Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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For our first session, I welcome Mr. Mark Fielding of the Irish Small and Medium Enterprises Association, ISME, and Mr. Seamus Coffey of University College Cork. I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee.

If they are directed by it to cease giving evidence on a particular matter and continue to so do, they will be entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members of the committee are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I remind our guests that their presentations should be no more than five minutes duration. As a number of delegates are presenting today, all of their presentations and submissions have been circulated to members in order that they might have an opportunity to read and digest their contents. I call on Mr. Mark Fielding to make his presentation on low pay and a living wage.

Mr. Mark Fielding:

I thank the Chairman and members for the invitation to address the joint committee. As they are aware, I represent small and medium-sized businesses in Ireland and I am the CEO of the Irish Small and Medium Enterprises Association, ISME.

I wish to touch on a number of issues that are of vital importance to small and medium employers and also to those affected by poverty. Depending on to whom one listened in the period 1999 to 2000, the national minimum wage was supposed to address poverty by either reducing or eliminating the problem. However, the survey of income and living conditions produced by the CSO in 2012 showed that the level of consistent poverty had increased since 2004 and that deprivation rates were steadily increasing. It is clear, therefore, that the introduction of the national minimum wage, in order to get rid of poverty, has not actually worked. I am sure Fr. Peter McVerry would agree with me in that regard. The number of people who are homeless stands at its highest point ever in the history of the State. People are not living in poverty because the minimum wage or their hourly rates of pay are too low. There are, for example, individuals who earn above the minimum wage and are living in poverty. People are living in poverty because they are either not working or not working enough. They need jobs, not an increase in the minimum wage.

As members will be aware, 360,000 citizens are unemployed. There are also 86,000 involved in activation schemes which, for want of a better expression, means that they are also unemployed. This means that, in total, almost 450,000 citizens are out of work. Of these, 96,000 have been unemployed for three years. That is where the problem lies; it is not down to the position on the minimum wage. Net income inequality in Ireland is close to the EU 28 average. The Irish wealth distribution rate also roughly reflects the average which obtains in other developed countries. The only explanation for the uneven spread in income inequality - in the context of earned income - relates to the fact that a huge number of people live in households in which nobody works. In 2013 almost one in four of those aged under 60 years was living in a household in which no one was in employment. That is double the EU average. It is, in fact, the highest proportion in Europe without exception and significantly higher than in even Greece or Spain. When an unusually large proportion of the population are not earning an income, it is not surprising that there is an uneven distribution of earned income.

As far as ISME is concerned, the concept of a national minimum wage was wrong from the very outset because it confused the roles of the Government and employers and placed the onus on the latter to pay a wage that sometimes was not economic. Businesses can only afford to pay the value of the labour they purchase. It is uneconomic for them to do otherwise. During the period in which the national minimum wage has been in place, it has actually been increased by 55%. However, we still have not eliminated poverty. As stated, the level of poverty is increasing. In the context of who is paying the national minimum wage, the National Competitiveness Council defines competitiveness as all those factors affecting the ability of Irish businesses to sell goods and services in international markets. The council believes competitiveness is not an end in itself but a means of achieving sustainable improvements in living standards and quality of life.

If that is the case we know that between 2000 and 2008 we have had a huge loss of competitiveness in the region of 39% to 40%. It has come back slightly between 2008 and 2012 but we are again in the process of losing some competitiveness and in the background there is another call for an increase in the minimum wage. The knock-on effect of the minimum wage will have an effect on wage values across the economy.

Taking into account the inflation figures of the past 12 years the ratio of national minimum wage to price levels at today's value would be about €7.40 rather than €8.65. The solution we propose, rather than have a national minimum wage which puts the social responsibility on an employer, is that the Government would introduce an incomes policy which would include an earned income tax credit. The amount of that credit could be a function of how much one earns and one's family size. That process could remove all tax and other deductions on income that equates to about two thirds of the average industrial wage, ensuring that individuals can earn up to €20,000 per annum before being taxed. That could be targeted so that money goes to actual workers living in poverty. It has the advantage of removing low paid employees from the tax net. It enhances the progressive structure of tax policy. It is making gainful employment more rewarding than the live register. It fulfils the Government's obligation to redistribute income through the tax system, which is not an employer's function. It takes the onus and cost of income distribution away from employers. When low-wage workers are supported through tax cuts and rebates, then, being more equitable, all taxpayers share the financial burden. We recommend that the Low Pay Commission investigate and cost this proposal as part of its work in the coming months.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I invite Mr. Seamus Coffey to make his presentation. I am aware that he previously provided assistance to the Joint Committee on Finance and Public Expenditure and Reform.

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.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I thank Mr. Coffey. If he wishes to add further to his comments, he may, of course, do so in the course of the discussion with members. I call on Senator David Cullinane to begin the questions as rapporteur in the compilation of the report.

David Cullinane (Sinn Fein)
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I welcome Mr. Coffey and Mr. Fielding and thank them for their contributions. We are looking to produce a document on low pay, decent work and a living wage. The starting point for all of us would be a fair economy offering decent pay and decent work. We also want to have a sustainable economy. I argue that a more sustainable economy is one which offers decent work and decent pay.

A total of 20% of the workforce is on low pay, which means 400,000 workers experience poverty and deprivation while 11.7% of the workforce is at risk of poverty and 8.7% is in consistent poverty. The ILCU tracker survey highlighted that almost 200,000 workers, or 11% of working adults, have no disposable income left at the end of the month with 480,000, or 27%, having less than €50 left and another 730,000, or 41%, having less than €100 left. That means low pay, income equality and economic inequality are big problems across the economy. How can they be addressed? It is clear if one looks at the facts that the current model is not working. We need a new model, which is about social solidarity and about everybody, including employers, having a responsibility. I am taken aback by Mr. Fielding's contribution in which he seems to suggest that employers do not have a social responsibility and he referred to confusing the State's role in terms of social responsibility and an employer's role.

He said the minimum wage has not eradicated poverty. Nobody would have argued that the minimum wage alone would eradicate poverty but what was missing from his contribution is the fact that the minimum wage has not increased since 2007. The cost of living has increased with rents increasing to pre-crash levels but the minimum wage has not increased. If it does not keep pace with inflation, it will not eradicate poverty.

The underlying problem is access to public services. Child care, housing and health care are issues that hold people back in terms of in work poverty and so on. Does Mr. Fielding believe that employers have a social responsibility? Will he comment on the fact that Ireland has the third lowest taxation take in Europe and the lowest employer's PRSI take in Europe? We are not taking in enough taxes to pay for public services. If Mr. Fielding is putting it back on the State to take responsibility for and deal with poverty, deprivation and low pay and the problems low paid workers face, where will the money come from? If we accept, given the facts, that the current model does not work, where will the revenue come from? I did not hear an argument from him to increase taxation or employer's PRSI. However, he argued against increasing the minimum wage. He has not proposed an instrument to deal with these issues. I am interested in what he and Mr. Coffey propose in this regard.

While Mr. Coffey's contribution was good and detailed, what practical measures need to be taken to deal with low pay and in work poverty? Does he agree that housing, child care and health care are three critical areas requiring investment, which is necessary to lift people out of poverty? What is his view on a living wage and the minimum wage? What is view on the role of both business and the State in dealing with these issues?

Mr. Mark Fielding:

The way out of this is to create jobs, not to look to pay existing workers more, including the Senator and I, who are lucky enough to have jobs. There are more than 400,000 people on the dole and each of them is costing the State. That would be a contribution to the Exchequer because not alone would we not have to pay for them, they would contribute to the Exchequer when they start work.

The Senator asked whether employers have a social responsibility. Our responsibility as employers is to pay a fair day's pay and that is an economic situation rather than taking on the responsibility-----

David Cullinane (Sinn Fein)
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Mr. Fielding opposed the minimum wage.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I ask the Senator to please allow Mr. Fielding to finish his answer.

David Cullinane (Sinn Fein)
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Can I comment later?

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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Yes.

Mr. Mark Fielding:

-----because of the confusion over responsibility. If I pay what is the economic rate of pay to that person, taking that home, then that is what I am obliged to do. There is confusion about redistributing wealth. It is the Government's job to redistribute wealth; it is not my job. It is not my job to pay above what I can afford to pay. If I do then I will go out of business. I have to compete in the open market so one cannot ask me to pay above the economic rate.

The consistent poverty rate is highest among the unemployed at 19.2% and is lowest for those at work at 1.9%, which is a tenfold difference. The whole thing is to get people back working, not charge more for the people who are lucky enough to be in work.

Mr. Seamus Coffey:

I thank the Senator for his contributions. One thing I would be wary of when looking at the people in work who are at risk of poverty is that more than half of them are self-employed. The at risk of poverty rate for employees is relatively low and Ireland is second lowest in the EU. Ireland has a high rate of almost 20% for those at risk of poverty among the self-employed which is where a lot of the low earnings exist. The hourly pay rates are a bit incidental to the self-employed because they must earn money through their own productivity and through finding customers. Low pay in the self-employed sector is probably far higher and is an issue that equally needs to be addressed.

In regard to where can Ireland get the money to pay for services that we wish to provide, we have one of the lower Government revenue rates in the EU. There are two key differences between Ireland and the rest of the EU. First, as I have already mentioned, is Ireland's relatively low rate of income tax on low to middle incomes. Most EU countries would have a substantially higher rate. Second, Ireland is right at the bottom in terms of employers' social insurance. Most countries would use such insurance to have a far more extensive state run pension system than we have in Ireland. One could consider the low rate as a form of deferred pay where people's employers pay into the system of social security. Ireland is unusual due to having a flat rate social welfare pension system. One needs a flat rate for the base but most countries would augment that funding with pay-related pensions. I believe we can collect substantially more money from this sector and there is scope to raise social insurance contributions. What most countries use social insurance for is to improve pension provision. As we know, pension provision in Ireland is relatively low. Our basic pension is €230 a week. For many people, if they are dependent on that sum, it can mean a substantial drop in income if they have not put aside money for a private pension. This matter is something that can be addressed.

