Taoiseach Brian Cowen has defended the cut in the national minimum wage by saying there is a need to ensure “flexibility” within the economy.
The Government announced in its four-year plan last week that the national minimum wage would be reduced by €1 from the current rate of €8.65 per hour.
Speaking during leaders questions in the Dáil this morning, Mr Cowen said denied the cut in the minimum wage would provide savings to the exchequer. He said it also forms “a basis for other wages further up the line” and he stressed the need for a “competitive” economy.
“We have seen an increase in the minimum wage by 55 per cent during a period when inflation was 28 per cent," he said.
Mr Cowen said there is a need to ensure flexibility in labour intensive sectors such as retail and tourism where many jobs have been lost. “It is part of a wider adjustment taking place throughout the economy and its important to recognise that we still have one of the highest minimum wage rates in the EU as a result,” he added.
However, Labour leader Eamon Gilmore said the measure would result in an 11.5 per cent pay cut for people earning €18,000 per year. He said some 52,000 people - or 3 per cent of the workforce - were earning the minimum wage.
“Somebody working a 40-hour week will have their pay cut from €346 by €40 a week," he said. "Somebody on less than €18,000 a year will suffer a pay cut of more than €2,000 a year or 11.5 per cent.”
Mr Gilmore said the cut in the minimum wage will not save a “single cent” for the public finances. “In fact, arguably it’s going to cost money.”
He asked what the cut would cost the exchequer because it would mean those affected would be entitled to higher family income supplement, more secondary social welfare benefits and there would be an impact on local authority rents. “It is a peculiar form of Fianna Fáil economics now that in order to incentivise people on low pay or who are poor you pay them less but to incentivise the banks you throw more money at them”.
Mr Gilmore said it is a “very big price” for the deal negotiated by the Government at the weekend and he asked if the cut in the minimum wage pre-empts cuts in other areas.
But Mr Cowen said the hospitality sector had been saying for some time that it would like to see some changes. “It’s not a question of saving money for the State. The whole idea is to keep as many people in work at a time when the trading environment is very difficult,” he said.
“We have to try and ensure a competitive economy. We have seen reductions in wage rates throughout the board in the public sector. We’ve some in the private sector as well obviously.”
Mr Cowen added that the OECD and others have been referring to this issue as a structural issue within the Irish economy.