce their payroll liabilities in other ways, including reducing hours of work, clamping down on overtime or automating work.

If it seems counterintuitive that a Conservative chancellor would choose to hit employers with an increase in their payroll costs, then it is partially explained by the fact that the increases were originally to be introduced alongside cuts in in-work benefits. Opposition in the House of Lords, however, removed these cuts from the picture.

Minimum standards and income adequacy

Also last month, the Vincentian Partnership for Social Justice released a piece of research entitled Minimum Essential Standard of Living Working Paper: Low Hour & Income Adequacy. The paper looks at the living wage in Ireland as it pertains to hours of work and underemployment.

Robert Thornton, the paper’s author, says that there is a growing trend of low-hour, variable hour, part time, flexible and precarious work arrangements in this country. The paper examines how these emerging patterns of work manifest themselves financially, both in terms of wages earned and in-work social welfare benefits gained or foregone.

The paper demonstrates that the Irish national minimum wage rarely provides a worker with an income sufficient to cover the cost of the minimum essential standard of living. It shows that in-work social welfare benefits are an essential supplement to a minimum wage income. Even with the supplements, however, families are often left short.

The paper serves to illustrate the labyrinthine complexity involved in accessing in-work state welfare support. It shows that a welfare system that is constructed or deconstructed piecemeal, with bits of schemes buried here and there, is one that produces counterintuitive results.

For example, the same family can have an adequate income when one parent stays at home and the other works full time for the minimum wage, but an inadequate income when one parent is employed full time and the other part time.

The same family has a smaller deficit when both parents work full time, but a deficit nonetheless. The costs involved in private childcare and urban rents are the two most significant costs that a family faces and their impact weighs disproportionately on the results.

The Vincentian Partnership’s paper sheds a new light on the content of Dr. Brown’s presentation. It illustrates just how essential in-work benefits are. To lose them, even in the presence of a small wage gain, would likely represent a net loss for most families.

In terms of how Ireland should respond to the increasingly vocal demands for a national Living Wage, the most important thing is, firstly, to answer some questions as to what kind of a society we want. A living wage is a noble aspiration and one that IMPACT fully supports. The question is how we ought to achieve this aspiration.

The state could continue to supplement workers’ pay with benefits, but, in this case, these urgently need to be increased. These benefits also demand that we consider whether we want the state to subsidise employers who do not pay their staff enough in wages for them to live with dignity. Would the state step in where a business could not pay a supplier or a utility bill? If it is not socially acceptable to run a business without paying suppliers, then why is it acceptable not to pay employees enough to survive?

The evidence suggests that a real living wage paid for by employers – without state support – would need to be significantly higher than €11.50 per hour. This is particularly the case for those families with several dependent children living in urban areas.

Here is how the political parties campaigned on the living wage in the recent election:

Fine_Gael_logo_2009.svg “Forcing a minimum wage or “living wage” of €11.50 or higher on small Irish businesses will cost jobs and set back recovery”
1280px-Labour_Party_Ireland.svg “Labour strongly supports the introduction of a living wage and believes government should lead by example”
fianna_fail_logo-600 “We are committed to ensuring that government departments lead by example and introduce the Living Wage for all their employees”
sinn-fein “Our priority will be the introduction of a Living Wage”
aaapbp “We support an immediate living minimum wage of €12 an hour as a first step towards a minimum wage of €14 per hour by 2017”
Social-Democrats The Social Democrats “support the introduction of a living wage which is based on the real cost of living”
Renua_Ireland_logo Renua Ireland wishes to “end taxation traps for those on the minimum and average industrial wage”