Batt O'Keeffe (Cork North West, Fianna Fail)

I welcome the opportunity to contribute to this debate. The national recovery plan presents a detailed strategy to drive economic recovery, restore stability to the public finances, improve our international cost competitiveness and provide the necessary support to our enterprise sector. The Government's priority is to ensure that the business environment continues to be supportive of enterprises, large and small, promotes export growth and encourages growth in all areas of the economy. The Government's four year plan has a particular focus on structural reform. The measures to tackle high input costs for businesses, action to remove barriers to employment, and the enhanced activation measures are all critical to improve our competitiveness and underpin economic growth and job creation over the next four years.

Our plan seeks to support the private sector by removing potential structural impediments to competitiveness and employment creation, and by pursuing appropriate sectoral policies to encourage export growth and a recovery of domestic demand. Labour costs represent a relatively high proportion of the total input costs across a range of locally trading sectors. They are a significant input into the cost of domestic services, and they also affect our ability to sell abroad. In addition, they are a significant influence on foreign direct investment decisions. Let me be clear, labour market reform is a prerequisite for Ireland's long-term economic recovery. Unless steps are taken now to address labour market inflexibility, it is likely to inhibit employment growth in Ireland and lead to a loss of competitiveness in the coming years.

The national recovery plan outlines how Ireland's national minimum wage has increased six times since its introduction; it is now 55% higher than its original level. It is forecast that by the end of 2010 the consumer price index will have increased by approximately 28% since 2001. The hourly rate of the national minimum wage is the third highest in the EU, after Luxembourg and France, and, at its current rate, is 30% above the average national minimum wage level in the EU 15.

Minimum wage levels vary widely within the EU, from €123 per month in Bulgaria to over €1,683 per month in Luxembourg. The countries with relatively high minimum wages are Luxembourg, France, Belgium, the Netherlands, Ireland and the United Kingdom, in all of which the minimum wage has been close to or above €1,000 per month. Another five member states - Portugal, Slovenia, Malta, Greece and Spain - comprise a second group with intermediate minimum wages, from nearly €550 to €900 per month. A third grouping of nine countries with the lowest minimum wages - between about €100 and €400 per month - consists of Bulgaria, Romania, Latvia, Lithuania, Slovakia, Estonia, Hungary, the Czech Republic and Poland.

When assessing compensation across the economy on an hourly basis, the Central Bank found that per-hour economy-wide compensation levels were 12.8% higher in Ireland than the euro area average in 2008. It is interesting to note that the OECD has emphasised the importance of wage flexibility as a means of boosting demand for Irish workers and preventing unemployment from persisting at high levels. According to the latest figures from the CSO for the second quarter of this year, the minimum wage rate now applies to about 3.2% of the workforce and has a disproportionate effect on employers in the hospitality, retail, manufacturing and horticultural sectors, which are suffering from extremely difficult trading conditions. Labour costs are a high percentage of operating costs in these sectors.

The latest advice available states that the minimum wage sets a baseline for wage negotiations. It is assumed that wages up to 1.5 times the minimum wage are affected by changes in the rate, and up to 30% of wage rates may be affected by a change in the national minimum wage. In addition, it is estimated that anywhere between 170,000 and 300,000 workers are covered by either employment regulation orders or registered employment agreements which set out minimum wage rates on an hourly or weekly basis for specific categories of employees. Our four year plan commits to reviewing these.

I will state clearly that financial benefit to the Exchequer is not the rationale for the proposed reduction in the minimum wage. The four year plan states that, given the scale of the unemployment problem, any legislative and policy obstacles to job creation must be removed. It is essential to strike the right balance among the minimum wage, labour legislation, social welfare rates, taxation and activation of the labour market to avoid disincentives to returning to work. The programme of activation measures being implemented by the Government, as mentioned by my colleague, Deputy Conor Lenihan, will keep workers close to the labour market so they are ready to take up the jobs that will arise as the economy recovers.

Recent research published by Forfás, and advice following from it, clearly stated that a reduction in the national minimum wage would result in an increase in employment in the medium term. The challenge we all face is to work to restore economic growth, maximise employment and prioritise the needs of the most vulnerable so that the progress we have made in tackling poverty in recent years can continue.

I wonder where Deputy Shortall will get her savings. She spoke about not accepting reductions in the minimum wage and in social welfare benefits. It is becoming increasingly obvious that the Labour Party and Fine Gael are becoming the alternative collision rather than the alternative coalition.

See this speech in context