Mr. Diarmaid Smyth:

Good morning Chairman and members of the committee. I will begin by introducing myself and my colleagues. My name is Diarmaid Smyth and I am a principal officer in the labour market and skills unit in the Department of Enterprise, Trade and Employment. I am joined by my colleagues Dr. Dermot Coates, the Department’s chief economist and head of its economic and tax policy unit and by Ms Claire Pyke, assistant principal officer in the labour market and skills unit as well as by Ms Karen Hogan and Mr. Hugh Creaton who are also from the labour market and skills unit. We are very pleased to be here this morning to discuss the Private Members' Bill, the National Minimum Wage (Equal Pay for Young Workers) Bill 2022.

As members are aware, this Bill seeks to abolish the age based sub-minimum rates currently provided for in sections 14 and 15 of the National Minimum Wage Act 2000. The Department of Enterprise, Trade and Employment has responsibility for minimum wage policy and for the operation of the National Minimum Wage Act. Currently, the legislation allows for workers aged 19 and below to be paid a rate which is lower than the national minimum wage. Those aged 19 years can be paid 90% of the prevailing national minimum wage. Those aged 18 can be paid 80% of the national minimum wage, while those aged 17 and below can be paid 70% of the national minimum wage. As things stand, the minimum wage is €12.70 per hour which means that the current sub-minimum wage rate for workers aged 19 is €11.43, for workers aged 18 is €10.16 and for those aged under 18 is €8.89.

It would be useful here to set out how the current regime of sub-minimum youth rates came about. The 70% rate for those aged under 18 has been in place since the introduction of the National Minimum Wage Act 2000. The current rates for those aged 18 and 19 came into effect on 4 March 2019, via the Employment (Miscellaneous Provisions) Act 2018. Prior to the current regime, alongside this 70% rate for those aged under 18, sub-minimum rates on a sliding scale were applicable to both those entering employment for the first time and employees undergoing a prescribed course of study or training authorised by an employer.

In 2017, following a request from the Minister for Enterprise, Trade and Employment, the Low Pay Commission undertook a review of the prevailing sub-minimum rates. The commission reported concerns that, due to a lack of clear guidelines and definitions, the trainee rates were open to potential unfair use by employers. Furthermore, the rules relating to new entrants to the labour market were seen as being complicated, as they required employers to monitor the labour market history of employees. In light of these concerns and in the interest of simplifying the rules, the Low Pay Commission recommended abolishing the training rates and simplifying the other sub-minimum rates by moving to an exclusively age-related system as opposed to an experience and training-based system.

Following Government consideration of the Low Pay Commission’s report and recommendations, trainee rates and new entrant rates were abolished and the current age-based regime came into effect in 2019.

Under these new age-based rates, the 70% rate for those under 18 was kept in place, with an 80% rate and a 90% rate for those aged 18 and 19, respectively. These sub-minimum rates were introduced via Part 5 of the Employment (Miscellaneous Provisions) Act 2018.

In 2022, following increased debate on the issue of sub-minimum rates, and following the publication of Deputy Paul Murphy’s Private Members’ Bill, the then Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Varadkar, asked the Low Pay Commission to again examine the issue of sub-minimum pay and to make recommendations to him on whether these rates should be abolished, amended or retained. The Low Pay Commission strives at all times to make evidence-based recommendations, and it asked the Economic and Social Research Institute, ESRI, to produce a background research report on sub-minimum rates of the national minimum wage to inform it in its deliberations. The report was commissioned under the terms of the commission’s research partnership agreement with the ESRI. The ESRI research report was published in November 2023. The main findings in the report include that the incidence of youth rates in Ireland is quite low, with an estimated 15,000 individuals in receipt of sub-minimum pay, corresponding to 0.7%, or 1 in 140, of total employees, and of those aged 15 to 19 who could be paid sub-minimum rates, less than one quarter of these employees were in receipt of sub-minimum rates, with the remainder earning the national minimum wage or above.

