Controls on wages for the ‘little people’

Brian Lucey.

Wage control, it seems, like much in Ireland, is for the little people, writes Brian Lucey. 

The pixie-heads get patted on the head and told how good we are to bear down and buckle up, while the protected elites roll on.

For many, many years the closed shops in Irish professional life have been the subject of scrutiny from Europe. Time and again we have been told that these must be opened up. In particular the legal services situation has been pointed to as an example of a professional service which is in dire need of reform. And very little has happened.

A legal services bill has been prepared which would begin to prise open the legal services sector, and to provide for better oversight.

However, this has yet to reach the Dáil. If it is not passed before the next election it lapses and will have to be reintroduced. That it has taken since 2011 for this draft bill to (not) come to the floor of the Dáil smacks less now of incompetence and more of stalling.

One can only assume the powerful legal lobby has made strenuous official and unofficial representations to their colleagues in the parliament.

One can only imagine the threats, to funding, golf club committee membership, future legal work, and of course murmurings about legal challenges. The best efforts of the troika failed to dent the legal system which rolls on implacably.

Meanwhile, in another world, the Department of Finance is worried about wages. Not the wages of lawyers, but the minimum wage. A representation from the department to the Low Pay Commission makes for interesting reading.

Before we jump into this, let’s theorise. Many economists on theoretical grounds dislike minimum wages.

The argument runs that there will be persons who would wish to take up posts, and firms who wish to offer posts but who find themselves unable to do so due to this floor.

Some persons would work for less and some firms would not find it economic to offer the wage.

So, the introduction, or worse, increasing the level of minimum wages would displace workers, making unemployment worse.

Theory is fine but reality and evidence should trump this every time.

There have been hundreds of studies on the effect of minimum wages on various groups. And as is the case with social science, there are hundreds of results, not all in the same direction.

A technique called meta-analysis allows for some sense to be made of conflicting social science results. Good science, good evidence-based policy, uses the strongest techniques and doesn’t pick and choose from evidence. Meta-analysis allows us an overview.

The Department of Finance states bluntly and without evidence, that “an increase in the minimum wage above the market clearing wage is likely to reduce employment.” Does it? The paper it cites concludes there is some evidence it does. However, that is one paper. I checked with Scopus, the largest database on social scientific academic papers, and found over 2,000 papers on minimum wages.

Looking at some recent meta-analyses we find quite a different conclusion. In one study which uses advanced meta-analytical techniques to synthesise over 700 findings — they find “no overall practically significant adverse employment effect” for the UK.

A study for the US in 2009 finds “little or no evidence of a negative association between minimum wages and employment remains”.

A comprehensive study by the Centre for Economic Policy Research in 2013 states: “The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”

I could go on. There is, to be blunt, no evidence for the assertion of the department. None. It is an ideological, theoretical assertion unsupported by evidence.

If we are to have wage compression, let’s start at the top. Let’s focus on the very top ranks of the civil service, who exempted themselves from the cuts in the early part of the crisis. Let’s have state-supported bankers and sheltered legal eagles subject to the same. Or, we could just blame it on the poor.


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