Let me turn to services such as housing, child care and health care. Housing generates a lot of attention at the moment but many of the issues tend to arise at the margin. I refer to the homeless and people who suffer rent increases. By and large, housing and the standard of housing in Ireland would be some of the highest in the EU but clearly we have issues.

In regard to health care, an important aspect we can focus on is what is meant by "universal". In Ireland, universal tends to mean free but most countries do not take the same approach. They take universal to mean treating everybody the same. Over the past number of weeks comparisons have been made between Ireland and France. The French health care system has considerable merit but everybody pays for everything in that country. The French system is massively subsidised but everyone makes a financial contribution. Its subsidies come from a very progressive tax system which we have but we do not have universality in terms of treatment.

The key issue here is the minimum wage, social welfare and how to help people. We should seek to help people. One issue is to focus on what the Government can do and to reform our social welfare system. We have a social welfare system that is very comprehensive but could be better. We break up people into too many categories such as unemployment, disability, illness, lone parents and carers. A more comprehensive system where everybody is treated the same would be far better. If we are going to set a basic minimum benchmark for what we want people to have in this society then we should ensure we give it to everybody.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I thank Mr. Coffey. Does Senator Cullinane wish to ask a supplementary question?

David Cullinane (Sinn Fein)
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Yes. I thank Mr. Coffey for his comments. I wish to return to the point made by Mr. Fielding about the responsibility of employers. People want employers to pay decent wages. We have, for example, some very large retail chains in this State that have been very profitable but do not pay their workers proper entitlements.

Dunnes Stores is one example where Mandate has embarked on a campaign on behalf of those workers on very low contract hours and low pay. Mr. Fielding has, unfortunately, not dealt with the fact that 20% of the workforce are on low pay, which is the responsibility of the employers. He has not dealt either with the fact that the minimum wage has not increased since 2007, yet the cost of living has gone up. Employers have a responsibility to pay decent wages, especially when companies are profitable. I would like Mr. Fielding to deal with that issue. I have an interesting figure for him, too: the adjusted wage share of GDP in Ireland declined from 53.9% in 1996 to 50.2% in 2013. Workers have seen an overall drop in their wages in terms of the adjusted wage share of GDP. Employers do have a responsibility.

As an employer organisation, if ISME wants to put some of the responsibility for the redistribution of wealth back onto the State, it cannot have its cake and eat it, but it must be able to state from where that money will come. It seems that Mr. Fielding is against wage and taxation increases, whether employer's PRSI, or tax on corporations or companies. From where will the money come to redistribute wealth to deal with the issue of inequality, to which he refers but which he says the State must resolve? He has to have some answers to these questions and accept that there are many employers who could pay better wages but who do not. They are profitable companies and the State and decent employers subsidise them through welfare transfers. It is bizarre for any employer organisation to stand over this. I would be interested in Mr. Fielding’s responses to these questions.

Mr. Mark Fielding:

I do not represent any of the large businesses about which the Senator talks and will not talk about them. I represent small and medium businesses which are trying to get out of the recession they have been in for the past seven years and which to a man and woman are paying rates of pay they can afford. In my presentation I said taking the ratio of the national minimum wage to price levels, the actual minimum wage rate would be €7.42, not its current rate of €8.65.

In answer to the question of from where we would get the money, every person coming off the dole results in a saving of €20,000 and will be producing tax revenue, employer’s PRSI and their own universal social charge, USC etc. The Senator can see the figures. We cannot keep on saying the employer has to take on the responsibility. I am stuck on that point and that is the way it is. It is not our job to take on the responsibility of the State to redistribute wealth. That is not what we are there for; we are there to employ people, make money in order that we can employ more people and offer a decent living to everybody and watch our competitiveness in order that when we sell our goods on the open market, we can actually compete.

David Cullinane (Sinn Fein)
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I asked Mr. Fielding about his social responsibility, not that of the State. I am aware of the State's responsibility.

Mr. Mark Fielding:

I have told the Senator what our responsibility is - it is to pay a fair rate.

David Cullinane (Sinn Fein)
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That is not happening across the economy.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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We will not have a tit for tat session. I invite Mr. Coffey to comment.

Mr. Seamus Coffey:

I thank the Senator for bringing up the issue of the wage share. There is no doubt that in Ireland the wage share is very low. If we consider the value added created by companies in the business economy - taking away the financial sector in which there are problems and the sectors dominated by the public sector - health, education and defence - across the European Union the wage share is 60%. In other words, 60% of the value of companies created across the European Union goes to workers. In Ireland the rate is 42%. Therefore, the wage share is very low.

In the case of Ireland, there are unusual features such as from where does the value come. We have two economies. Ireland is the only economy in the European Union in which foreign-owned companies create more value than domestically-owned companies. The value added by the foreign-owned sector is larger than that added by the domestic sector. Ireland is unique in that regard. In the foreign-owned sector the wage share is 26%. That is unusual; it is not seen anywhere else in the world. Part of the reason is the type of sector in which these companies are involved, for example, pharmaceuticals, in which high value is added. I imagine some of it is down to taxation, the location of profits and operating in a low tax environment.

The sector that creates the most value added is very low at 26%. If one looks at Irish-owned companies, the wage share is 65%. For domestically-owned companies, Ireland's wage share is above the EU average, which is 63%. At an aggregate level, the wage in Ireland appears low but one should split it into the foreign-owned sector where the wage share is much lower. The foreign-owned sector, paradoxically, is the high paying sector where more people have higher paying work. If one takes the domestically-owned sector, the wage here is 65%, which is not the highest by any means but it is close to the EU average. Looking at the labour share, or the wage share, we have the complication of Ireland having two separate economies.

Dara Calleary (Mayo, Fianna Fail)
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Will Mr. Fielding talk us through how his proposals in regard to the earned income tax credit would work? He did not have it costed and is leaving that to the Low Pay Commission to do, but does he have any idea of a costing? A small business would not make a proposal without costing it. Are there any companies in which it works?

Mr. Fielding said the price of many items and essential expenditure - he cited car insurance, education and health insurance - have increased sharply in recent years. He then referred to the input costs for industry in terms of diesel costs, electricity costs, etc., but they are also income costs for households for whom fuel costs and electricity costs are particularly high. Is that not an argument for an increase in the minimum wage, because the input costs for employees have increased as well?

Mr. Coffey did the usual academic thing and gave us all the answers but did not give us a solution. The presentation was excellent but will he come off the fence and say whether we need an increase in our national minimum wage? We have had all this employment creation recently but pay levels seem to be staying flat. Mr. Coffey spoke about wage share but when we look at the CSO figures on pay, they do not correlate with the employment creation. Are all these new jobs being created at low wages?

Mr. Coffey said that we were slightly above the EU average for wholesale and retail, above the EU 15 average for accommodation and food service activities and at the EU average for the administration and support service activities. They are the areas in which the minimum wage tends to be paid most. Does that suggest that the figures back up Mr. Fielding's argument? It probably goes back to my first question on Mr. Coffey's own opinion as an economist.

In regard to employers' PRSI, do not forget that employers' PRSI has been doubled. The cost of employers' PRSI was doubled in 2013 and I have no doubt that had an impact on many job creation plans, in particular in those sectors to which Mr. Coffey referred.

Mr. Seamus Coffey:

In regard to those sectors in which the wage share is close to the EU average, I would note that they are aggregates. One would have to look in a bit more detail at the numbers to see how it is actually distributed. I highlighted those because I think they are the sectors with which low pay would tend to be traditionally associated.

In regard to a broader solution, the solution is to get the social welfare and the work systems more integrated. Currently, they are disparate and one works in isolation from the other. If one is working, one is dealing with the tax system and if one is not working, one is dealing, by and large, with the social welfare system. They should be more integrated. If we have benefits, they should be universal. We should treat everybody in the same way. That might require higher rates of tax but it would not necessarily mean people will be worse off. If there is a basic minimum standard set out and it is paid to me, then I should be taxed more. I should not be better off. However, that would mean that nobody would ever be worse off by working. One should never lose anything by contributing to society. A system where one has generous social welfare is laudable, and that is what we should have, but it should not be designed in such a way that people lose it when they start to contribute to society.

I would encourage more universality in transfers. We could increase child benefit and maybe introduce something similar for adults. One would not have people fighting for their own corner and all these separate groups looking for what they want. If we have a social democracy and treat everybody in the same way, as happens in many countries, one would not get those divisions.

I would not view the minimum wage as the key issue about how one lifts people out of poverty. Work matters but the State should take a much stronger approach than it takes currently and offer more on the basis of social welfare. People say our social welfare budget is high but relative to the EU, it is not. Other countries spend far more in terms of cash transfers. They collect it through higher tax and higher social insurance and I believe we can achieve something like that.

We have a divided society, a very progressive tax system and a very divided social welfare system in which one group is contributing and another is benefiting. If we were all in this together, the system would work much better.

Mr. Mark Fielding:

On the issue of an incomes policy, I genuinely want the Low Pay Commission to investigate and cost such a policy. It has the capacity to do so. I do not have figures for the Deputy. Rather than beginning with the minimum wage and examining how we will increase it, something that has been put into the public domain, if it is to be empirically based, there may not be an increase in the minimum wage. We could see it coming down to the level of €7.42 per hour, which would equate with the consumer price index figure.

I agree with the Deputy on his point that people are personally being hit with costs similar to those with which businesses are being hit. In a small business the labour content comes in at about 48% of added value, while in a large business it comes in at about 8%. There is a sixfold difference between the two. When there is a rise in the minium wage, it hits small businesses six times harder than it does a large business. Most large businesses do not talk about the minimum wage because they operate at a level where they pay way above it. I am not going to argue the toss with the Deputy over an increase in the minimum wage, rather I am saying we should not have a minimum wage, rather we should have a minimum income policy. As I have said and will continue to say, it is the Government's job to redistribute wealth, not mine

John Lyons (Dublin North West, Labour)
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Both delegates but Mr. Fielding, in particular, might respond to the following comment. The Low Pay Commission in the United Kingdom has for the 15th year recommended an increase in the minimum wage. The other day it recommended a 20 pence increase, which the Confederation of British Industry, CBI, a body somewhat equivalent to the one represented here, broadly welcomed. I recognise that the Irish Small and Medium Enterprises Association, ISME, is not the same type of body, but it is a similar one and I am curious to know why a body in the United Kingdom that represents something similar would broadly welcome a recommended increase in the minimum wage, while Mr. Fielding, from what I believe I heard him say here, does not agree with the minimum wage and believes it should be up to the State to redistribute wealth.

