Dr. Laura Bambrick:

On behalf of the Irish Congress of Trade Unions, I would like to thank the committee for the invitation to input into its considerations on the cost of living, the minimum wage and the Low Pay Commission recommendation for 2023. I am accompanied by my colleague, Mr. Liam Berney.

The minimum wage is the lowest rate of pay an employer can legally pay their workers. It is currently set at €10.50 for each hour worked. Much is made of the fact that Ireland has one of the highest minimum wage rates in the European Union but this is misleading. Ireland was already the second most expensive country in the EU 27 before the ongoing inflation surge. In 2020, when there was zero inflation, the price of a sample basket of 2,000 everyday consumer goods and services was more than a third higher than the EU average. In other words, when the purchasing power of minimum wage workers is taken into account, it drops from second to seventh position in the rankings and behind our wealthy EU peers.

Likewise, much is made of the near doubling of the rate from when it was first introduced in 2000 at €5.58, which was £4.40 at the time. Again, this is misleading. Increases to the minimum wage have not kept pace with wage growth in the wider economy. When it was introduced, the minimum wage was equivalent to two thirds of the median hourly wage for all employees in the workforce.

This is official low-pay threshold set by the OECD. By 2019, pre-pandemic, it had dropped below 45% of median earnings and we had the third lowest minimum wage as a percentage of our median wage in the EU, only after Estonia and Malta. This is from European Commission research. The current minimum hourly rate of pay is 52% of the median hourly rate and remains below both the 60% poverty line and the 66% low-pay threshold. Put simply, despite 14 increases to the rate since its introduction in 2000 the adequacy of the minimum wage has significantly deteriorated over time.

The minimum wage will soon undergo radical reform. In anticipation of new EU law to ensure adequate wages for workers, the Government is at an advanced stage of planning to move to a new method for calculating the rate. The so-called "fixed threshold approach" calculates the minimum wage as a percentage of a benchmark. The Government is proposing that the rate will be benchmarked to 60% of the median hourly wage, to be phased in over four years, that is, by 2026.

Other member states are taking more immediate action. On 1 October, Germany increased its minimum rate of pay to €12 an hour. This is equivalent to 60% of their median wage, which is the poverty threshold, and represented a 25% increase in their minimum wage from the start of year, which was then at €9.60. This will benefit more than 6 million workers, mostly women. This is a total of 18% of the German workforce. In contrast, the Low Pay Commission recommended an 80 cent increase to €11.30 an hour for 2023. As told to this committee by the chair of the commission on 28 September, and widely repeated in Government messaging, "This represents a 7.6% increase and is the largest increase recommended by the commission to date.” While this is true, it is also true that prior to the establishment of the Low Pay Commission in 2015 to make recommendations on the appropriate rate of the minimum wage, larger increases were made to the rate. We saw a 10.2% increase in 2004, a 9.3% increase in 2005 and an 8.5% increase in 2007.

The Low Pay Commission’s recommendations for both 2022 and 2023 have also fallen short of inflation. Incomes would have to increase by 15.5% over the two years to maintain pace with inflation. An 80 cent increase in the hourly rate is inadequate to protect the living standards of workers on the lowest wage, which is why the two ICTU nominated members on the commission opposed the recommendation.

Trade unions do not underestimate the scale of the challenges facing some businesses. An estimated 165,000 workers, or 7% of the workforce, are earning the minimum wage or less and comprise those on sub-minimum rates and more than half of these are working in just two sectors, namely, hospitality and retail.

To move from the sectoral level to the firm level, Economic and Social Research Institute, ESRI, research from 2021 funded by the Low Pay Commission shows that just 3% of all businesses pay more than half of their employees a minimum wage. Where there is proven financial difficulty, there is provision under the legislation to exempt an employer from the obligation to pay the minimum wage rate. Ultimately, we draw the committee's attention to the European Commission’s comprehensive impact assessment of its directive, which finds that the negative impacts of an adequate minimum wage on SMEs are expected to be limited. The impact assessment summary states:

Firstly, they are likely to be able to pass on increased labour costs to consumers by increasing prices. Secondly, increased minimum wages may also increase demand for their services. Potential negative impacts of increased labour costs for SMEs would be partly counterbalanced by more gradual and predictable minimum-wage increases, which would improve the business environment.

Before Cabinet took a decision on the Low Pay Commission's recommendation for 2023, our general secretary Patricia King reminded them that the legislation allows for the Government to implement a different rate than that recommended and urged it to go beyond the recommended 80 cent. It did not do this. The Finance Bill provides it with another opportunity to do right by our lowest-paid workers, many of whom are the same workers who were lauded as essential during Covid.

I thank members for their attention and we are happy to take questions.