Wednesday, July 22, 2009

Ireland’s Minimum Wage in the cross hairs!

B Lenihan Wage growth moderation from 1986 to 2001 was one of the legacies of Ireland’s social partnership model.  Social partnership agreements between the representatives of trade unions, employer representatives and other stakeholders produced a series of multi-year partnership agreements since 1987 that included a national approach to pay increases.  This facilitated a prolonged period of stable industrial relations and improved work practices.

However, the index of average hourly earnings rose from 139 in 2001 to 196 in 2009.  This compares to an average rise from 121 to 256 in the case of Ireland’s major trading partners.

However, a minimum wage is set under the terms of the National Minimum Wage Act of 2000 and this has been €8.30 per hour since 1 January 2007 and this applies to any employee who has an employment of any kind in any two years over the age of 18 years.

MacGill Brian Lenihan TD, the beleaguered Minister for Finance intimated last night at the MacGill Summer School in The Glenties, County Donegal that the minimum wage level “may need adjustment”

The minimum hourly wage in 2006 was €7.65, equivalent to €15,912 per annum.  This was a time of boundless optimism!  The cumulative value of residential mortgages, at €121.2 billion, had increased by 25% in a year, thanks to our harum-scarum banks.  The number unemployed was less than 100,000.  The number of persons on the Live Register was 155,389 - compared to the current number of 418,000.  We were yet to be burdened by the catastrophic consequences of those individuals and entities that are defined as being 'systemically important' - whose appetite for taxpayers cash is voracious and who have the capacity to panic the Government into acceding instantly to their demands.

revenueThe latest Statistical Report published by the Revenue Commissioners provides some interesting insights into the potential impact of any reduction.  Some 675,086 persons of the total of 2,261,138 persons paying income tax, earned less than €15,000 per annum in 2006.  They collectively earned €4.77 billion.  This would be equivalent to an average of €3.40 per hour, per person - although I presume that many may of them may not have been in full-time employment.  The gross income earned by all income tax payers in 2006 was €81.51 billion.  This means, that at the height of the economic boom, 30% of all individual paying income tax collectively earned less than 6% of the the gross income of all income tax payers.

Given the current diabolical state of the economy these insights clearly indicate that the degree of neediness in Ireland is probably far greater than generally realised.  A huge percentage of those not on welfare are existing on incomes at, or close, to a very basic level of subsistence and a reduction in minimum earnings will have very painful consequences for hundreds of thousands of people.  It will also aggravate the credit crisis as more individuals are not in a position to repay bank loans.  A decision to reduce the minimum wage could well be a case of the Government chasing its tail because unanticipated consequences may overwhelm anticipated benefits.

Wage trends in Ireland have moderated very significantly with onset of the economic crisis and the adverse impact that this is having on employment and investment levels.

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