National minimum wage developments and trends in income distribution

In July 2001, the Irish national minimum wage was increased from IEP 4.40 to IEP 4.70 per hour. The increase will be important in raising income levels amongst the large number of low-paid workers in Ireland and will facilitate a small, albeit important, reduction in the gender wage gap. However, in comparison with the majority of other developed countries, Ireland has noticeably higher levels of relative income inequality. The gap between rich and poor is the second highest in the industrialised world, and the increase in the minimum wage will have a limited impact on narrowing this gap.

A national minimum wage of IEP 4.40 per hour was first introduced in Ireland in April 2000 under the National Minimum Wage Act 2000. The minimum wage directly benefited approximately 163,000 workers, or 13.5% of the total workforce (ie those earning less than IEP 4.40 per hour) (IE9907140F).

As of 1 July 2001, the minimum wage has been increased to IEP 4.70 per hour. The increase was announced by the Deputy Prime Minister (Tanaiste) and Minister for Enterprise, Trade and Employment,Mary Harney. There will be a further increase to IEP 5.00 per hour on 1 October 2002. These increases had already been agreed by the social partners and the government under the current national agreement, the Programme for Prosperity and Fairness (PPF) (IE0003149F).

Comparisons with other OECD countries

Ireland's new minimum wage rate of IEP 4.70 is lower than some current rates in other Organisation for Economic Cooperation and Development (OECD) member countries. The UK's national minimum wage currently stands at GBP 3.70 an hour, and will increase to GBP 4.10 an hour in October 2001 (UK0104124N). When converted to sterling at current exchange rates (GBP 1.00 = IEP 0.74 on 1 July 2001), Ireland's new minimum wage rate stands at approximately GBP 3.47. Perhaps more appropriate comparative figures, given the overvaluation of sterling, are other OECD countries' minimum wage rates converted to sterling: France- GBP 3.86; Netherlands- GBP 3.86; Australia- GBP 3.67; USA- GBP 3.62; Canada- GBP 3.03; and Greece- GBP 1.55.

Enforcement of the minimum wage

In recent months, the Labour Inspectorate of the Department of Enterprise, Trade and Employment has intensified its efforts to ensure that employers comply with the terms of the National Minimum Wage Act. The Deputy Prime Minister recently issued a statement to this effect: "labour inspectors will be visiting employments over the coming weeks to ensure compliance with the increased rate."

Seven new minimum wage inspectors were recruited in the second half of 2000 to join 10 existing inspectors. In total, 400 breaches of the Act have so far been uncovered, following approximately 4,000 company visits by the inspectors. The vast majority of cases have been settled without too many problems. Particular problem areas include the retail, hairdressing, and hotel and catering sectors. A Midlands-based retail grocery firm recently became the first organisation to be prosecuted under the Act.

The redistributive effects of the minimum wage

Manus O'Riordan, head of research at the Services Industrial Professional and Technical Union (SIPTU), has claimed that the gender wage gap (IE0011160F) has fallen by approximately two percentage points since the national minimum wage was introduced in April 2000. He suggests that this change has occurred because women accounted for a large proportion the of low-paid workers whose earnings fell below the minimum wage rate before its introduction. Figures from the Economic and Social Research Institute (ESRI) indicate that 17% of female workers and 11% of male workers earned less than the IEP 4.40 rate at the time of its introduction. Thus, it seems likely that the minimum wage will have had some impact in terms of reducing the gender wage gap.

It would appear, however, that the minimum wage has had little impact on overall trends in income and wealth distribution. This is because relative income inequality and the gap between rich and poor is increasing in Ireland.

Trends in income inequality are illustrated by two recent studies from outside and within Ireland. According to a recent United Nations Human Development Report, Ireland has the second highest rate of income inequality and poverty in the industrialised world, after the USA. Ireland also comes second to the USA amongst industrialised countries in having the highest proportion of its workforce categorised as low paid.

Moreover, a recent study by the Dublin-based ESRI, entitled Monitoring poverty trends and exploring poverty dynamics in Ireland, concludes that there has been a widening in the relative income gap between rich and poor, which is high compared with other EU Member States. The study shows that the proportion of Irish people living below the relative poverty line of half the average income level increased from 17.4% in 1994 to 20% by 1998.

Commentary

The recent increase in the national minimum wage from IEP 4.40 to IEP 4.70 will undoubtedly be important for raising income levels amongst the large proportion of vulnerable low-paid workers in Ireland, and will facilitate a small, albeit important, reduction in the gender wage gap. In this sense, the minimum wage will help to ensure that more of the fruits of economic growth trickle down to low-paid workers.

Crucially, however, as recent studies by the United Nations and the Economic and Social Research Institute illustrate, in comparison with other developed nations - apart from the USA - Ireland has much higher, and growing, levels of relative income inequality and a larger proportion of its workforce can be categorised as low paid. Moreover, as in the USA, public expenditure in Ireland on social welfare and public services forms a much lower proportion of GDP than other EU Member States, while levels of taxation on corporations and high-income groups are also correspondingly much lower.

Together, these trends seem to indicate that the Irish government is increasingly following a US "neo-liberal" market-driven model overwhelmingly geared towards enhancing economic growth and "prosperity", while paying little more than lip service to a European-style social partnership model which takes issues of "fairness" and income redistribution into consideration. The implication of this priority is that "prosperity" for an affluent minority is currently taking precedence over "fairness" for the majority. Although very important for improving the fortunes of the low paid, the increase in the minimum wage will do little to alter this status quo. (Tony Dobbins, CEROP, UCD)

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