Abolishing sub-minimum wages would have 'low' impact on labour costs, says ESRI

Chief executive of lobby group Retail Excellence Ireland Jean McCabe argued the abolition of sub-minimum wages would lead to greater youth unemployment as there would not be as many job opportunities due to higher wages

The minimum wage is currently €12.70 per hour, however legislation allows employers to pay young workers an age-based sub-minimum rate in the context of lack of experience.

The potential abolition of sub-minimum wage rates is unlikely to create a significant impact on business and their finances, according to the Economic and Social Research Institute (ESRI).

Senior researcher at the leading think tank Paul Redmond said removing the lower rate of minimum wage often paid to younger workers under 20 may impact employers in accommodation, food and retail, which have traditionally tapped the youth labour market, particularly in busy periods, more than businesses in other sectors.

“If we were to abolish sub-minimum youth rates or increase them, the overall impact on direct labour costs would be quite low,” said Mr Redmond.

Mr Redmond made his comments at an Enterprise Committee discussing wage rates following a recommendation by the Low Pay Commission last month to abolish sub-minimum wage rates.

The minimum wage is currently €12.70 per hour, however, legislation allows employers to pay young workers an age-based sub-minimum rate in the context of lack of experience. Those aged under 18 can be paid 70% of the full rate, those aged 18 can be paid 80%, while those aged 19 can be paid 90%.

Also attending the Enterprise Committee was industry representative organisation Isme, which suggested payroll costs for SMEs lead to swollen operating costs in more labour-intensive sectors.

“It is simply factually untrue to argue that micro and small businesses are greatly profitable enterprises with a capacity to continually inflate their labour cost input,” said Isme chief executive Neil McDonnell.

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Chief executive of lobby group Retail Excellence Ireland Jean McCabe was also in attendance and argued the abolition of sub-minimum wages would lead to greater youth unemployment as there would not be as many job opportunities due to higher wages.

Mr Redmond said there may be a “modest” reduction in younger workers in the labour market, especially in service sectors, if sub-minimum rates were no longer available to employers but indicated there would not be vast unemployment in this area.

Low pay has become an increasingly pressing issue for businesses and politicians in recent months as Government aims to improve purchasing power ahead of a looming general election, while businesses continue to battle stubborn costs that have contributed to an increase in insolvencies this year.

In 2023, the Council of Europe found Ireland breached its labour rights obligations under the revised European Social Charter.

Price pressures

Meanwhile, customers may face further price pressures this year as some businesses said they intend to pass on costs due to rising wages, according to a separate survey.

The survey by credit rating agency S&P Global found Irish private sector firms expect wage pressures to remain elevated over the next 12 months, leading to higher output prices.

This survey looked at overall wage increases and did not specifically look at the impact of sub-minimum rates.