Minimum wage rise ‘no effect on poverty’

Increasing the minimum wage would have little impact on household poverty, the Economic and Social Research Institute claims.

Minimum wage rise ‘no effect on poverty’

Its latest research, entitled Low Pay, Minimum Wages and Household Incomes: Evidence for Ireland finds that workers on low hourly pay are often found in households with incomes close to the average.

“In a majority of cases, low-paid employees are not the sole earners in the household,” it said. “Even when low-paid workers are the sole earners, fewer than one in five of them fall below the EU’s ‘at risk of poverty’ threshold. These findings reflect patterns which are common across countries and persistent over time.”

The ESRI uses Eurostat’s definition of low-wage workers as those earning two-thirds or less of national gross median earning which, it says, is on a par with the “living wage” of €11.50.

It said that while the median wage increased between 2005 and 2013, the proportion of low-wage employees was broadly stable, at around 20%, for the years 2005, 2008 and 2010, However, it increased to 23% in 2013.

For household poverty, the ESRI pointed out that a home is categorised as “at risk of poverty” if its equivalised disposable income is less than 60% of the national median.

It pointed to three “key” contrasts with the low pay concept:

1. Low pay is measured at the individual level, while risk of poverty is measured at the household level. This implies that a person’s risk of poverty will depend not only on their own income but also the income of other individuals in the household;

2. Given that household poverty status depends not just on income but also on needs, a person’s risk of poverty will depend on the number of dependants in the household;

3. Low pay is calculated based on gross income; while risk of poverty relates to disposable income. Thus, poverty is measured after accounting for social transfers while low pay is not.

“The key factor here is the presence or absence of other earners. For low paid individuals who are the sole earner in the household, the risk of poverty is 15-17%. For those who are in households with another earner, the risk is just 1 to 2%.”

It said more than 11 out of 12 low-paid workers live in households above the most commonly used poverty line.

However, it stressed that it was not saying minimum wage policy is flawed if it fails to reduce poverty.

“Rather, it is important to understand the possibilities and limitations of targeted efforts to increase wages,” it said pointing to research which showed minimum wages were an effective tool in protecting the wages of the least skilled workers, “especially during the Great Recession”.

Meanwhile, the Labour Court has issued its first binding recommendation under the newly amended Industrial Relations Act which gives workers the right to collectively bargain even if their employer is non-unionised and the workers are denied representation.

The recommendation, issued on June 3, sees the pay of 63 Siptu members employed by Freshway Foods in Dublin increase from their current €9.38 per hour to €11.50 per hour — the equivalent of the ‘living wage’ — by 2018.

The court said that under the act it was entitled to investigate a trade dispute where “it is not the practice of the employer to engage in collective bargaining in respect of the grade, group or category of workers who are part to the trade dispute and the internal dispute resolution procedures normally used by the parties concerned have failed to resolve the dispute”.

The union had argued that its members’ terms and conditions were inferior to comparable workers in similar employments. Freshway said its business is characterised by low-profit margins and that control of costs is essential to the continued viability of the business. The court agreed with the union on the comparable benefits.

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