I recognise that not all businesses are thriving and that many people that ISME represents are finding it difficult to make ends meet. I do not believe any of us is talking about a business that cannot afford to pay anything more than what it is paying, but let us be realistic. There are businesses that fall into the category represented by ISME, as well as businesses in the category that employs more than 250 employees that are reaping profits. I believe in the basic concept that if a business is profitable and workers help to make it profitable, there is nothing wrong with ensuring some of them share in that by receiving a dividend, perhaps in the form of a better wage. I am not talking about people on the median wage of €19 per hour; I am only interested in this context in those who are on a wage of €8.65 per hour. It is my genuine belief that if the State did not have a minimum threshold, in many cases some workers in some of these categories would be paid less. The State gets involved in redistributing wealth. We co-share in the contribution to salaries. Approximately €300 million per year is paid to people who work full time through family income supplement. On top of this, we recognise that some employers would like to take on additional staff but are not at the stage where they could fully pay to recruit an additional person. That is the reason we have introduced initiatives such as the JobsPlus scheme. Therefore, I do not believe it is only the State that is responsible for redistributing wealth. Wealth is created in other sectors. If a company in the category ISME represents is profitable, what is wrong with it paying its employees a little more?

Mr. Mark Fielding:

I agree with the Deputy when a company can afford to pay.

I never said that they should not. I am talking about the minimum wage here and about the redistribution of wealth.

If a company is in profit then of course it should pay and of course there should be wage increases. There is nobody here saying anything to the contrary. The Deputy asked, in the context of a British representative body welcoming a 20 pence increase in the minimum wage in the UK, why we disagree with an increase. Since the year 2000 IBEC has sold us down the Suwannee in the context of the minimum wage and wage increases. We did not agree to what was happening at the time but we were not then part of social partnership, we were excluded. That is one of the reasons we lost our competitiveness - by about 40% - over those years. Big business did not give a monkey's about what small businesses were doing. It is the prerogative of large business organisations to agree with something but the SME sector is struggling to get back on our feet after seven hard years. We have so many businesses that are struggling. I agree with the Deputy's point that once businesses are profitable, they should pay employees appropriately. We all know that is wise. We are still in business because we look after our staff when we can make the money to do so. I am not saying that we will hoard all of the gains, of course not.

Peadar Tóibín (Meath West, Sinn Fein)
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Gabhaim buíochas leis na finnéithe as ucht an cur i láthair suimiúil. Bhí sé an-mhaith ar fad. Everybody agrees that we have a problem with low wages in this State but how we actually resolve the problem is the issue. We know that there is also a problem with underemployment. We have one of the highest proportions of low-paid employees in the EU and OECD countries. Has any research been conducted on the level of unemployment created by increases in the minimum wage? In other words, in other jurisdictions, what is the typical correlation between a 50 cent increase in the minimum wage and unemployment levels? My understanding is that while the minimum wage is important, there are many other tools that the Government can use to alleviate poverty. Furthermore, while the minimum wage is important to an employer, in real terms and in the long run, it does not affect the level of employment or unemployment very much. As a committee, we like to operate on the basis of evidence. What evidence is available on those specific questions?

My understanding is that Ireland's income gradient is quite steep in comparison with other countries, where it is more level. Would that be an accurate interpretation? I take the point made earlier that to introduce GDP figures into anything in this country skews everything because there is such a large foreign element to the economy. It seems to me that both witnesses are making the argument that the State should be involved in welfare transfers but to my mind, however, the State is subsidising people on low incomes, as well as employers, with such payments. If the State took the €300 million to which Deputy Lyons referred out of the equation, many of the people who work for very small businesses would simply not be able to work for them anymore and if employers wanted to employ them they would have to pay them higher wages to make their efforts worthwhile.

Reference was made to Denmark taking a bigger chunk of tax from people on low incomes. Does that include taxes like USC, water charges, property tax and all of the other taxes that are charged in Ireland, many of which are not income dependent? We are very conscious that most self-employed people - especially the newly-self-employed - are living hand-to-mouth and that from month to month they are not sure if they can pay themselves an income. However, I am also conscious that some of the unemployment figures are skewed in terms of who is deemed to be self-employed. A person could be deemed to be self-employed who only works for one hour per week in a self-employed capacity. Would Mr. Coffey have any issues with regard to the precise nature of the self-employed figures?

On ensuring businesses remain competitive, is it not necessary for society to focus on all of the other cost bases affecting them, rather than wages? Wages should be the last place one looks at to guarantee cost competitiveness. For example, physical infrastructure represents a big cost, as do upward-only rents, utility bills, insurance bills and legal bills. All of these costs within the grasp of the State, if tackled, would improve the cost competitiveness of business. Rather than seek to target those on low pay, we should look at all of these other places first.

Mr. Seamus Coffey:

I agree that low pay is an issue, but I do not consider that we have an unusually high level of low pay in Ireland. While there is an overall rate of 20% of PRSI, if one looks at the detail, we do not have 20% of people in a worse position than in other countries.

In reply to Deputy Peadar Tóibín's question on the minimum wage and employment, I say, "What a question for an introductory course in economics?" It is a question addressed to all first year students and seems to have a standard answer in theory which is that while a minimum wage harms some people, that is, those who cannot find employment, it benefits those in employment whose pay it brings up. One has winners and losers. While that is the theory, we have no evidence that suggests one answer over the other is right. Various studies show a very large employment effect of a minimum wage that will reduce the numbers, while others show very little employment effect. If one looks at the evidence, it goes both ways. One issue is how to obtain the data to check. Studies have been conducted in various counties and the USA that border different states where minimum wage rates are higher and some find a substantial employment effect, in particular in low-pay sectors, including service sectors, food and retail. However, other studies including different variables do not find any employment effect. I cannot give a definitive answer as it depends on which study one wishes to choose. One will hear people say there is a very strong employment effect, but I could equally find a study that indicates there is none. It is very difficult to say what impact an increase in the minimum wage would have on employment. In theory, economics suggests it has an effect, but we do not know in practice.

When it comes to the self-employed and the part-time employed, an important indicator the CSO collects is the number of people who are workng part-time and underemployed - those who are essentially forced into part-time work and would wish to work more. Up to 2012, that figure had increased and was increasing substantially as people were on reduced hours and days. Thankfully, we have seen that rate fall for the last two years since the start of 2012. The number is down by approximately 35,000. Whereas at the start of 2012, 195,000 people counted themselves as working part-time and underemployed, the figure is now down to approximately 160,000. While it is moving in the right direction, we still have 160,000 people who would like to take on more work.

On the income gradient in Ireland, the distribution of income is unusual in comparison to that in other countries. Our disposable income is in line with that in other countries, but our earned income is not. If one takes the overall economy across everybody, Ireland has the most unequal distribution of earned income, but that is driven by the fact that we have so many who are earning nothing and not in the workforce. Equally, even within the workforce, if one takes workers only, the distribution of income in Ireland is unusually high. EUROSTAT has figures comparing the bottom decile with the top decile. In Ireland the median gap is approximately four, whereas the standard across the European Union is approximately three. If one takes a figure of €20,000 at the bottom, one is looking at a figure of €80,000 at the top. In other countries, the gap is not as wide. Our tax system may have a role to play in that regard. While they have lower incomes in Ireland, we tax less at the bottom and the gap in net terms is reduced. That is what the system does. There is no doubt, however, that the income gradient for earned income in Ireland is unusual.

In relation to the subsidy, one could argue that the figure of €300 million is a subsidy to employers. However, one could also argue that we have a €4 billion subsidy to deal with unemployment. I have no problem with the Government spending money. If people do not have the ability to earn or are not earning, it should provide it. The issue in Ireland is that there are so many schemes to get money to households that it becomes overly complex and people view the money as going to different areas. A broader, more universal approach would clean up many of the problems we have.

Mr. Mark Fielding:

Deputy Peadar Tóibín said that if the Government pulled back and did not pay what might be called subsidies to employers, employers would have to pay more.

It is not a game that once the subsidies are taken away the employers would pay more. If the employers cannot pay more they go out of business, as we have seen in the past number of years.

In response to the question on the minimum wage rising and the unemployment level going up or down, it is all about perception. Deputy Calleary mentioned the increase in PRSI last year from 4.25% to 8.5%. That put a stop to new employment. The word on the street is that the minimum wage could increase by a euro, and that is putting a stop to people taking on staff. It is about the perception. As Mr. Coffey states, one can prove different things from the different statistics. At present, employers are worried and are saying that they do not know if they will take on an additional two or three people. The members of ISME are not talking about taking on hundreds but twos and threes in small shops and factories around the country. People are saying they will hold off to see what will happen. That is the present difficulty.

Mary White (Fianna Fail)
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It is very important to face up to reality. There is a two-tier economy, comprising of small and medium businesses on the one hand and capital intensive industries on the other hand. The young people working in Google, Facebook and PayPal are doing very well. The capital intensive industries do not create employment. Their modus operandi is to be as capital intensive as possible. The multinational companies pay the highest wages and this puts pressure on small and medium Irish companies. I do not have a problem with the minimum wage but with the knock-on effect an increase in the minimum wage will have on others, who will feel that if a new person is getting this much money they should get more, and more in the following years. People seem to be oblivious to the tension this creates among employees. I fully agree with the concept of the minimum wage in spirit but in many cases the reality is that it impedes companies taking on staff. One has to face up to that, Senator Cullinane.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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The Senator should address the Chair.

Mary White (Fianna Fail)
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Gabh mo leiscéal. I think it is a bigger issue.

Mr. Mark Fielding of ISME is an outstanding ambassador for small and medium Irish businesses. He is dealing with their struggles. There is a perception that people in business are making a fortune, they are making money by doing something irregular, or breaking the law. There needs to be an honest debate on business.

