Dr. Karina Doorley:

The minimum wage is something we do not model in our post-budget analysis for the very reason the Deputy picked up on, namely, it is not paid by the Government but by businesses. As such, it is not in our distributional impact analysis. Having said that, the minimum wage is probably one of the most controversial topics in the economics literature. It might have the most articles written about it in labour economics. There is a trade-off. It is an excellent anti-poverty tool as it affords a certain standard of living to workers, but on the other hand there is this potential employment effect. My colleague Dr. Tuda might talk about the employment effects in a minute.

We have a very strong social welfare system. It does a lot of work in sheltering the consumption of low-income households or households that are not in the labour market. If social welfare provides a certain amount of income to people who are not working, the market rate for work needs to go up accordingly to provide an incentive to work. Otherwise, we have the possibility people choose not to work because they prefer to be on social welfare as there are not enough financial incentives to work. That is one reason the minimum wage is there. It is about balancing setting it at a rate where it is an effective anti-poverty tool but not so high it is going cause employment effects. The Low Pay Commission, which recommended this rate increase, recommended an increase of €1.40, I think, for next year.

This is quite a high increase; it is higher than we have seen in recent years and it reflects the level of inflation in the economy. It is also putting us on this path to get to a living wage over the next four years. As a policy, the Government has decided that the minimum wage should be set at the level of the living wage by a certain date. To get there, we need these large increases in the minimum wage. That is not to say that there will not be knock-on or negative effects on the local economy. Dr. Tuda may want to talk about the research on that.