‘Rip off Ireland’ and the minimum wage

Ireland is undoubtedly an expensive place in which to live. A survey from Eurostat back in 2020 found it had the second-highest prices for consumer goods and services across the European Union, behind Denmark.

And this summer, it’s an issue that’s likely to come to a head once more. Amid tales of €200 a night B&Bs and “rip-off Ireland” at home, people flying off to sunnier climes will wonder how life can be so much cheaper in the sun.

But as you marvel at your €12 “plat du jour” in France, or your €5 tapas in Spain, it’s worth bearing in mind that Ireland is a considerably higher-cost economy than almost all of those countries across the EU.

And Ireland’s minimum wage is a good illustration of this. As political agreement is reached on new minimum wage rules across the EU, we take a look at it in an Irish context.

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Indeed the rate of minimum pay in Ireland is the second highest across the European Union, with the latest figures from Eurostat showing a figure of €1,744.50 a month (€10.50 an hour).

“The absolute monetary amount is telling you that it’s a minimum wage for a high priced and relatively high earning economy,” says Austin Hughes, chief economist with KBC Bank Ireland, adding that a “minimum wage” is just that.

“It’s something that prevents people from dramatically falling into poverty but it doesn’t give any significant quality of lifestyle,” he says.

At such a level, Ireland’s minimum wage is behind Luxembourg only (€2,256.95) but ahead of the Netherlands (€1,725.00), Belgium (€1,658.23), Germany (€1,621.00) and France (€1,603.12).

When introduced in 2000, Ireland’s minimum wage stood at €5.58 (£4.40), not one of Europe’s highest rates of pay

Traditionally, Ireland would have had a higher rate of minimum pay than the UK. Back in the first half of 2020 for example, its minimum wage of €1,583.31 was about 7 per cent lower than Ireland; like in Ireland, however, cost pressures mean that depending on exchange rates it is now higher than in Ireland, as it has just been increased to £9.50 an hour (about €11.17), which puts it in excess of Ireland’s €10.50 an hour.

Contrast this with the experience elsewhere in Europe, where most of the countries most popular with Irish tourists (apart from France, perhaps) are those with lower rates of minimum pay.

Think about Spain (€1,125.83), where the rate is 35 per cent less, or Portugal (€822.50), which is less than half the rate in Ireland; or Malta (€792.26); or Greece (€773.50), where the rate is 56 per cent less than Ireland.

Go further east, where prices plummet as does the minimum wage: in Poland, it stands at €654.79 a month, but falls to as low as €332.34 in Bulgaria.

Trajectory of minimum pay

But it hasn’t always been like this.

As any student in the 1980s who departed Ireland for a factory in Germany will be aware, Ireland has not always had one of the top rates of minimum pay in Europe.

When introduced in 2000, Ireland’s minimum wage stood at €5.58 (£4.40), not one of Europe’s highest rates of pay, with the shift happening later that decade.

By 2004 for example, Ireland had the fifth-lowest minimum wage in Europe, at €1,073.15 a month, or about €268 a week. This placed it behind Luxembourg, but also the Netherlands, France and Belgium. By 2007 soaring tax take due to a booming Celtic Tiger economy saw Ireland jump into second place, behind Luxembourg, with the minimum wage increasing by 31 per cent, or about €330, between 2004 and 2007. This compares with growth of just 3 per cent in France and the Netherlands and 6 per cent in Belgium.

By 2008, the Irish minimum wage hit a peak for the time of €1,461.85, but then the financial crisis hit. Despite this, however, and the advent of austerity measures, the minimum wage was only cut briefly in January 2011, down by €1 an hour to €7.65, but was restored in July of that year.

This contrasts with the UK, where the rate of minimum pay was slashed during these years, down by 32 per cent from 1,314.97 in 2007 to just €995.28 by 2009.

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Elsewhere, however, the minimum wage continued to grow, which meant that by this time, the rate of pay in Luxembourg (at €1,992.96) was 36 per cent higher than in Ireland. By 2015 then, Ireland had slumped back to fourth in the table of most generous minimum wage payers in the EU.

Since then, the rate has steadily increased on the back of recommendations from the Low Pay Commission, up from €9.80 in 2019 to €10.50 since January 1st, 2022, to put it back in second position across the EU

How much it’s really worth

But just because it’s high, it doesn’t mean that it’s even enough to compensate for the high-cost Irish economy.

The figures from the EU show that while the wage in Ireland may be the second highest in Europe, our purchasing power is lower than in other countries.

The purchasing power of people earning the minimum wage in Ireland has diminished significantly in recent years

So, on the one hand, a high minimum wage is contributing to higher costs in the economy; but on the other hand, it’s not high enough to offset the impact of these costs either.

When expressed in purchasing power standard (PPS), which takes into account the differences in the costs of goods and services between countries, Ireland is ranked sixth, behind Luxembourg (€1,707 PPS), Germany, Netherlands, Belgium, and France.

This means then, that Ireland’s €1,775 a month is actually worth less — on a real basis — than the €1,603 paid out in France every month, or the €1,621 in Germany.

Not only that, but the purchasing power of people earning the minimum wage in Ireland has diminished significantly in recent years.

Consider the PPS adjusted figure of €1,215.92/month back in 2010. This was 17 per cent less than the minimum wage of the time; since then, however, the differential between what people are paid, and what it’s worth on a real basis in that economy, has widened significantly.

Indeed the latest figures show that the PPS adjusted minimum wage for Ireland of €1,267.88 is almost 30 per cent less than the monetary figure, of €1,774.50.

Contrast this with Spain, where the PPS adjusted figure of €1,154.51 is actually higher than the minimum wage of €1,125.83.

Outlook

Given such a challenge then, the future direction of the minimum wage in Ireland looks likely to be in only one direction — up. Later this month Cabinet is expected to hear proposals from Tánaiste Leo Varadkar on introducing a living — rather than minimum — wage. A living wage looks to offer people a set standard of living, as opposed to a guaranteed minimum income.

This move to a living wage is already evidenced in the data; back in 2016 for example, CSO figures show that some 161,000 people were paid the minimum wage. By the fourth quarter of 2018, this had shrunk by 30 per cent to 112,700. While it has since increased again, back to 126,800, as of the third quarter of 2020 (most recent figures available), it is still down by 27 per cent on 2016.

Change is also afoot at EU level. Earlier this month, political agreement was reached on a new framework for establishing the adequacy of statutory minimum wages to “guarantee decent living standards for workers”.

At present, out of the 27 EU member states, 21 have a minimum wage: Denmark, Italy, Cyprus, Austria, Finland and Sweden are the countries without one. The new rules will apply across those countries that do have a minimum wage — including Ireland — and will impose clear criteria for minimum wage setting, including taking into account the cost of living, and regular and timely updates of minimum wages.