There are 250,000 people who are unemployed, with 1,600 emigrating every week. What is important is how we deal with that issue and how we get people back into employment. As I have said on numerous occasions, a job gives people much more than money, it gives them a place to go every day, where they will mix and socialise. It transforms their lives. Nearly half of the 250,000 people who are unemployed have been unemployed in the long term. That is a terrifying situation. It is a bigger issue than how it is being addressed, where there is a perception that those who have been unemployed in the longer term are playing the system. I do not believe that.

Those in business want to grow their business.

It is not just about money. Nobody will go through the difficulties and trauma of building up a business, holding on to it and sustaining it. This is a bigger issue which it is good to debate.

Michael Conaghan (Dublin South Central, Labour)
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I welcome the distinguished speakers.

Naturally, we tend to look to Europe for reference points when dealing with issues around a minimum wage and a living wage. What is the case beyond Europe? I note in the United States of America, 15 states have brought in a living wage. Does a perspective from the US throw any light on how we go about this issue? Can we learn from other countries and other economies outside of Europe?

Mr. Seamus Coffey:

Some US states have adopted a minimum wage but, by and large, it tends to be a voluntary code. It is established what is a living wage which is then put into legislation. It has a slightly different standing to a minimum wage. There is no legislative authority for companies to pay it. Although many companies sign up voluntarily, I would imagine most of them are where the pay rates already exceed the living wage. In the state of Washington, particularly in the city of Seattle, we will get an experiment as to whether the living wage actually becomes the statutory minimum. It will set up a small area within the state where it will require all companies to pay. Again, this will give us the data to see if it does have an employment effect. However, as it has only happened in the past eight months, it will take some time to feed through to see the impact.

In the US, the living wage has much traction but does not quite have the traction to become the minimum wage. It has become a voluntary code up to which employers can sign. One issue with the living wage is that individual circumstances differ. Comparing a living wage for a student who just wants ten to 15 hours of part-time work to someone trying to run a household is not entirely appropriate.

We use the EU as a benchmark because our economies are similar. There are not substantial differences in our tax and transfer systems. Over the next 12 to 18 months, we will see the living wage still have an impact. I do not believe the voluntary code will have much of an impact but if we follow what is happening in Seattle we may learn something.

Feargal Quinn (Independent)
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It has been a pleasure to listen to the delegations. I have travelled around the country a lot over the past couple of years, visiting shops and other small traders. I have mainly met members of ISME, the Irish Small and Medium Enterprises Association. They are in a very competitive market. Of the shops that I visited, several have gone out of business. Other shops are concerned whether they will stay alive while others have succeeded very well. In general terms, those who succeeded very well are not now paying the minimum wage. They did start by taking somebody on the minimum wage. However, if they were going to hold onto that successful employee, they had to pay them more, otherwise they would lose them to somebody else. This belief in a competitive market is successful. It works very well and means people are automatically lifted up if their business succeeds. If the business does not succeed, they go out of business.

Many people cannot figure out how Members in Leinster House can say we should do this when they have never created a job or never actually borrowed money to start a business. They get frustrated and feel we should be discussing upward-only rent clauses, for example. We need to help businesses, survive, thrive and succeed.

This would help to ensure that those who are brave enough to borrow the money to start a business and employ somebody, even at a low rate, will know they will have to pay staff more if they are to keep them. If they do not pay them more, if they do not keep them, and if they do not succeed, they will go out of business and everybody loses. Our task is to ensure that businesses are given an open playing field to succeed and to leave it up to those who are going to work very hard to succeed. The objective of every business is to survive the coming year. A significant number of companies believe they are not going to survive unless they get a free hand.

Anthony Lawlor (Kildare North, Fine Gael)
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Many of us have been fighting for a safety net, particularly for the self-employed. Those who decide to set up their own businesses are the real risk-takers in society. We do not have a safety net for them, which makes it difficult. We must look at an overall package. As Mr. Fielding has said clearly, it is not just about wages. The well-being and happiness of a society is also about the number of people working.

In the UK there is a tiered minimum wage system. Currently the rate in the UK is £6.50 and it drops down based on one's age. What would be the view of the witnesses on introducing that system here? It is appropriate across the UK, in Northern Ireland, Scotland and Wales.

Mr. Seamus Coffey:

Senator Quinn alluded to the progression of employees. It is clear that the incidence of low pay is much higher for younger people and it declines as people get older. The rates in Ireland are relatively high across the age profile, but they do decline. For those under 30, the incidence of low pay is around 40%, yet it is down to 20% for those between 30 and 39. Perhaps those are relatively high rates, but it does decline.

I would not quite say that we do not have a safety net for the self-employed. They are not entitled to unemployment benefit, but one cannot get insurance against a risk one can trigger oneself, so we are not particularly unusual in that regard. There is a certain safety net in that everybody is entitled to unemployment assistance. It is means-tested, so that if somebody has the means, they will not get the money, but the safety net is there. The issue is that if there is a basic benchmark for everybody, we can reduce some of these anomalies.

The issue of low pay in the self-employed sector deserves more scrutiny. The focus here is on pay for employees but there are significant difficulties in the self-employed sector, whether it is, as Deputy Tóibín referred to, people classifying themselves as self-employed despite not working very much at all, or the difference in the tax treatment of employees and the self-employed, in that an employee gets the employee tax credit, but there is no self-employed tax credit. The reason for that might be high-earning self-employed people, who can use expenses to reduce their overall tax liability. A self-employed person earning very little has no tax liability to off-set against. This is something worth considering at the bottom of the pay distribution for the self-employed. The broad point I am making is that we should have a more universal safety net, rather than one that targets individual groups.

Mr. Mark Fielding:

Senator Quinn is correct. One pays the minimum wage when starting out. One sees how employees are getting on and then if one wants to retain staff, the minimum wage is just a starting point. I also agree that we should be looking at other costs, rather than just wages. It is a definite issue. Of course upward-only rent reviews come to mind. To be fair to small and medium business owners, when things got rough in other countries, when businesses were pulling back on costs, staff were let go first. In Ireland, we held on to our staff. We reduced their hours but we held on to our staff and we did not reduce their rates. Now we are running into difficulty because as we come out of the recession, we still have the rate of pay set in 2006-07 as we bring people back into the workplace full time, working 37.5 or 40 hours a week.

It is not all doom and gloom in terms of bad employers and so on.

On the tiered minimum wage system, we already have a system where, when younger people come into the workplace, they are paid a percentage.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I thank Mr. Fielding for his contribution and thank both witnesses for coming here today. It will be of great help to us when we are finalising the report. We will now suspend to allow our next guests to take their seats.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I remind members to ask questions and focus on the subject matter of the meeting because this is a great opportunity for us to pick the brains of the people who have come in to help us today. I welcome Dr. Micheál Collins of the Nevin Economic Research Institute, Mr. Fergal O'Brien, head of policy and chief economist with IBEC, and Ms Maeve McElwee, head of IR/HR with IBEC.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by the Chairman to cease giving evidence on a particular matter and continue to do so, they will be entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person or persons outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I remind our guests that presentations should be no more than five minutes in duration as we have a number of guests presenting. Members have been circulated with the presentations submitted and have had an opportunity already to read them and consider their contents. I invite Dr. Micheál Collins to make his presentation to the committee.

Dr. Micheál Collins:

Chairman, I thank you and the committee for the invitation to make a presentation on this topic. I am an economist and the senior research officer at the Nevin Economic Research Institute. I am also a member of the Living Wage Technical Group, formed last year to establish a robust, transparent and sustainable methodology for calculating a living wage for the Republic of Ireland – a point I will return to later.

I also welcome the attention the committee is giving to the topic of low pay and the living wage. In the context of its examination and our discussion this afternoon, I think the following pieces of data are informative.

In 2012, EUROSTAT published its analysis of the 2010 EU-wide labour force survey. It classified 20.7% of workers, or one in five, in Ireland as low paid, meaning that they earned below a low pay threshold of €12.20 per hour, a figure equivalent to two thirds of national median hourly earnings. EUROSTAT also found, perhaps unsurprisingly, that low pay was more common among women, those with low education levels and workers on fixed duration contracts.

The latest CSO poverty figures for 2013, which were published in January of this year, indicate that, of all those in poverty, 11.7% are working. They are in the group known as the working poor, representing approximately 85,000 workers. The latest quarterly national household survey data show that there are almost 125,000 workers underemployed, that is, working part time but not for as many hours as they would wish. This phenomenon is bound to have a negative impact on their incomes.

The distribution of direct income in Ireland, namely, earnings from all sources, is heavily skewed. The latest data, which is also for 2013 and published by the CSO in January of this year, show that the pre-distribution of income is such that the top two deciles - the top two 10% groups - receive more than 50% of all direct income and the top three deciles receive more than 67%. The top 20% receive 25 times the share of the bottom 20%. The scale of this inequality continues to place large pressures on the redistributive system, particularly the social welfare system, to even out the income distribution. It does this well, but at an ever increasing cost to the State. The latest Department of Social Protection annual report shows that, in 2013, the number of working families in receipt of family income supplement, FIS, increased by almost 30% to 42,000 low-income families, supporting more than 90,000 children.

In the context of figures such as these for Ireland and other countries, attention has turned in recent years to the adequacy of earnings, in particular the adequacy of low pay rates. The attention given to this issue underscores a growing appreciation for society to consider low wage rates, not just in the context of competitiveness and competition, but also in the context of income adequacy and living standards. In effect, it reflects a belief that, across societies, individuals working full time should be able to earn enough income to enjoy a decent standard of living.

The living wage technical group was set up a year ago with an objective of establishing a transparent, robust and sustainable way of determining a living wage. The group's members included the Nevin Economic Research Institute, NERI, the Vincentian Partnership for Social Justice, Social Justice Ireland, TASC, Unite the Union and SIPTU. Over a period of four to five months, the group met and developed a methodology, based on the available data for Ireland and the precedents and lessons in the international research literature, and published it alongside a 2014 value for a living wage last July. The documents are available on the living wage website, www.livingwage.ie. I have appended a document to my presentation that provides more details.

