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Should the increase to the minimum wage go ahead?

The Government is committed to introducing a national living wage by January 2026, beginning with an 80 cent increase to the minimum wage next year. But as businesses struggle with higher operating costs, should the increases go ahead?

Many working people in retail, hospitality, transport and domestic waste collection would benefit from a minimum wage increase. Photograph: iStock
Many working people in retail, hospitality, transport and domestic waste collection would benefit from a minimum wage increase. Photograph: iStock
Darragh O'Connor
Jean McCabe
Tue Aug 20 2024 - 06:00

Darragh O’Connor: Yes. Too many people are living in a low-wage Republic

One of the legacies from the pandemic was the Government’s recommitment to introduce a living wage by 2026, replacing the current national minimum wage. This policy would go some way to recognising the contribution of the many indispensable frontline workers who earn the legal minimum rate of pay, or just above it.

In the absence of normal workplace pay negotiations, many working people in retail, hospitality, transport and domestic waste collection depend on minimum wage increases to make ends meet.

To date the Government has made some progress on its commitment. Indeed, Minister Peter Burke in Dáil Éireann recently reaffirmed the pledge to introduce the living wage, thus “eradicating low-wage employment for all workers”.

It has been reported in The Irish Times that the Low Pay Commission, comprised of union, employer and independent members, unanimously recommended an 80 cent increase to the minimum wage for 2025, with an ultimate target of 60 per cent of hourly median wages set by Government.

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As with any policy, it is important that decisions are based on facts and not soundbites. Firstly, the cold reality is that Ireland has a low-pay problem. Many are living in a low-wage Republic. One in five workers are low paid, a figure that has remained relatively unchanged in two decades, despite periods of boom and bust.

Unsurprisingly, women are much more likely to be low-paid, in part reflecting how we undervalue care work in society. Low-paid employment is not restricted to students or teenagers, with one in every five low-paid workers in Ireland aged over 50. According to the Society of St Vincent De Paul, more working people in full-time employment are accessing food banks and homeless services. This is not normal.

Ireland has one of the highest rates of low pay in the EU, contributing to one of the highest levels of market inequality. Along with the lack of good jobs and the rising cost of living, this level of inequality is a risk to social cohesion, according to the government’s own National Risk Assessment.

Secondly, what is the impact of minimum wage increases on businesses? The evidence is clear. In response to a parliamentary question, Minister Dara Calleary revealed that there were 629 new hospitality businesses “incorporated” from January to May 2024. This compares to 155 business closures during the same time, a ratio of four new businesses for every closure. In retail, the picture is similarly robust. There were 528 new businesses set up compared to 168 closures, a net increase of 360 over the first six months of this year. This does not suggest that minimum wage increases are a barrier to new start-ups.

The cold reality is that Ireland has a low-pay problem. Many are living in a low-wage Republic

A living wage also has benefits for businesses. The National Economic and Social Council has argued that reducing low-paid jobs can cut business costs by reducing spending on recruitment, administrative and training associated with high staff turnover. And it went further, saying that job quality and fair pay can improve productivity, enhance financial performance, improve service and product quality, increase innovation, and enhance customer service and organisational reputation. Of course, workers also spend their wages, with those on low-income spending more of take-home pay than higher earners who tend to save more. This boosts consumption and spending in the economy.

A higher minimum wage is unquestionably good for workers, businesses and the economy. The Government has a decision to make, not just about a modest minimum wage increase, but about its vision for Ireland.

Will it tackle in-work poverty and inequality by establishing a living wage? Will it raise the living standards of the lowest paid? Will it promote best business practice which results in best business results? Or will it bow to short-sighted pressure and abandon its commitment to “make work pay” and keep large parts of Ireland’s domestic economy mired in a low-road business environment? Ultimately, it’s a political choice.

