The Government has formally authorised the Low Pay Commission to investigate how Ireland can move towards a living wage, and must report in the second half of this year.
Last year’s Programme for Government committed to move the wages floor from the current national minimum wage of €10.20 per hour to a living wage of €12.30 “during the lifetime of this government”.
The commission’s terms of reference approved by the Cabinet yesterday will permit it to investigate factors including international comparisons, the impact on labour costs, social welfare, and taxation along with the possibility of variable regional rates.
Tánaiste Leo Varadkar acknowledged that the Low Pay Commission had already done some initial work, but said the agreed terms of reference would allow it to formally begin its research.
The Small Firms Association has said now is not the time to discuss putting additional costs on business.
“There is no need to start this debate right now. The timing is completely off,” said Sven Spollen-Behrens, Director of Small Firms Association.
“Small businesses are dealing with a huge amount of anxiety and the path to reopening seems to be getting longer every day. They need to know what this pathway will look like and they need to know the sooner than later.
“There is a real concern among small business owners that they are faced with increased costs of doing business,” he said. “We will see increased minimum wage, increase in family leave, statutory sick pay will be introduced, we have Brexit costs and now this morning the idea of a living wage being introduced. This is the wrong time for this.”
Minister Varadkar said the pandemic had forced society to reconsider the value placed on the work of frontline or essential workers, and the reward they should get for that work.
“One of the legacies of the pandemic must be a more inclusive society that rewards work and enterprise better. That means better terms and conditions for lower paid workers. Moving to a living wage is an important part of this.”
However, Mr Varadkar acknowledged that the implications for business must be factored in.
“Of course, in doing so, we need to recognise that many businesses are closed and are now loss-making so we must do it in a way that does not cost jobs or cause people’s working hours to be reduced. That would be counter-productive.”
A living wage is defined as the “minimum income necessary for a single adult worker in full time employment, with no dependents, to meet his or her basic needs and afford a minimum acceptable standard of living”.
The Low Pay Commission’s terms of reference permit it to consider the policy, social and economic implications in Ireland of transitioning to a living wage, and the process by which that could happen.
Its approach will include examination of international evidence on living wages, different calculation methods and policy implications.
It will study objectives such as ” …ensuring a socially acceptable standard of living while protecting employment”.
When calculating the appropriate living wage, factors to be considered should include the age of the worker, and whether different regional rates – such as a “Dublin rate” – should apply.
Policy implications to be assessed include the impact of a living wage on issues including employment, hours worked, consumer prices and in-work poverty.
It cites examples including “…the possibility of lower supplementary welfare payments if a living wage lowered in work poverty, higher revenues if a living wage increased productivity, consumer demand, purchasing power, etc”.
The commission is also charged with assessing how a living wage would affect labour costs “…and total costs at an economy wide level and across sectors”.
Other issues to be examined include possible interactions with tax rates, social insurance rates, health, education and housing policy – along with the timeframe for the transition, and whether it should be placed on a statutory footing.
It will consider “… whether there should be a provision for slowing down/pausing wage increases during recession and speeding them up during expansions such that the target could be met over the business cycle”.
It should also assess any possible “distorting” effect of multi-national companies on the median wage in Ireland as compared with other countries.
The terms of reference also permit the Low Pay Commission to consider the impact of Covid-19 on data sets relied on for the research, and whether it could lead to an “artificial skewing” of the outcome.
Wile the current Living Wage is estimated to be €12.30 per hour, Government sources stress that that figure is not mentioned in the Programme for Government as a specific target to be achieved during the lifetime of this Government – and that it will be part of the Low Pay Commission’s remit to assess an appropriate rate.