The living wage figure established for 2014 was €11.45 per hour. This figure is the average gross salary that will enable full-time employed adults, without dependants, across Ireland to afford a socially acceptable standard of living. That standard of living covers spending across 17 categories of expenditure and up to 2,000 goods and services and takes into account the structure of the taxation and social protection systems. The calculations, which draw on the minimum essential standards of living analysis of the Vincentian Partnership for Social Justice, were completed for the country as a whole, with expenditure figures calculated for Dublin, other cities, towns with populations of more than 5,000 people and the rest of Ireland, including small towns and rural Ireland. The results from this analysis were brought together to establish the national figure. The group plans to update the living wage figure on an annual basis, with the next update to be during this summer.

In a research paper published at NERI last year, I detailed some of the impacts and challenges that the establishment and introduction of a living wage would have.

The committee may be interested in examining that paper because it provides a lot of detail.

The impact on the individuals and employees in terms of income gains and consequent improvements in living standards for them and their families should not be underestimated. For example, a €1 per hour increase in the pay of a full-time low waged worker is equivalent to a gross income gain of €2,033 per year, which is a multiple of any possible budgetary change to social protection or taxation levels. While there are also impacts on employers, whose wage bills will increase, the research literature shows the impacts have limited consequence in sectors such as finance, banking and construction where there are few earners below the living wage threshold and thus any increase in costs is small. In sectors with a greater proportion of low paid employees, such as retail, food production, bars and restaurants, the wage bill impact is likely to be more pronounced and it would be sensible to phase in any move to a living wage in these sectors. The research literature also indicates impacts for employers in terms of cost savings and gains from increases in staff retention, reduced absenteeism and improvements in productivity and efficiency. While these may not fully off-set the increased wage costs in the high labour sectors, the literature indicates that they would make a significant contribution towards reducing these costs. There are also impacts on the State, which gains through increased taxation, particularly indirect taxation, reductions in social protection expenditure and increases in both employers' and employees' social insurance contributions.

The implementation of a living wage is likely to be a gradual and voluntary process. In sectors such as finance, where only small numbers of employees are below the threshold, achieving increases should be possible and the international research shows little or no impact on companies. There is no reason why, for example, the IFSC could not become a living wage zone. There are greater challenges in labour intensive low-pay sectors, such as retail and accommodation, and a phased approach to achieving a living wage is more feasible for these sectors. Similarly, local authorities, like in other countries, should take a leadership role and ensure their employees and contracted workers are all paid at least the living wage. The experience elsewhere shows that the idea of a living wage evolves from being considered impossible to being viewed as of benefit to society, although that transition and its acceptance by employers, workers and society in general can take time.

Ms Maeve McElwee:

I am grateful for the invitation to address the committee on the issue of low pay and the concept of the living wage. I will outline IBEC's position on the national minimum wage in the first instance and will then ask my colleague, Mr. Fergal O'Brien, to address the economic background to these matters. The important element of the issue of the national minimum wage is that it needs to reflect the economic circumstances that obtain at any time. IBEC supports the principle of a national minimum wage but believes it is vital that the wage be appropriate, competitive and affordable, taking into account at all times the cost of living in the economy. An inappropriately large national minimum wage or any excessive increases to it can potentially damage employment growth prospects, business investment and, ultimately for many small firms, ongoing viability.

The data on the national minimum wage are incomplete but CSO statistics suggest that the number of those currently engaged in the national minium wage is not significantly different from the pre-crisis level. The estimated figure for 2007 was 4.9%, compared to the current estimate of 4.7%. This suggests we are not seeing a significant change in the demographic profile of people employed on the minimum wage.

The Low Pay Commission's review of the national minimum wage must be evidence based. It should take into account a number of factors including labour market conditions, international comparisons and competitiveness, sectoral and regional affordability and cost of living trends.

Mr. Fergal O'Brien:

I thank the committee for the invitation. I will elaborate on the economic criteria that should be considered when making a decision on future changes to the national minimum wage. The first criterion is labour market conditions. While the labour market is in a much better place than during the depths of the crisis, and nearly 100,000 jobs have returned to the Irish economy over the past two years, we still have a very long way to go. While the unemployment rate might dip below 9% this year and we are making good progress, many low-skilled and young jobseekers are still having difficulty returning to the workplace. They are the jobseekers who would be most affected by any inappropriate change to the national minimum wage. Labour market conditions are still very fragile and this must be factored into any decision.

Ireland has a high minimum wage by international standards and compared with the countries with which we compete, despite the fact that we have not had an increase during the crisis years. Our statutory minimum wage is the 5th highest in the EU, and 4th highest when Luxembourg is excluded. The UK comparison is crucially important. When the economic crisis hit us, food processing, tourism and manufacturing were very heavily impacted by competition from the UK and Ireland's lack of competitiveness vis-à-visthe UK. At today's exchange rate, the UK minimum wage rate is probably a little higher than ours, whereas at last year's exchange rates, Ireland's minimum wage was 10% higher. While the Low Pay Commission has acknowledged the importance of exchange rates, it is very important that whatever decision we make about the national minimum wage leaves room for inevitable future exchange rate volatility and that we do not leave ourselves exposed on the competitiveness front, particularly from the UK, by failing to leave room for these inevitable exchange rate fluctuations.

Even when we use cost of living benchmarks such as purchasing power parity, PPP, our minimum wage is still high, the 6th highest in the EU. Another important benchmark is to examine it against median earnings in the economy. By this measure, our minimum wage is almost half the median wage, while in the US it is approximately one third. We have a relatively high minimum wage.

It is important that sectoral and regional affordability are taken into account in any decision. In terms of regional issues, it will have to be a one-size-fits-all rate and cannot be benchmarked against the cost of living in Dublin. Previously, our members in the regions, particularly those with weaker economic performance such as the north west, have definitely suffered the most from a business perspective as a result of the increase in the minimum wage. A competitive cost base is very different in Dublin from the regions. A useful indicator is the minimum wage as a percentage of median earnings in the regions. While our data is incomplete, the evidence we have examined suggests that while the national average is below 50% in the north west, the minimum wage is as high as 60% of median earnings. A minimum wage increase will hurt business and employment in Donegal much more than in Dublin, and this must be taken into account.

Just three sectors of the economy - hospitality, retail and wholesale and other services - account for more than half of all minimum wage workers. We must be realistic about the fact that while the economy is recovering the level of output and turnover in many businesses is well below the crisis peak. In retail for example, turnover is still 15% below the pre-crisis peak. Many businesses in the sector are still impacted by legacy costs, and, for many of them, labour is still a legacy cost because the majority of businesses did not cut pay rates during the recession.

The final criterion I would like to comment on is cost of living. It is appropriate that the minimum wage be increased in line with cost of living so its real value is maintained over time.

In Ireland we have done this very effectively since the introduction of the minimum wage. The minimum wage buys one 20% more than it did when it was introduced in 2000. I believe much of the reason there is concern about low pay and a strong debate on a living wage - a disconnected topic that is somewhat relevant to this discussion - is that in other countries the statutory minimum wage has not kept pace with the cost of living. In the United Kingdom, for example, its real value is less than this benchmark, while in the United States, it is considerably less, at approximately 30% lower. In the United States the minimum wage now buys one 30% less of a shopping basket than it did in 2000. This is crucially important as in Ireland it buys one 20% more and the fundamentals are very different. When one considers the rate of inflation across the economy, business is not able to pass on higher prices. If there is an increase in wage costs, the vast majority of businesses will not be able to recover it in the form of higher prices. There is no inflation in the economy and our cost of living is still below where it was in 2008. As the price of some items has risen, the price of many others has fallen and the overall shopping basket cost is below where it was in 2008. There is no cost of living justification for wage increases across the economy or, specifically, a minimum wage increase.

David Cullinane (Sinn Fein)
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I thank Dr. Micheál Collins, Mr. Fergal O'Brien and Ms Maeve McElwee for their presentations which will be helpful in drafting the document that will consider low pay, in-work poverty and a living wage. There is a mountain of data showing there is a problem with low pay and deprivation and poverty among people who are working; not people who are unemployed. Dr. Collins provided the joint committee with some of the figures, as did Mr. Seamus Coffey earlier. I note that 20% of the workforce are on low pay and that 400,000 suffer from poverty and deprivation. Moreover, 11.7% of people who are working are in poverty, while 8.7% of those who are working are in consistent poverty. These obviously are real figures; there are people behind them and they are of real concern to members as, I hope, everyone present wishes to see a fair and decent economy with decent wages and so on. That should be one's starting point. I argue that the current model is not working because we have such high levels of in-work poverty and low pay. Therefore, one must investigate what the problems are, acknowledge that there are problems and then consider what the solutions are. Dr. Collins has made reasonable, realistic and deliverable proposals on a living wage. The joint committee must consider them and I agree with Dr. Collins's analysis that a living wage is not something that will happen overnight. It will be gradual and happen over time.

As for the contributions made by Mr. O'Brien and Ms McElwee, can they back up some of their assertions with data? The IBEC briefing notes state the living wage "comes with a fiscal cost as it will hurt employment". On what data, research and evidence is this assertion based? The joint committee has also heard from the Irish Small and Medium Enterprises Association, ISME, that an increase in the minimum wage or an increase in wages would hurt our competitiveness. However, countries such as Finland, Sweden, Denmark, Belgium and Austria have much higher personal taxes, higher corporate taxes, higher wages, higher employers' PRSI and better labour protections. They all have much better workers' rights and much better wage levels and are much more competitive. This came from the global competitiveness report, a survey of business, which showed that if one builded a model and a more sustainable economy on decent work, decent pay and decent workers' rights, it would be more sustainable for everybody.

The delegateses from IBEC made an interesting point which was also made by Dr. Collins and with which I agree, namely, that wage levels and increases are one way to lift people out of poverty. Obviously, the concept of a living wage is aimed at doing some of this, but I refer to Government policy on public services. The delegates quite rightly mentioned housing supply and child care costs as two critical issues, to which I would add health care. From where would the increased revenue come to pay for the investment in these services? While I am open to correction, I do not believe IBEC is calling for increased taxes across the economy. From where will the increased revenue come to pay for these services? If one does not argue for wage increases, especially for those who need them and if one states more money will be necessary to solve the housing supply problem and resolve child care issues, one must then ask from where will the money come.

