Brian Keegan: To support a living wage, consumers will have to pay a little more

Tánaiste Leo Varadkar: Displacing the minimum wage with a living wage would have attracted much discussion before the pandemic because it is a radical notion.

The national preoccupation with Covid-19 is smothering government ideas and initiatives that otherwise might be headline news, and the suggestion by Tánaiste Leo Varadkar to displace the minimum wage with a living wage would have attracted much discussion before the pandemic because it is a radical notion.

Policies to provide income supports have tended to emphasise unemployment benefits and state pension entitlements. 

These forms of social welfare are entirely within the gift of the State but paying a minimum wage or a living wage require the collaboration of industry.

The Low Pay Commission, which sets the minimum wage, is now being asked by the Government to provide a calculation of a living wage. 

The current estimate by the campaigning Living Wage Technical Group suggests it should be an additional €2 or so per hour over the current statutory minimum wage of €10.20.

If the Low Pay Commission were to draw a similar conclusion, the difficulty for industry is that paying a living wage rather than a minimum wage would represent a 20% increase in payroll costs. 

No cost increase of such magnitude is easy for any business to apply. 

It is not surprising that the immediate response to the proposal from some sectors was one of resistance, pointing out that with all the costs associated with opening up after the pandemic, the imposition of living wage rates would be badly timed.

There is rarely a good time to introduce additional costs so there will need to be a demonstrable commercial advantage attaching to enforcing the payment of living wages. 

On recent experience it seems that many Irish-owned businesses do in fact see the commercial value in having a contented workforce.

This is the third occasion in recent months where measures have been mooted which will ultimately increase the commercial cost base to provide better benefits for workers. 

Following public consultations, a guarded welcome has already been received for a 'auto enrolment' system for pensions though employers would be required to plan for it through payroll and contribute to the scheme. 

A proposal to introduce sick pay schemes for employees in the private sector has not been rejected out of hand either.

The real arbiters of whether a broadly applied living wage is viable for Irish businesses are Irish consumers.

While the higher hourly rate would support people in the early stages of their careers perhaps before qualifications or experience meriting higher pay grades have been obtained, many of the beneficiaries of a living wage work in the personal services, hospitality, call centre and retail sectors. 

Will consumers be prepared to pay extra at supermarket tills, or in hotels and restaurants to cover the extra business overhead created by living wages?

At present, minimum wage earnings are outside the tax net but that is unlikely to be the case for living wage rates.

There is little prospect of additional personal tax relief in the coming years as we all pay for the consequences of the pandemic. From the exchequer point of view the Government has a vested interest in the adoption of a living wage.

“We are going to be Earth’s best employer.” This was not a call by a politician but by Amazon founder Jeff Bezos in response to unionisation demands earlier this month. 

He too may now be realising the commercial advantage of having a contented workforce. 

Closer to home the idea of a living wage has merit, but it will only be possible if the public at large is prepared to pay a little more for goods and services.

— Brian Keegan is director of public policy at Chartered Accountants Ireland