A minimum wage policy may not be an effective tool in reducing the level of household poverty, according to research conducted by the Economic and Social Research Institute (ESRI). That, however, has not been the primary purpose of the legislation. It was designed to prevent the exploitation of low paid workers and it has done that, the ESRI observes, by reducing wage inequality.
Following the recession, the statutory minimum wage remained unchanged for nine years until the Low Pay Commission recommended a 6 per cent increase, to €9.15, in 2016. During those years, some employers in the retail and hospitality sectors introduced zero-hour contracts and casual work regimes that have now been banned. The ESRI analysis concentrated on the direct and indirect effects the 2016 minimum wage increase had on the distribution of hourly wages and household incomes.
Ireland has one of the largest percentages of low paid employees within the euro zone, making up one-quarter of the workforce. That situation is made tolerable because of generous welfare transfers, based on a progressive taxation system. The ESRI study found that while 10 per cent of workers benefited directly from the minimum wage increase, the rise had a significant spill-over effect and the bulk of low paid workers eventually benefited.
While the change had no measurable impact on household incomes, workers directly affected earned an additional €30 a week. Usually, these were casual employees and young people who were not primary family earners and their contributions to household incomes were found to be insignificant. Because of that finding, the use of a minimum wage policy was challenged as being an efficient way to tackle poverty.
In Europe, those countries that operate hourly pay policies have lower levels of wage inequality. Perhaps that is all that can be expected from this approach that tries to ensure fair play for low-skilled workers. Dealing with household poverty is, surely, a separate issue.