National Minimum Wage

Dáil Éireann Debate, Thursday - 2 December 2010

Thursday, 2 December 2010

Questions (2)

Willie Penrose

Question:

2 Deputy Willie Penrose asked the Minister for Enterprise, Trade and Innovation the number of persons currently on the national minimum wage; the financial benefits, if any, that will accrue to the Exchequer arising from the announcement in the four year plan to cut the minimum wage by one euro; if he had sought or received any report from the Labour Court before making the decision to proceed with a cut in the minimum wage; and if he will make a statement on the matter. [45683/10]

Oral answers (5 contributions)

Minister of State at the Department of Enterprise, Trade and Innovation (Deputy Dara Calleary)

The CSO's National Employment Survey 2007 provides us with the most recent comprehensive overview of earnings in Ireland. According to that data, in October 2007, 4.9% of employees in Ireland — or 83,700 people — were earning €8.65 per hour or less. Due to methodological difficulties, it is not possible to estimate precisely the number earning exactly the €8.65 rate.

While that proportion is low, those workers are concentrated in a number of vulnerable sectors. For example, some 9% of workers in retail and 11% in hotels and restaurants, earn less than €8.66 per hour. Furthermore, the latest advice available to us states that the minimum wage sets a baseline for wage negotiations. It is assumed that wages up to 1.5 times the minimum wage are impacted by changes in the rate, and up to 30% of wage rates may be affected by a change in the national minimum wage.

The research published last week by Forfás, and advice following from it, is clear when it states that a reduction in the national minimum wage will result in an increase in employment in the medium term. It is important to point out that the reduction in the minimum wage is one element of the labour market reforms outlined in the national recovery plan, which also include the review of sectoral agreements, new labour market activation policies and welfare policy. We all agree that the State must act to remove any legislative and policy obstacles to job creation.

It is expected that there will be a benefit to the Exchequer in terms of savings from reduced transfer payments and increased taxation that will accrue from the increased employment arising from a far more flexible labour market. With regard to the last element of Deputy Penrose's question, I outlined in a reply to a parliamentary question on 13 October, that in November 2008, ICTU requested the Labour Court to review the national minimum wage and to make a recommendation concerning its adjustment. The court subsequently invited submissions on the issue and also held discussions with relevant parties.

In February this year, ICTU requested the Labour Court to defer any further consideration of the matter for the time being, saying that it would be in contact again with the court in the second half of the year when the economic outlook might be clearer. During this period, a recommendation from the Labour Court was still awaited.

On 23 November, ICTU informed the Labour Court that it was formally withdrawing its claim for an adjustment to the national minimum wage. Accordingly, the Labour Court's involvement in the matter has now concluded.

Deputy Willie Penrose

Of all the things that emanated from the Government's four year plan, the 12% cut in the minimum wage was proof positive that the least well off and most vulnerable were fair game. The reduction in the minimum wage of €1 per hour will have the most profound impact on the poorest in society. It will hit women and children particularly hard as the majority to those in receipt of the minimum wage are women.

What is the rationale for cutting the minimum wage? In all consciousness, how can one justify asking people who are on the minimum wage to bear the burden for the Government's profligacy and the bank bailout? This measure will not reduce the fiscal deficit by one cent. Was it introduced as part of a neoliberal economic orthodoxy?

Has any cost benefit analysis been done in this context? The Minister now says that 80,000 odd people are affected, whereas the other day he said the figure was 52,000. Does anybody know what the real figure is? A large number of those involved are under 18 years of age, so they are already below the minimum wage level.

This reduction will have a significant knock-on effect for the Exchequer in so far as it will not save a single cent. It will cost the Exchequer more, in fact, since more people will now be entitled to the family income supplement, secondary benefits, medical cards and lower local authority rents. Has any cost-benefit assessment been made of its impact on the Exchequer, apart from the impact it will have on poor people?

Deputy Dara Calleary

The national minimum wage was introduced in April 2000. At that stage, it was the equivalent in Irish pounds of €5.59. It currently stands at €8.65. Since April 2000, it has increased six times and is now 55% higher than the original level. In contrast, by the end of this year the consumer price index is forecast to have increased by approximately 28% since 2001. We have therefore had a 55% increase in the minimum wage compared to a 28% increase in the consumer price increase in the same period. The current rate is significantly higher in real terms than the wage when it was first introduced. It will still be higher even with the reduction.

I share Deputy Penrose's interest in those who are least privileged. The ultimate aim is to give people a job. Forfás has produced research to show that by reducing the minimum wage we can create employment. As a member of the Committee on Enterprise, Trade and Employment, the Deputy knows that many organisations have appeared before that body to state that the minimum wage is too high. They said they would be in a position to create jobs if it were to be lowered. If we can potentially create 10,000 jobs in the medium term, that will allow people to come out of the poverty trap and into the working environment. In turn, that will increase Exchequer returns and taxation rates, as well as giving people a chance to participate in the labour force.

Deputy Willie Penrose

Is the raison d’être of this minimum wage cut to set off a cycle of depressing wages across the economy? This applies to catering and other sectors that gave evidence to the committee. None of them said that the national minimum wage was of paramount importance, although they did refer to REAs and VROs, which I agree should be modernised and streamlined. Section 41 of the National Minimum Wage Act provides that companies which are unable, or find it difficult, to pay the minimum wage can apply to the Labour Court. Is it correct that not one company has applied to the Labour Court under that inability to pay provision? Is it the Government’s intention to introduce the forthcoming Social Welfare (Miscellaneous Provisions) Bill to effect this? Legislation will be required in the context of setting the minimum wage.

Deputy Dara Calleary

There have been considerable reductions in wages over the past number of years across every sector of the economy, except this sector. I welcome the Deputy's commitment to the reform of the JLC system and we will make proposals on this in the coming weeks. Deputy Penrose is correct that there has been no claim under the inability to pay provisions. However, employers' groups suggest it is because of the restrictive nature of the provision. We are examining this and considering introducing inability to pay provisions in other sectors using the JLC system and making it more flexible. However, this will be done in a way that protects employees. It is important to strike a balance.

Regarding the legislative matters, we are in consultation within the Department and with the Department of Finance to bring forward these changes legislatively in the coming weeks.