While these headline figures suggest a low use of sub-minimum rates, the report shows that the position is more nuanced, as the likelihood of a youth worker being paid a sub-minimum rate decreases the closer the individual is to the age of 19. The study found that 45% of those aged 15 to 16 are paid sub-minimum youth rates compared with just 4% of those aged 19. The ESRI report also found that 80% of employees in receipt of sub-minimum youth rates were students, just over half were women and almost 80% worked in either the accommodation and food or retail sectors.

We know that these sectors, which employ a larger proportion of minimum-wage workers, have recently been found to be particularly impacted by the increased costs of doing business. As part of its consideration of this issue, the Low Pay Commission also invited stakeholders, including representatives of employees, employers and young people, to make submissions on this issue. The Low Pay Commission’s report on sub-minimum youth rates was published in March of this year. In the report, the commission recommended the abolition of youth rates in Ireland for those aged 18 and 19 and for those aged below 18. The report also made two other recommendations, including that if youth rates were abolished, studies should be conducted after two years and four years post-abolition to determine whether adverse consequences occur as a result of the removal of sub-minimum youth rates. The report also recommended that consideration be given to how employers with a high portion of sub-minimum wage youth workers can be supported if sub-minimum youth rates are abolished.

The Low Pay Commission highlighted the complexity of this issue and recognised that further analysis and legal advice may be required. The commission laid out in detail the range of relevant considerations and the possible unintended consequences that might follow the abolition of the sub-minimum youth rates. There are clear arguments in favour and against the abolition of sub-minimum youth rates in Ireland. These arguments have been set out in submissions to the Low Pay Commission, in public discourse on the issue and at a previous meeting of this committee, at which sub-minimum rates and the Private Members’ Bill were discussed. Those who advocate for the retention of youth rates do so because they believe these rates are necessary to reflect different levels of work performance and experience, to avoid increasing youth unemployment where employers may choose to employ those with more experience if paying the same wage, to avoid incentivising early school leaving and to avoid increasing business costs. They also point to the use of sub-minimum youth rates in other EU and OECD countries and note that, for example, the Netherlands and the UK have similar sub-minimum youth rate regimes to that which is currently in operation in Ireland.

The Low Pay Commission’s remark that the incidence of sub-minimum youth rates may increase during recessionary periods, or if we see significant increases in the national minimum wage as we progress to a living wage, is often referenced by those who support the retention of sub-minimum youth rates. On the other hand, the argument put forward for removing sub-minimum youth rates is that they are discriminatory on the basis of age and do not treat all workers equally and that all workers should receive equal pay for equal work. It is the job of the Department of Enterprise, Trade and Employment to consider these arguments while recognising the Low Pay Commission’s comments that this is a complex issue that will require the full deliberation and consideration of the Government.

The Minister for Enterprise, Trade and Employment has acknowledged and thanked the Low Pay Commission for its report on sub-minimum youth rates in Ireland. The Minster has requested that an economic impact assessment be undertaken on the commission’s recommendations to abolish sub-minimum youth rates. The purpose of the economic impact assessment is to evaluate the economic impact of potential changes to the sub-minimum youth rates in Ireland. Specifically, this assessment will focus on potential consequences for firms of different sizes and in various sectors. Additionally, it will aim to examine the potential consequences for those who are affected by these wage rates, such as the increased unemployment of younger workers, the potential impact on young people choosing to exit formal education in favour of entering the workforce and, of course, changes to working hours.

In addition to this economic impact assessment, the Department is also considering the requirements of the EU directive on adequate minimum wages, which is due to be transposed into Irish legislation before the end of the year. The directive aims to ensure that workers across the EU are protected by adequate minimum wages. The directive does not prohibit the use of sub-minimum rates but requires member states to ensure the objective justification of these rates.

I ask the committee to allow the Department to conclude these reviews before any recommendations are made on the progression of the Private Members’ Bill. I thank the committee for taking the time to listen to these opening remarks and I look forward to addressing any questions members may have.