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Living wage versus minimum wage – is there political appetite to make the leap?

Tuesday, March 22, 2016

As published in the Sunday Business Post, March 20, 2016

It’s not technically difficult to change employment law to pay workers a standard €11.50 per hour. But what are the knock-on effects?


All of the political parties and alliances had something to say about employment law in their manifestos in advance of the 2016 general election.


Numerous proposals were advanced, but one area that received almost universal attention was the issue of fair pay in Ireland. The question of living wage versus minimum wage came up repeatedly. It’s definitely a topic that has attracted a lot of attention in recent years.


For a long time, Irish employment law had little to say about levels of pay, with the exception of fixed wages agreed in collective agreements, which only ever applied to certain sectors and certainly didn’t represent an across-the-board minimum rate of pay.


That changed in 2000, when a minimum wage was introduced in Ireland for the first time. However there’s obviously a distinction between a minimum wage and a living wage. The minimum wage is currently €9.15 an hour. How much is a living wage worth?


The proponents of a living wage (such as the Living Wage Technical Group established in 2014) argue that it’s “a wage that makes possible a minimum acceptable standard of living”.


There could be a variety of opinions of what constitutes “a minimum acceptable standard of living”.


The technical group set the level at €11.50 an hour, which would amount to an annual salary of around €23,000. They arrived at that figure by assessing the cost of around 2,000 expenses incurred by a household each year.


This figure has been accepted by some of the candidates for government. In its manifesto, Fianna Fáil fixed upon the figure of €11.50 per hour, as did the Labour Party.


It’s also notable that certain employers have committed to paying wages at this rate. Lidl was the first significantly sized employer to announce a standard rate for its workforce (€11.50) in October last year.


Changing employment law to provide for a “living wage” would not be technically difficult. Since 2000, we’ve had the benefit of the National Minimum Wage Act. Section 11 of the act allows the Minister for Jobs, Enterprise and Innovation to declare a national minimum hourly rate of pay.


Successive ministers have regularly exercised their powers under this act. Most recently, the state increased the minimum wage to €9.15 with effect from January 2016. Back in 2000, the first rate set was €5.59 per hour and it’s increased incrementally in the years since then.


The minister enjoys a reasonably free hand in raising the minimum wage. Under the 2000 act, he or she must take into account the potential effect “on employment, the overall conditions in the state and national competitiveness”.


The minister is required to carry out a balancing act – if the minimum wage goes up, what will the knock-on effect be? Which is more important – higher wages for the low paid or the attractiveness of Ireland as a location for doing business?


Once the minister has weighed up these factors, they are at liberty to increase the hourly rate at their discretion. In theory, therefore, a future minister could increase the rate to €11.50 from €9.15 without too much trouble.


The critical question isn’t whether an increase is legally possible – it’s whether there is a political appetite for it. The last government established the Low Pay Commission as an independent statutory body and increased the minimum wage, taking the findings of the commission into account. The key question is what the next government is going to do.


If Fianna Fáil is in power, they have indicated that they will make a living wage of €11.50 per hour mandatory in government departments, with the intention that this would serve as a role model for all employers.


Other parties are more reticent. Fine Gael, for example, has been cautious about embracing the technical group’s findings because of what it perceives as the potential effect on small businesses, among other things. A critical question is what an increase would actually cost employers. The technical group’s figure of €11.50 hasn’t been universally accepted. Ibec has been critical, as have other employer representatives.


A government supported by one or more of the left-leaning parties before the electorate is more likely to come under pressure to embrace a living wage. At the same time, the more large retailers such as Lidl introduce a living wage, the more it will be seen as a move that should be standard across the workforce.


Patrick Walshe is a partner and employment law expert with Philip Lee


Patrick Walshe