We say more money is necessary to pay for the housing problem, for housing supply and child care. We must argue about where the money will come from. Does Mr. O'Brien have a position on rent controls, which is one proposition put forward? I am interested to hear the IBEC position on this. What data will IBEC use to back up the assertion that it would be bad for the economy? I argue that more competitive countries and those with more sustainable economies pay better wages, have better working conditions and have higher taxes on corporations and wealth.

Mr. Fergal O'Brien:

On the overall measurement of competitiveness of the economy and how Ireland compares with other high income and high cost economies, when doing international comparisons it is crucial to compare Ireland to countries we are competing with on a day-to-day basis. Our most significant competitor for a range of business activity is the UK. We must be pragmatic when we look at comparisons, whether with respect to inward investment, small businesses trying to sell into the UK market as the first port of call for exports, or imports coming into the country, the majority of which will be coming from the UK. Prior to the crisis, the cost of doing business in Ireland got out of kilter, particularly with the UK and a number of other countries. We need to keep the UK strongly in focus in terms of competitiveness arguments. Comparing ourselves to Nordic countries, which have completely different social models, is not a relevant comparison in terms of its impact on business.

The impact of competitiveness on jobs was somewhat lost in the run-up to the crisis years because so much happened at one time. We had banking and construction crises, an exchange range crisis that added to the competitiveness crisis and, in the run-up to 2007, we were adding jobs in construction but losing jobs in manufacturing. One of the reasons we lost all of the manufacturing jobs between 2001 and 2007 was because our cost base was out of line against the UK. We cannot forget that.

In terms of the comments we have not made, when the crisis hit and the decision was made to reduce the minimum wage in 2008, IBEC did not support the reduction. We felt the minimum wage was an important component of the cost of doing business and competitiveness but we did not support its reduction. We need a competitive minimum wage.

In terms of the concept of a living wage, public expenditure, housing and education in particular, from the business perspective we want to see high-quality jobs in the economy. We want to see more ambitious investment in education and skills development to help people to upskill and gain higher quality employment after entering the workforce. The argument about the living wage is that it is crucial business is not asked to compensate for the high costs emerging in our economy, including housing, rent and health care. That will lead to a spiral of loss of competitiveness and jobs and it will damage economic recovery.

It is the Government's responsibility to make sure it has the proper policy to deliver affordable housing and the supply of housing the economy needs. In terms of how that will be funded, the Senator is correct that we do not favour higher tax rates but we do favour more tax revenue. We can have more tax revenue by supporting activity through a competitive cost base but not by having higher tax rates. This is one of the things we saw in the 1990s and early 2000s. We like to put a lot of it down to a property bubble but there was a solid economy that grew strongly on the back of competitive tax rates. We can do so again in terms of growing a revenue base without higher tax rates. Crucially, the Government must lead policy in terms of investment in housing.

The private sector will support it and there are lots of options for it to support investment in housing. There is a lot of money available in the markets. Workers are looking for jobs and those with money are looking for investment vehicles, but Government policy must lead, as we cannot expect business to bear the cost of policy failures in the housing sector that will cost further jobs in the economy.

Dr. Micheál Collins:

I will pick up on two of the Senator’s points. There is an issue surrounding the sustainability of the State’s involvement in dealing with the scale of income inequality or low wages. We can see this in the significant growth in family income supplement over time. There is a great deal of merit in having family income supplement as a transitory payment for workers who need assistance, but as it moves to becoming a permanent feature of the labour market, it is a concern. The numbers have been going up over time.

The overall effort the social protection system is making is very significant. There were several reports last week of Ireland being at European levels of income fairness or inequality. This is principally delivered by the State in redistributing. There is, however, a great fear that it will be difficult for it to sustain this task in the future. That brings us back to the fact that while we need a good social protection system and good public services, we need a more adequate base of direct income and earnings.

There is merit in joining the dots between the provision of public services and pay requirements. If there is poor provision for public services, more people will have to spend money and, therefore, have to earn more. Figures for items such as the living wage would be higher. The living wage figure I mentioned could fall if there were better public services because people would not need as much money to maintain a particular standard of living.

When the living wage technical group was working through the data last year, as well as reporting a living wage figure, we stated we would show a family living cost because individuals and couples with children faced such significantly higher costs. There were dramatic costs, fundamentally linked with differences in child care costs and the different costs incurred by children. Child care costs were significant. We felt it was completely unfair to ask employers to carry the cost because of the fact that there were deficiencies in the public sector and public service provision. We should, therefore, be thinking about these, too.

David Cullinane (Sinn Fein)
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Dr. Collins’s points about the sustainability of the State subsidising low pay and about in-work poverty came up in our last discussion. I would also like to hear Mr. O’Brien’s and Ms McElwee’s opinions on this matter. Most employers attempt to pay decent wages, but there are some big multiples in the retail sector which do not. They are profitable companies that do not pay decent wages. The State, through family income supplement and other measures, is subsidising these companies, which hurts everybody. What is IBEC’s position on that issue?

We need to increase tax revenue because we have the third lowest tax take in Europe. As long as that is the case, there will be underlying inequality in society because we do not have the revenue to invest in the public services we need. How do we raise that tax revenue? We have to be specific in how we do it. We cannot just say it will come from economic growth. This is a global issue which came up for the first time at Davos at the World Economic Forum which discussed the growing gap between restrained wages and the income of the majority, on the one hand, and the massively expanding wealth at the top, on the other. It is a big global problem. What proposals would the delegates put forward to deal with these inequalities?

How do we get to the root of the problems affecting many workers? In a sense, if we are to look at how we deal with them, we must put ourselves in the shoes of those workers on low pay and look at what supports they need. There is a weakness in the response in terms of the specifics of how we would do some of this work.

Mr. Fergal O'Brien:

On the tax issue, what we are about in the economy is broadening the tax base. It makes economic sense to do this and that we are shifting our reliance away from work because the taxes on work in the economy are very high, in particular the taxes on highly skilled work. We hear this all of the time from employers when they look at the cost of a highly skilled job in Ireland versus that in other jurisdictions. We have a high marginal tax rate and a high effective tax rate for highly skilled employees, which is a big challenge. In growing the economy, we need to broaden the tax base and get more people back to work. That would give us the tax revenue we need for improved public services.

On the inequality issue, Dr. Collins has said Ireland has a redistributive tax and social welfare system. We actually have the single most redistributive tax and social welfare system in the world, bar none. We raise a lot of tax revenue which we redistribute in terms of a strong social protection system. We do this more effectively than any other country.

When one looks at pre-tax and pre-social welfare levels, the question is why we have this inequality which is an outlier at a pre-tax and a pre-social welfare level. The single main reason we can see is that there are so many homes in which no one is working. That is the real issue in terms of inequality in society. We have the highest rate in Europe for jobless households and had the second highest rate before the crisis hit, even when there was a full employment rate. We have not really grasped that policy challenge.

Investment in education, skills and appropriate reform of the tax and social welfare system which would help to get people back into work is the priority because the number of homes in which no one is working is the real cause of inequality in society.

Ms McElwee will respond to the question on pay.

Ms Maeve McElwee:

On the concept of the living wage and how it would be applied in areas in which we typically look at the issue of low pay, there are many definitions. It is not a new concept, but it is very much a current topic for discussion. Internationally, there has been no ability to define exactly what a living wage should be. Looking at the work to which Dr. Collins referred, the technical group is still looking at 28 versions of a living wage, depending on the construct of the family and the location in which somebody is living.

There is the idea that the living wage could fall once it had been implemented, but that is not really a practical assessment because, in reality, no employer would be in a position to reduce a wage once the concept had been implemented. The idea of the living wage does not address the reality in the labour market. The family wage which has been constructed on there being mostly a sole male breadwinner does not recognise the position of women in the labour market and the flexibilities required by different cohorts in the labour market, nor does it deal adequately with dependants within the family. When we look at how we would implement something along the lines of the living wage and making it reasonable and decent, it is entirely impractical for employers to be able to manage this. They pay wages which are competitive and sustainable for their businesses. As we have seen, over the course of 2014 and into this year, more employers are predicting pay increases where they are affordable. This leads to greater productivity and competitiveness because employers and employees together drive competitiveness to achieve these wage increases. When we look at some of the sectors that are typically seen to be low pay, we look at the retail sector and talk about some big retailers which do not pay well and do not pay decent wages. However, if one looks at the data, most of the big retailers do not have anybody working at the national minimum wage rate.

When we talk about those on low pay having difficulties in achieving greater pay rate, we are back to the areas about which Mr. O'Brien spoke.

We are looking at Donegal in terms of small employers challenged with work crossing the Border, for example, retailers and hoteliers who constantly have a price pressure between where they are operating in a very small environment and the competitive rate they face just across the Border.

The issue of introducing a living wage is a voluntary concept. It still has its own problems and would bring into play its own workplace relations issues, but it does not resolve the issue of low pay because, in effect, employers who can afford to pay it will do so without it necessarily needing to be guided one way or the other. Those who cannot afford to do so will still have to fall back to what is a commercially sustainable rate of pay for the business they are in.

Dr. Micheál Collins:

To pick up on a number of the Senator's points and other points mentioned, there is a real issue around the scale of tax revenue we collect. It is clear that what we are collecting currently is not sustainable, and we are still borrowing. As growth continues there will be some recovery in that. We can expect that but if we look at the projections the Government has set out in its budgetary documents some months ago into the years to come, they are questionable in terms of the costs the economy is likely to face and the feasibility of what are declining overall levels of taxation revenues proportional to national income. That does not make sense regardless of the way one looks at it.

Mr. O'Brien mentioned that we have the most redistributive tax and social welfare systems in the world. I am not sure if we do. I suspect we are very close to it if we do not, but the reason for that is because the starting position is so bad. It is because we have such an inequity in terms of starting distributions of earnings and because the State has to step in through the tax system and, most principally, through a social protection system to even it out. That is why I said earlier that the State does a very good job at doing that, but we forget the fact that it is the starting position that is so problematic. One of the solutions to adequate levels of income, therefore, is that we end up looking at adequate levels of pay to be the base for that.

