Increasing the minimum wage for low-paid workers in Ireland will have little or no impact on their net resources and living standards.
The surprise finding was made in an OECD study, which assessed the impact of the financial crisis on minimum wages across industrialised countries.
It showed that less a tenth of any proposed increase to Ireland’s minimum pay rate, which is currently €8.65 an hour, would end up in the pockets of the recipient.
This is because the lion’s share of the rise is consumed in higher taxes and reduced benefit entitlements.
The calculation was made on the basis of a 5 per cent hike in the wage for a single-adult household with two children.
Of 26 countries assessed, only Luxembourg had a worse outcome than Ireland, with minimum wage increases there actually making single parents worse off.
The OECD's Minimum wages after the crisis: making them pay study acknowledges that the complicated interaction between wages, taxes and benefits differs from one family to another.
However, it suggests “the main lesson” emerging from its findings is that minimum wage changes need to be carefully co-ordinated with tax and benefit provisions.
Low pay and what it calls “in-work poverty” were already major policy challenges before the economic crisis hit in 2007.
The study said legal minimum wages - in place in most but not all OECD countries - were a government’s most “direct policy lever” for influencing wage levels, especially for workers in a weak bargaining position.
As a result of mass unemployment and crashing consumption, many governments, including Ireland’s, adjusted their minimum wage rates downward after 2007.
In 2010, the then minister for finance Brian Lenihan reduced the minimum wage rate by €1 to €7.65 as part of the State's four-year recovery plan. The reduction has since been restored.
The OECD study shows Ireland's minimum wage as a percentage of the median or middle wage dropped significantly in the wake of the crash, as with those in Greece, Spain and Turkey.
The research also notes that taxes and other mandatory non-wage labour costs also push up the cost of employing minimum-wage workers.
It is often contended that legal minimum wages may actually reduce employment.
“By driving a wedge between labour costs and workers’ take-home pay, the size of the overall tax burden has implications for how well minimum wage perform at supporting low-wage workers and low-income families, while avoiding significant job losses,” the OECD study maintained.
On average across the OECD, the total burden from income taxes, social contributions and related mandatory payments amounts to one third of the gross minimum wage, with approximately equal shares paid by employer and employee.
