Ireland

Isme warns of economic cost of introducing living wage

Increased wages will lead to reduced working hours for the lower paid sector, according to business group

The Government announced plans to replace the minimum wage with a living wage by 2026. Photograph: Sean Gallup/Getty

Olivia Kelleher
Wed Nov 23 2022 - 19:00

Plans by the Government to increase the national minimum wage to a living wage will be “politically popular” but will come at a serious economic and social cost especially for lower skilled and unskilled workers, according to Isme, a group which represents small to medium business.

Last week the Government announced plans to replace the minimum wage with a living wage by 2026. The move is in line with a recommendation of the Low Pay Commission and the transition is intended to take place from 2023 to 2026.

Neil McDonnell, chief executive of Isme, told Today with Claire Byrne on RTÉ Radio 1 that instead of looking at continued increases to wages, the Government should instead focus on tackling the ever-growing price of accommodation in Ireland.

“We absolutely understand the pressure that everyone is under. All business owners, large or small, are under significant pressure to increase wages principally because of the cost of accommodation and the recent inflation crisis particularly in energy.

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“But what we are suggesting is that this isn’t going to address the core issue for lower paid workers. The effect of increasing wages in the absence of growth in the economy is that employers will shed work hours from the workforce,” Mr McDonnell said.

“It obviously is politically popular. But if we try to dig into what the objective is here – to increase the wealth of workers and to help them to afford the cost-of-living increases they are experiencing now.

“Well, to put it really simply to you, a grocery retailer told me during the week that if he passes this through in groceries, he will increase the cost in groceries by 4 per cent. That is going to negatively impact the people who are experiencing the most price pressure.”

Mr McDonnell acknowledged that marginal adjustments in the minimum wage over the years have not had a significantly negative effect.

“What the ESRI said in the study they produced in January of this year was that a 10 per cent increase in the national minimum wage over three years from 2016 to 2018 produced a one-hour reduction in work hours. With the average working week going from 39 to 38 hours.

“What we are saying is that the effect is likely to be larger [with the upcoming increases]. Interestingly, the ESRI did say that the increase in the minimum wage balanced out the loss of hours. We would hope that that would be the same and workers wouldn’t lose out. What we are identifying [with this] is that the risk is that they will lose out.”

The announcement of the living wage made by Government last week is for a substantially higher minimum wage, of €13.10 per hour, reached over four years. This represents a 16 per cent increase overall, raised at 4 per cent per year.

However, Labour Senator Marie Sherlock, also in an interview with Claire Byrne, called on Isme and other employers to join her in making a call for increased housing.

“This Saturday there is a Raise the Roof rally. We are hoping that thousands of people will come to Dublin at 1pm in Parnell Square. To actually tell this Government that they are not doing enough in regard to housing.

“We haven’t heard enough from employers in recent years in regard to the need for investment in housing. It is a bit late in saying that increasing the minimum wage rate isn’t going to solve the housing crisis,” Ms Sherlock said.

“It is not just about housing. We know that inflation is running at about 8 per cent at the moment. And anybody who is looking at their grocery bills or their utilities knows the significant increase [in the price].

“But are we expecting people to work for slave wages? People have to be able to live. We have to ensure that people are paid a decent wage.”

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