I will make some brief points on the living wage, picking up on some of the other comments. I wish to clarify that it is one figure that is being set out, not 20 or anything like that, and it is for the country as a whole. There is a very clear technical document laying out the calculation of it for the Republic of Ireland. It does work in other countries. It is fairly well established in London, for example, and outside London in the United Kingdom, as there are successful living wage schemes in other parts of the world, including in the United States, Canada, New Zealand and so on. Employers make that work, and they make a link to the fact that this is about saying that if an individual is working full time, they should be earning sufficient to be able to afford a decent standard of living. That is what the living wage is intended to do. That is not to say it is the answer to all our problems or that all our problems will disappear, but the significant contribution it makes is that it provides an annually updated benchmark, which will tell us the level of income employees need to be earning for them to be able to afford a decent standard of living. When they are below that, they are clearly cutting back and when they are above that, they have some discretion in terms of their spending.

Dara Calleary (Mayo, Fianna Fail)
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I thank the two presenters. I will make two points. First, I am slightly concerned that Dr. Collins's method of calculating a living wage seems to exclude the role of the State in terms of either taxation or transfer in that it appears to place it all on the shoulders of the employer. In the context of what Mr. Seamus Coffey had to say to us before the representatives came in - I do not know if they were here for it - the EUROSTAT figures show that the wage share in Ireland is only slightly below the EU average for the wholesale and retail trades, for accommodation and food service activities and for administrative support service activities, which are areas, I assume, in which one would be assisted by a living wage, so we are not necessarily way off the EU average in terms of it.

Second, Dr. Collins also raised the idea that local authorities should pay the living wage as a type of experiment, but that gets paid for by the same people he wants to pay for the minimum wage, namely, ratepayers, who are already getting nothing for paying their rates. That will increase their cost base.

There seems to be an inherent contradiction in Mr. Fergal O'Brien's presentation.

According to a press statement on the IBEC website, the majority of companies intend to introduce pay increases in 2015. It also refers to a spectacular economic recovery in 2014 and indicates that 49% of companies awarded pay increases to staff in 2014, with this figure set to increase to 51% this year. Mr. Mark Fielding of ISME disputed these figures. How many workers in IBEC member companies are on the minimum wage?

Given that the figures presented by Mr. Seamus Coffey show that the wage share is lowest in industries that are dominated by foreign owned companies, in particular US multinational firms, in other words, IBEC members, is it not slightly contradictory, if not hypocritical, for IBEC to oppose an increase in the minimum wage when its own members are awarding pay increases to those on substantially higher incomes and are doing so from a lower base?

A single person on the minimum wage with no children or debt receives €16,960 per annum. IBEC speaks regularly about input costs in the economy, for example, energy and waste costs, being poor. The same applies to individuals. While purchasing power here is in line with the European average or perhaps a little higher according to EUROSTAT, one is left with very little from €16,960 when one subtracts from it rent, travel and food costs. Given that IBEC members paid staff on higher incomes an increase in the past couple of years, is it not wrong that the organisation advocates that those on the lowest incomes who serve its members on higher incomes should not receive any increase in pay?

Mr. Fielding made the colourful remark that IBEC had sold out small business by supporting the minimum wage. I ask the IBEC representatives to respond to his comment.

Ms Maeve McElwee:

In response to the issue of the pay survey, in the first instance, we do not keep any record of how many of our members pay the national minimum wage. As such, I am unable to answer the Deputy's question.

IBEC has a significant number of very small companies among its members. In terms of the survey we circulated of increases in pay, the majority of employers who responded indicated that they intended to increase pay. This covers all sectors of IBEC's membership. However, when one breaks down these figures, one finds that more than half of companies with fewer than 50 employees have indicated that they are not in a position to increase pay this year. There is, therefore, significant diversity in the ability of companies to pay. This diversity is based on sectoral and regional factors.

The Deputy asked why IBEC had rejected calls for an increase in the national minimum wage. The reason is that we do not believe there is any cost of living requirement for an increase in the national minimum wage by IBEC members in particular sectors. I refer specifically to the retail, hospitality and low cost manufacturing sectors which need to manage competitiveness to keep in line with their competitors in the United Kingdom. We are still in a very early phase of recovery and many of these sectors are not recovering at the same rate as some of the larger companies where pay increases are being awarded. We must bear this in mind and allow these sectors to build a sustainable recovery. We also want to encourage smaller businesses, irrespective of whether they are members of IBEC, to increase employment, for which they require stability and need to be able to pay a competitive rate of pay.

Mr. Fergal O'Brien:

There is no contradiction in IBEC's view. The way the labour market is working is that those employers who can afford to give pay increases are doing so, which is great for the workers in question and the domestic economy. As Ms McElwee stated, many small businesses across IBEC's membership cannot afford to award pay increases at this point as to do so would threaten their viability and jobs, either in terms of the number of people employed or the hours employees work. There is, therefore, no contradiction in our position, which is a reflection of developments in the labour market.

IBEC members employ approximately 1.1 million people across all sectors of the economy. We are very happy to reflect as best we can all of the issues and business needs of our members and believe we do this quite well. It is great that businesses doing well in export markets and the technology sectors are awarding pay increases. However, for those businesses where labour accounts for more than 50% of the cost base and which are operating in sectors in which turnover is still 15% or more below the pre-crisis turnover figure, wage increases would not be the appropriate course of action. They would cost jobs and prevent more people from returning to work, which must be the priority in addressing the inequality challenge. Again, I see no contradiction in IBEC's position on this matter. It is a reflection of the reality in the labour market and its economic fundamentals.

Dr. Micheál Collins:

On the point raised by Deputy Calleary, while the living wage takes account of the taxation system, it does not take account of the transfer system because, ideally, one should not need transfers if one were earning sufficient income for a living wage. The living wage is structured on the basis of an estimate for a single individual. Transfers for families occur through child benefit and so forth.

The reason I referred to local authorities introducing the living wage is that this is the route by which its introduction has tended to take place elsewhere in the world. Elected representatives have decided that employees of local authorities should be paid a living wage and the living wage is introduced in that way. There is merit in that approach and a number of local authorities in Ireland have been examining the issue.

A living wage has also been introduced in other countries by large businesses, which tend to be the types of companies that embrace the living wage. Large finance businesses and some of the universities and accounting firms have introduced it. For the most part, such firms have few employees on very low wages and these tend to be cleaning and catering staff and so forth. These employees are then paid a living wage. Some of the leading supporters of the introduction of a living wage, for example, in the United Kingdom, are big businesses which like to be seen to be paying their employees properly. It often comes as a surprise to them that they were not paying their employees properly and the result is a willingness on their part to embrace living wages.

I propose to address the logic of an increase in the minimum wage, an issue on which I disagree somewhat with Mr. O'Brien and Ms McElwee. To take first the change in consumer prices since the previous increase in the minimum wage in July 2007, prices had increased by 2.3% between July 2007 and the end of last year. There is, therefore, an issue related to the value of the purchasing power of those earning the minimum wage, which has declined over time. Throughout this period, there were significant variations in prices, with periods of deflation and inflation. To some degree, we are in another period of deflation. None the less, there are issues around the decline over time in the purchasing power of those on the minimum wage.

I agree with Deputy Calleary that there appears to be some logic in the argument that, in a period in which wage increases are broadly beginning to appear in the economy, as shown by data from the Central Statistics Office and reports from IBEC for two years in a row indicating that its members are awarding wage increases, it would seem to be almost a bit mad that the wages of those at the very bottom who need an increase most are not increasing. The idea that there would be no increases for this group but increases for those further up the ladder does not make sense. There is merit in ensuring further divides do not emerge. This returns us to the logic of increasing the minimum wage.

One of the great problems with the structure of the minimum wage in Ireland is that we tend to revisit the level at which it is set only occasionally. In other words, we only consider increasing it every couple of years. Asking employers to pay, for instance, one increase of 60 cent rather than four increases of 15 cent spread over four years is a much more difficult request to implement. The decision of the Government to establish a Low Pay Commission to examine the minimum wage on an annual basis is very welcome. We should consider making smaller changes in the minimum wage over time to maintain its adequacy for low income workers than to revisit the issue occasionally, as has been the case until now.

That would make a lot more sense than the occasional visiting we have been doing up to now and I think will give us better outcomes.

Peadar Tóibín (Meath West, Sinn Fein)
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Some of the figures in Dr. Collins's presentation are quite startling, for example that the top two deciles earn over 50% of the direct income. Could Dr. Collins confirm another figure that is quite remarkable, that the top 20% of workers receive 25 times the share of the bottom 20%?

The issue being discussed here is low pay; sometimes when the issue is discussed with IBEC or ISME attention gets slightly diverted to those outside of employment. The challenge we have here is that there is such a problem with low pay in Ireland. I believe it is the objective and the responsibility of the Government to ensure that a person working full time can cover their full expenses in life. There is a difficulty if a wage fails to do that. I find that often in these discussions it is argued that low wages are good for competition but high wages are also good for competition and that logic affects the distribution of income. The fact of the matter is the competitiveness of the State is founded on all of its income and all of its pay; a flatter income gradient would be more beneficial for the competitiveness of the State because people who earn €100,000 are also competing with people who earn €100,000 in Britain.

Sinn Féin has been involved in bringing about a living wage in Belfast City Council. This cost Belfast City Council £21 per staff member per year and was accomplished with no increase in the rates paid by businesses, so it can be done if an organisation is determined to do it.

Mr. O'Brien suggested increasing the tax base while reducing the tax rates. That does work at certain points of the economic cycle; my worry is that it has proven to have the opposite effect at other points of the economic cycle. When there is contraction in the economic cycle, as there will be, we find that it has a procyclical influence on the process and sometimes has the effect of making the bottom end of the cycle more difficult for the economy.

We discussed FIS earlier, which to a certain extent is a subsidy; the State, in effect, is paying a subsidy to employers to pay workers. If that subsidy did not exist these individuals would not take the job because the job would not be worthwhile. Some of the people who are in receipt of FIS work for companies that are very profitable and do not need FIS. If IBEC believes in market forces, does it believe that certain businesses should have subsidies paid to them in this way? For example, I am aware that IBEC does not support large subsidies to farmers in a similar fashion year-on-year. If some companies do not need subsidies and others would not survive in the real market should the State be repeatedly paying them a subsidy?

