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.