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.