It has been asserted that we are in direct competition with people in Britain as opposed to those in the Nordic countries. I do not fully agree with this; I believe we are probably in competition with all of those economies. It is those models which are most competitive that we should be aiming to converge upon. The difference between the minimum wages in Ireland and Britain has been mentioned but how does the purchasing power in Ireland compare to that in Britain? How can purchasing power be increased without increasing the minimum wage? One suggestion was to reduce the costs of public services; are there any other ways that could be done?

Mr. Fergal O'Brien:

I thank the Deputy for his questions. In our conversation, inequality in society and the statistics we use to measure it are mainly looked at in terms of household income data, including social welfare. I would go back to some of the comments made earlier about the source of inequality. I believe it is due to having such a high rate of jobless households and that this is the single source of inequality in society. The issue is not just the social welfare system, but more about how we can help people in these households find jobs. These are people whose parents may never have had a job. This is one of the biggest challenges we face and is crucial to the debate on inequality.

In terms of tax, my point is that there tends to be significant revisionism in terms of the economic history of the 1990s and 2000s and of the cuts in taxes making the system unsustainable. The problem was we had a very narrow tax base. Our argument would be that we should broaden that tax base. We must learn from that crisis. When the economy collapsed, there was nothing coming into the public coffers. This was because we had an excessive reliance on income tax and transaction related property taxes. Broadening that tax base to services and property makes sense and will protect us in future downturns. We argue that having competitive income tax rates, in what is now becoming an increasingly mobile, global labour market, is how we will maximise tax revenue from the perspective of income.

A narrative has developed that the State is subsidising employers to keep people in work. That view is unhelpful to this discussion and we disagree with it. Many of these jobs would not exist if they were a higher cost. The employer may be paying 70% or 80%, but the State would be paying 100% of that cost if it was not competitive to keep that job in this economy. If wage costs are significantly higher, we will lose many of these jobs. We hope we will move to higher quality jobs over time. For that reason we will invest in skills and education to try to create an environment where more people have higher quality and higher paid jobs in the economy. However, many of the higher cost jobs we have here will move out of this country. We have seen this in the past. Before the economic crisis ever hit us, hundreds of thousands of jobs moved out of this economy because of wage cost competitiveness.

Dr. Micheál Collins:

I shall start by confirming the figures for the Deputy. The figures are from the most recent CSO survey on income and living conditions, the most detailed survey and data we have on income in the country. It gives us the picture of where we are before taxes and social welfare occur. It is the case that the top 20% receive 25 times the share of those at the bottom. One of the other numbers was that the top 30% of all earners get 67% of all the income. This is the starting point of the State steps to redistribute. If we have such high inequity to start with, it is a big job to redistribute income and even out the situation. This brings us back to issues around how to begin to address in some way the issue of more adequate earnings and incomes. This is the reason we have an effective tax and social welfare system. We must have that. Otherwise we would have even more unequal income distribution, which would be even more problematic.

We must remember competitiveness is not just about wages. Wages are important, but there are issues in regard to public services, infrastructure and the education system. Competitiveness touches on all of these also. In terms of low paid workers and the general groups the committee is looking at, we must remember it is not all about pay and that there are issues around precariousness of employment or precarious work practices and uncertainty for employees, who do not know from one week to another what their work hours or income will be.

Putting people and families in a position such as that is not sustainable in terms of ensuring adequate and decent standards of living for society.

I agree with Mr. O'Brien that a jobless household is the real issue. There is no doubt about that. Given the scale of the economic crash we have had, we have many of these households. The great concern is that if we have significant numbers of lower skilled people unemployed, the potential jobs awaiting them are not a great improvement from their current position. We want to get these people back to work, but we want to get them back into decent jobs and work. We must think about this agenda.

On the broadening of the tax base, we have still got quite a bit of work to do. We have made significant progress over time, but broadening it further would probably include issues such as increasing employees' and employers' PRSI, which are quite low. Neither of these two groups are paying sufficient currently to support the social insurance system we have in place or the Social Insurance Fund, which continues to require subvention from the Exchequer. Given the structure of the economy and the population and given the likely costs that face us in the years to come, this brings us back to thinking realistically about how we will pay for these.

I and some of my colleagues at the Nevin Economic Research Institute have been pointing towards the fact that we must stop dealing with the day-to-day crises we have been dealing with, in positive and negative times, for approximately three decades and begin to embrace seriously where we are going as a society. We must think about that. This will require us to think about structural reform and about preparing for the long-term challenges. It is unrealistic to look at the tax take we collect currently and the likelihood of what is ahead for society without realising that we must either make significant public spending cuts in the years to come or collect more tax. We have not had that debate, but it would be useful to have it.

Peadar Tóibín (Meath West, Sinn Fein)
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The reality of the supply and demand of labour and the pricing of it means that the lower the price for labour, the more people will be employed. Therefore, if we reduced the minimum wage by half, we would have a higher demand for labour. However, if a person is working full time and cannot afford to pay his rent and feed his children, the State must fill that gap. In other words, we need to find a morally responsible wage level that means the State does not need to keep filling the pot for people who need support to look after their families and their rent. This wage needs to be found and employers need to pay that rate. This makes the argument that there is a necessity for an increase in the minimum wage in order to achieve that.

John Lyons (Dublin North West, Labour)
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One of the disadvantages of being last to contribute is that most of the questions have been asked. I agree with Mr. O'Brien that one of the main issues in regard to household income is jobless households, but I must also state the obvious, namely, that earning €8.65 an hour is a significant contributor to income inequality. It also affects a person's opportunity to not just survive but be part of society. With all due respects to Ms McElwee, it is no consolation that approximately the same percentage of the population is on €8.65 an hour as before 2007.

The minimum wage of €8.65 an hour is not an acceptable wage for anybody. I recognise we look at the world from a different viewpoint and I respect that Mr. O'Brien and Ms McElwee are here as IBEC representatives. I speak from a different side. For example, we know the VAT reduction for the hospitality sector cost the taxpayer a significant amount. We will hear from unions that come before us at a later date that no negotiations were held on issues such as the nature of work rather than pay alone so as to ensure better quality conditions for these people. We know that some people in the hospitality sector have refused to engage in registered employment agreements, REAs, or joint labour committees, JLCs, which might ensure a better quality of life.

As was said earlier, the issue is not just about wages, but about everything else also. I am disappointed with IBEC's response on this and almost feel there is a conspiracy in this regard.

Deputy Calleary had asked if there are any figures on how many IBEC members have employees who are paid €8.65 per hour. I assume that there are some people who do. It is great to hear people talking about wage increases. Surveys have shown that more people are expecting wage increases and that employers are going to do this. We know that is happening. They are the types of employers who have a good social responsibility attached to the way that they treat their workers.

The current estimate of people employed on the minimum wage is 4.7%. I respect that there are employers who cannot pay because of the circumstances they find their business in right now but to call a spade a spade, there are businesses who employ people and who would employ them at less than what they pay them now if they could. It is not acceptable to sugar coat the situation and say that does not exist. That is what the issue is about here today. I am not concerned with people on middle or higher incomes getting more this year. I recognise that Government policy on this is required, and that is being looked at. One of those significant pieces in the jigsaw is income rates. It is not acceptable for anybody to earn €330 a week; it cannot buy anything. Even if it does provide 20% more purchasing power now than it did seven years ago or pre-crash, that is still very little.

I will finish on this point. Nobody here earns close to the minimum wage. There has been very little discussion about the real life implications of what it really means for these people. I respect employers and acknowledge that they have a massive social responsibility but we cannot escape from the fact that if the minimum wage was reduced by €2 tomorrow there will be some employers who are represented by IBEC and others who would decrease the wages they pay immediately. Those people are the reason we are here today and why the introduction of some sort of regulation is necessary, to protect people who are in such vulnerable situations.

I will leave it at that. I do not expect comments back because most of the questions have been asked and answered. I want to make that point. The real conversation here today is about the people who earn €8.65 per hour. We do fund work; we fund work for wealthy companies that are well able to pay and give people full-time, 40-hour contracts per week but choose to give them less than that for the benefit of the company rather than the worker. Nobody here can produce documents to show that but we all know that exists. It would be a shame to have this conversation without reference to the reality that people are living and who we hear from on a day-to-day basis.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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Does Mr. O'Brien wish to respond?

Mr. Fergal O'Brien:

I will make two very brief comments. Deputy Tóibín asked a question about the purchasing power in Ireland versus that in the UK. The latest numbers that IBEC has looked at show that in Ireland it is about 10% higher. The other thing that it is important to recognise is that Ireland does a very good job of keeping minimum wage earners out of the tax net; their effective tax rate is about 3%. In most other countries tax on minimum wage is quite high; in the UK it is about double. That is an important part of the conversation.

The reduced rate of VAT and the impact it has had on the economy is relevant to much of this discussion and the conversation we had on tax rates and revenue. The Deputy made the point that the VAT reduction would cost the taxpayer. I would argue that the VAT reduction has actually yielded revenue for the taxpayer because it put more people back to work. It showed the cost-sensitive nature of many of the sectors in which it would have impacted and ultimately it was an economic gain for the country. It actually benefitted the taxpayer. It took people off social welfare, put them back into work, ensured that employers were paying more employer PRSI and that there was more spending power in the economy. That is what appropriate tax rates can do in terms of supporting economic growth and activity but it also demonstrates the cost-sensitive nature of some of the sectors being discussed. If they have lower costs there will be more activity; if they have higher costs there will be less activity and unfortunately less employment. I think the VAT reduction proves much of that.

Dr. Micheál Collins:

Very quickly to respond to Deputy Lyons's comments. I just wanted to link it to the living wage benchmark. One of the reasons it was developed was to provide a figure that shows how much employees need to earn to be able to cover all of their costs and to have a decent standard of living. When they earn below that figure they are making cutbacks and so on.

That figure is very useful in pointing towards sustainability or the challenges employees face when they are on below the living wage, struggling and having to make cuts. That is one of the main purposes of establishing the figure.

Marcella Corcoran Kennedy (Laois-Offaly, Fine Gael)
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I thank the delegations for engaging with the committee. They have been very helpful to us.