Mr. Seamus Coffey:

I thank the committee for the invitation to appear before it. In my comments I wish to use the data available to economists to address the question, "Is Ireland a low pay economy?" I can tackle the question from two approaches - the microeconomic approach, looking at it from the level of the individual, and the macroeconomic approach, looking at it from the level of the overall economy or an overall industry. The microeconomic approach, the key data measure, is the incidence of low pay which is generally taken to be the proportion of employees earning less than two thirds of the median wage. For Ireland the figure is very high. Looking at the European Union 15, Ireland has the third highest incidence of low pay at just over 20% when account is taken of hourly pay. The data are collected by the Central Statistics Office. The advantage of using EUROSTAT data is that it aggregates it across and member states can make comparisons. The OECD also provide aggregates but not the same level of detail that EUROSTAT offers. The EUROSTAT is somewhat better.

In terms of full-time employees and part-time employees, Ireland remains towards the bottom of the league table. In fact, for full-time, Ireland is at the bottom with the highest level incidence of low pay at 17%. For all EU states, low pay is higher among part-time staff. Given that they are being compared to a national benchmark, it is standard that part-time workers would generally be on lower hourly wages than full-time workers. The incidence of low pay for part-time workers in Ireland is close to 40%, the third highest in the EU.

The headline figures would suggest that Ireland is a low pay economy. However, we must look at that in more detail. Three issues are key when addressing whether Ireland is a low pay economy from the micro perspective. The first is the thresholds used, against what are we judging low pay. The second is the tax rate on low pay. Low pay is judged versus gross pay but the worker feels net pay. The final issue, as alluded to by Mr. Mark Fielding from ISME, is the at risk of poverty rate for those in employment.

That is a broader measure as it takes into consideration pay, tax and transfers. Ireland had the second highest threshold for low pay in the European Union. According to the data, the median wage in Ireland is approximately €19 and the low pay threshold is set at two thirds of this, at €12.03, the second highest threshold used. In Germany, the Netherlands and Finland the thresholds are all 20% lower. We are judging our low pay threshold on much higher thresholds than other countries. Anyone earning below €12 an hour in Ireland is classed as being low paid, whereas in Finland, the Netherlands and Sweden, it is approximately €10 or even €9 in some cases.

EUROSTAT also produces figures based on purchasing power parity to account for differences in prices and even on that basis the low pay threshold in Ireland is the second highest, the highest being in Denmark where an important consideration is the tax applied to the low paid. Ireland, across the different types of household, has the lowest tax rates for those on low pay and EUROSTAT also looks at that factor. It looks at tax rates on an annual basis, for those earning 67% of the average wage, as well as those on 100% of the average. It looks at low earnings, at single income couples and low earning dual income couples. In all household structures Ireland has one of the lowest net tax rates on gross pay, our gross pay threshold for those on low pay is higher and the amount of tax we impose is much lower.

Net pay in Ireland is likely to be higher than in most other countries. Denmark has the highest threshold, at over €15, but on a single person without children on the average wage it will impose a tax rate of 38%. In Ireland the equivalent tax rate would be approximately 21% or 22%. While there is a gap in gross pay, in terms of net pay, the gap has been eliminated. The gap between Ireland and Denmark is smallest in the case of a single person. I am not cherry-picking these figures because on even lower wages the gap is much larger. Tax is important because, while pay rates appear to be lower in Ireland, what the employee gets to take home may be higher because Ireland has an unusual tax system by international standards, in which we tax those on low pay very little and get to average levels when we get to those on higher incomes.

The final element of the microeconomic process that is useful is to combine pay, tax and transfers. Looking at gross pay, less tax deducted, and transfers such as child benefit, for people who are at risk of poverty, namely, those below 60% of median disposable income, the rate for employees at risk of poverty in Ireland is one of the lowest in the European Union. Some 3% of employees in Ireland live in households that are at risk of poverty. The only country with a lower rate is Finland, at 2%; across the European Union the rates are higher in 13 of the EU 15. Therefore, while Ireland has one of the highest incidences of low pay, if one takes into account the higher rate, our lower tax rates and transfers we offer, the rate for employees at risk of poverty is one of the lowest in the European Union.

On the macroeconomic side of the national accounts, an important statistic is the wage or labour share, which represents the proportion of income going towards the compensation of employees. It measures how much employees get of the value created in companies, how much goes to the Government in the form of product taxes and how much goes to companies in the form of profits, although the measure of profits is relatively broad. In the matter of wage share, Ireland is right at the bottom of the table. In the EU15 it is second from bottom, with only Greece having a lower wage share, at approximately 40%. The profit share, the amount going to the gross operating surplus in Ireland, is the highest.