LAST UPDATE | 11 Oct 2021
IMAGINE WORKING FULL-TIME on €11 per hour. You would be taking home €380 per week. Out of that, you’d have to pay rent, utilities, food, phone, clothing, personal items, and public transport fares. You’d be lucky to meet all these costs never mind having a little bit over.
You would certainly be earning well below the Living Wage. Now imagine hundreds of thousands caught in this low-pay situation. Welcome to the Low Pay Republic.
Low pay is rampant in Ireland. In 2018, one in five workers were officially categorised as ‘low-paid’ – approximately 370,000 women and men. We have one of the highest levels of low pay in the EU, ranking 8th out of 27. Low-pay levels have remained steady over the last two decades. And all this was before the pandemic.
Who is on low pay?
Low pay is defined as two-thirds of the median wage. The median wage is the midpoint in the income scale whereby 50 per cent earn above and 50 per cent earn below. In 2018, the low-pay threshold was approximately €11.86 per hour. Anyone earning below that is officially regarded as low-paid.
Not all sectors suffer equally. The Covid pandemic threw a spotlight onto the different working conditions in this country. Many were fortunate to continue working remotely with little disruption. However, those in the lower paid sectors suffered in this time, with many relying on the PUP to keep going.
This only compounded the difficult situation they faced prior to the pandemic. In the big tech and financial sectors, low pay only affects a very small number. However, over half of all hospitality workers are on low pay, as are a significant proportion of retail workers, cleaners, arts and entertainment workers.
But let’s not make the mistake of thinking that low pay is confined to just a few sectors. Nearly 20 per cent of transport and warehouse workers, 15 per cent of health workers and 13 per cent of manufacturing workers are low-paid. This shows low pay to be structural and pervasive across the economy.
Women have a higher level of low pay than men which is not surprising since they make up a majority of workers in the low-wage sectors. Over a third of young employees and fixed-term contract workers are also officially categorised as low-paid.
This has a particularly devastating impact on people’s lives, resulting in high levels of in-work deprivation and even higher levels of in-work households unable to meet an unexpected expense. Nearly half of those in work face at least some difficulty making ends meet.
Life on a low wage
The impact of low pay goes beyond just the material and financial. Occupational health professionals in the United States have called for low pay to come with a ‘health warning’, while UK researchers have found that having a poor quality job has worse health outcomes than being unemployed.
It’s not just the workers themselves that suffer. Low pay imposes a high cost on the economy and society. It reduces tax revenue and increases social protection subsidies, effectively subsidising low-road employers. It also imposes costs on businesses that are reliant on workers’ purchasing power. In effect, low pay is economically inefficient, fiscally degrading and a social obscenity.
None of this is inevitable. Most EU countries have far lower levels of low pay. So what can be done? Many people turn to the National Minimum Wage as a means of overcoming low pay.
While the minimum wage can play an important role, it is not the decisive instrument to reduce low pay. For instance, Denmark, Italy, Finland, and Sweden do not have a statutory minimum wage. But their low-pay rates are less than half the level in Ireland. How do they do it?
In these and other EU countries, there are strong collective bargaining provisions. In particular, sectoral bargaining, where wages and working conditions are set for all businesses in a sector, can significantly increase employees’ living standards while protecting good employers from race-to-the-bottom wage competition.
What can be done?
Some will argue that businesses can’t afford pay increases. However, this overlooks two positive impacts of pay increases for those on lower incomes. First, it increases business income. Nearly all the net gains made by the low-paid are recycled back into the economy through the purchase of goods and services. This is particularly the case in sectors that are based on discretionary spending, such as hospitality and retail.
Second, higher wages increase productivity. A number of low-paid sectors suffer from high staff turnover such as restaurants and childcare. This imposes a significant cost on businesses as they struggle to recruit, train and retain replacement staff. Higher wages reduce these costs.
Even in boom times, there are businesses that struggle. All the more reason for representatives of employers and employees to negotiate the challenges that sectors and firms are facing. The best assistance that can be given to troubled firms is to foster agreement between all stakeholders on the actions required to overcome difficulties.
In all this, the Government’s role is crucial. It needs to urgently create new institutions that will vindicate a right that workers throughout the EU possess; namely, the right to collective bargaining. This could be done in conjunction with implementing the commitment in the Programme for Government to establish sectoral taskforces comprising the stakeholders (employees and employers) and independent experts, chaired by line ministers.
A prosperous society for all will not be implemented by state or corporate diktat. It will be negotiated. It will require the input of all stakeholders throughout civil society. And it will require an agenda of respect whereby all stakeholders’ and their interests are treated equally. In this way, we can begin the process of eliminating low pay from the Irish economy.
Michael Taft is an economist with the trade union SIPTU. He is the author of Low Pay Republic a new study which describes the extent of low pay in the Irish economy.
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