Monday Blog: The Living Wage in the Republic of Ireland

I was recently talking with an economist from Austria about the Living Wage.  He did not readily understand the term as, in many European countries, the notion of a living wage gives way to one or both things: (1) collective bargaining which sets wages pretty much for all workers in all sectors, and (2) a statutory minimum wage coupled with relatively generous (relative, that is, to Ireland the UK) ‘social wage’ in the form of affordable education, health, housing, transport and income protection in times of sickness, unemployment or other absences from the paid labour force. We need to be constantly mindful, when discussing the living wage in this part of the world, that our social and economic system is fairly unique by Western European standards.  At the risk of labouring the point already made in previous blogs on this site:

  • Much more emphasis is placed on ‘cash-in-the-pocket’ wages than ‘services-not-out-of-your-pocket’ social wages (a mouthful!)
  • Earnings are more unequally distributed (before taxes and welfare) than in mainstream European countries;
  • Wage income is seen by Governments and employers as an individual matter (although the Irish Government does address this to some extent by means of the relatively generous tax treatment of married couples regardless of whether they have children or not).

In other words, the very concept of ‘living wage’ is culturally bound as is its measurement in any specific national context. Context and culture matter in shaping what we regard as an acceptable material standard of living at a given time and in a given economic and social environment. Clearly, a ‘living wage’ in Dublin does not have the same meaning as in Calcutta or Luxembourg. Indeed, a ‘living wage’ in Dublin will differ significantly from a living wage in Donegal where some living items will be a lot more costly (presumably transport on average) and some items a lot less expensive (renting accommodation or buying a house). In order to calculate a Living Wage for the Republic of Ireland, it is necessary to estimate a Minimum Essential Standard of Living (MESL) based on internationally established research methods. This needs to be done for different household types (single adults, couples with/without children etc.) as well as in urban and rural settings.

Update on underlying research for the Living Wage

The key phrase used by the Vincentian Partnership for Social Justice (VPSJ) in describing MESL is ‘items deemed essential for being part of Irish society’ in their most recent update for 2017 on ‘Minimum Essential Standard of Living 2017 Update’ Image removed. . The VPSJ have been conducting research since the late 1990s involving a consensual approach with a range of persons including people in poverty or close to poverty and covering 2,000 goods and services.  This is important not only from the point of view of rigorous and empirically founded social research but from the point of view of those most affected by low incomes. When considering the living wage from a policy or research point of view many of us have only a very remote and detached idea of what it is to live on a very modest income.  Experiential and affective knowledge is important as well as more narrowly defined empirical approaches.

The 2017 update reflects shifts in the cost of the underlying ‘basket of goods and services’ for most household types (there being 12 main ones in the VPSJ research model). A crucial insight is given in the latest report on the measure of cost of living increases. The traditional measure – the consumer price index (CPI) – has increased more slowly than ‘Minimum Essential Standard of Living’ (MESL) by more than 8 percentage points in the last four years. Some of the most vulnerable households are those dependent on social welfare and with children – especially those who are in second-level school. While there was an extremely modest rise in the National Minimum Wage (NMW) last year (up from €9.15 to €9.25 per hour).  this has not kept pace with inflation in the MESL. Take, for example, a single adult living in Dublin. He/she spends, typically 49.7% of their MESL on rented accommodation according to the VPSJ.  In some cases, an improvement in net wage from modest increases in the NMW are more than cancelled out by rising rent costs as well as reduced support under Family Income Supplement (FIS).  Given the high costs of childcare and tapering effect of FIS, the VPSJ found that two adult households with both earners on the NMW see a reduction in their standard of living. Similar effects were seen in the case of single adult households.

All of this goes to show that the Living Wage must be considered in a broader context than merely the gross hourly wage rate for a representative household type. Access to social housing, differential rent in the local authority sector, affordable childcare and eligibility to a medical card matter hugely to the measure of MESL and, as a consequence, the requisite gross hourly wage rate to enable a household to reach the MESL. Of particular relevance to this analysis is the soaring cost privately rented accommodation (up by 8.6% nationally in the 12 months ending March 2017).

We look forward, very soon, to the regular annual update to the Living Wage the last version of which was published in July 2016 here Image removed. .  The single number €11.50 representing a gross hourly wage rate consistent with a living income has become a key point of reference in recent times. This is very welcome. However, it must be noted that the figure is a blended average of Dublin and other areas of the country. Moreover, the figure refers to single adults, only. And most crucially it is based on the working assumption of a full working week of 39 hours. Change any of these assumptions and you do not have a ‘living wage’ defined with reference to an MESL to sustain a given household.  The merit of going with a very limited scenario in terms of household size, hours of work and regional location is that the number generated is sufficiently low as to offer a reasonable target in terms of upward negotiating pressure on the National Minimum Wage Image removed.  (which has been below the Living Wage by over €2 an hour or, approximately €4,000 per annum being the difference between approximately €23,000 and €19,000), and is sufficiently high as to reflect what may be regarded as the minimum income needed to afford dignity in Irish society at this time to a single adult not living in Dublin and working 39 hours a week.

 The most striking message from the VPSJ analysis is that the proportion of MESL expenditure met by social welfare was below adequacy level even before 2010 for single adult households (as well as households with second level school children) when the greatest cuts took place.  While there has been a modest recovery, most household types remain below adequacy in 2017. In other words, those dependent on social welfare for one reason or another have yet to see a recovery.  The Report states concisely:

Social Welfare does not provide an adequate income for any of the eight households with children assessed in either an urban or rural area.

Two of the most egregious cuts in social welfare during the era of austerity were those relating to lone parents living with children and young job seekers (under the age of 26). In the latter case, the level of social welfare is well below an adequate MESL.

The publication of this Update on the MESL is a welcome development as we approach the normal summer of ‘debate’ in which there is a strong and rising chorus of voices to cut income taxes on those on middle or above middle income.

We can expect continuing critique from some business quarters to an upward revision in the National Minimum Wage (not to be confused with the Living Wage) on grounds of cost affordability and competitiveness. These matters have been addressed in a blog, on this site, last year (‘Cheapness is not competitiveness’ Image removed. ).

Share this blog:

Tom Healy

Tom Healy was the Director of the Nevin Economic Research Institute (NERI). Tom has previously worked in the Economic and Social Research Institute, the Northern Ireland Economic Research Centre, the Organisation for Economic Cooperation and Development, the National Economic and Social Forum and the Department of Education and Skills.