Darragh O’Connor is head of strategic organising & campaigns at SIPTU

Jean McCabe: No. This isn’t about denying workers fair pay, but the rapid pace and magnitude of these increases is pushing businesses to the brink

“As people move on, I’m quietly making those roles redundant. We changed our opening hours to try manage payroll costs and we no longer open late or on a Sunday. I have also reduced my own salary in an effort to meet costs.” Louise’s story is becoming all too common across Ireland as business owners grapple with the Government’s ambitious plan to implement a living wage by 2026.

While the intent to improve workers’ conditions is commendable, the rapid pace and magnitude of these increases, along with many other costs, are pushing many businesses to the brink. Recent data from PWC shows that insolvencies are up 25 per cent in the first half of 2024, with retail and hospitality accounting for over half of all cases. This is no coincidence. These sectors, which employ 43 per cent of minimum wage workers, are especially vulnerable to labour cost increases.

Let’s be clear: this isn’t about denying workers fair pay. It’s about the unprecedented pace of change and its economic impact. When the National Living Wage takes effect in 2026, it will mark a staggering 67 per cent increase from 2016 levels. In a decade, the minimum wage will have surged from €9.15 to an estimated €15.25 per hour. This is an economic shock no industry can sustain.

For many businesses, especially in retail and hospitality, labour is often the largest expense. Such rapid cost escalation is unsustainable without significant offsetting measures. We must recognise the real-world consequences of well-intentioned but potentially damaging policies.

Trade unions argue these increases are necessary to combat poverty. However, ESRI research shows that only 11 per cent of minimum wage workers in Ireland are at risk of poverty – the lowest rate among studied countries.

The unintended consequences of these policies are already surfacing, and the outlook is concerning. Another ESRI study revealed that a mere 4 per cent minimum wage increase between 2016 and 2018 resulted in a 2-3 percentage point reduction in hours worked among affected employees. Fast forward to today, where we’ve seen increases of 7.6 per cent in 2023 and 12.4 per cent in 2024, with further substantial hikes planned. If a 4 per cent rise led to noticeable cuts in working hours, the impact of these significantly larger increases could be severe as businesses scramble to try manage their costs. We’re not creating prosperity: we’re redistributing working hours.

We must recognise the real-world consequences of well-intentioned but potentially damaging policies

The proposal to eliminate sub-minimum rates for younger workers is particularly short-sighted. These rates serve a crucial purpose, allowing businesses to offset the higher costs associated with training inexperienced staff and provide an opportunity for these employees to gain valuable skills. In sectors with high youth employment, such as retail and hospitality, productivity has grown by only 0.3 per cent annually over the past 5 years, compared to 2.1 per cent in other sectors, according to the National Competitiveness Council.

The Expert Group on Future Skills Needs reports that 72 per cent of employers cite lack of work readiness among young recruits as a significant challenge. This underscores the vital roles that retail and hospitality play in developing our workforce. By eliminating these sub-minimum rates, we risk denying young workers the chance to gain skills and experience they need to succeed.

While the Government pushes towards a living wage, support for affected industries is insufficient. The recent Cost of Doing Business grant for SMEs is a drop in the ocean compared to rising costs. However, the solution isn’t more grants – we need a fundamental rebalancing of core business costs. Policymakers must introduce offsetting measures that address the structural costs affecting businesses. The Government calls the 9 per cent VAT rate for hospitality “temporary,” yet the 2012 increase from 21 per cent to 23 per cent – another “temporary measure” – remains in place a decade later.

During the recession, retail stepped up. Now, it’s time for reciprocation: reduce employer PRSI contributions, make the 9 per cent VAT rate permanent, revert to 21 per cent standard VAT, and provide targeted training subsidies to upskill young workers.

These measures could make a real difference without making sectors dependent on handouts. This is about maintaining the viability of a sector crucial to Ireland’s economic health and regional balance. Without such interventions, we risk more than just isolated business closures. We’re potentially facing significant job losses. The irony is that policies aimed at helping workers might end up leaving many without employment altogether.

Jean McCabe is chief executive of Retail Excellence Ireland