The minimum wage has become a division point in Ireland's current economic crisis. A statutory beating stick say employers and a threshold of poverty say it's supporters below which we dare not risk a race to the bottom.
The governments move this week to allow an “inability to pay” provision to be extended to employers in the agriculture, retail, catering and hotel and retail sectors which are currently under Registered Employment Agreements (REAs) is sure to place this issue under the scrutiny of public opinion. A Registered Employment Agreement is where representative groups of employers in certain industries have sat down with Unions and agreed a minimum threshold for that Industry. The respective employers are then bound by this agreement and cannot pay below it. In every case the REA thresholds are above the minimum wage and constitute an increased minimum wage.
Having a quick look at the facts: the current minimum wage is €8.65. If employers are unable to pay this amount due to financial difficulties they can apply to the Labour court to pay below this amount in certain circumstances. The court will examine the employer's finances and will in certain cases grant an exemption from the minimum wage for up to 12 months. This weeks move by the government has extended this procedure to employers that were previously paying a rate higher than the minimum wage because of REA's. Effectively then it allows employers in financial difficulty to pare back salaries to the statutory minimum of €8.65. The logic from the governments perspective is simple. If an employer cannot afford to pay €9.25 an hour and has to leave staff go then perhaps jobs will be saved or created by allowing this reduction to take place where employers are under pressure. Previously there was no mechanism for employers to pay below the REA agreements and persons would presumably lose their jobs.
As to the minimum wage itself this is before the Labour Court for review and the Minister has promised not to move on it until they have presented their report on it. For those that are curious it's been there since November 2008.
Before entering the debate on the minimum wage and various Chicken Lickens start rolling out of their pens and come exclaiming that the skies are falling down I thought I'd try to examine objectively the facts and figures that are being bandied around on both sides. There are two basic economic trenches to examine here. The price of goods and the facts about unemployment rates in Kerry.
According to the live register there were 7,930 persons out of work in Kerry in January 2008. Of this 1,380 were under 25 and 6,550 were over 25.
By December 2008 this figure had risen to 12,364 persons unemployed. Of this 2,285 were under 25 and 10,079 over 25.
In the most recent figures available for December 2009 the jump of unemployed in Kerry was to 15,923. Of those 2,880 were under 25 and those over 25 was 13,043. The under 25 figure peak in August 2009 at 3,310. The reduction to December was presumably due to emigration. For the over 25s the peak is December 2009. In short in 24 months the numbers out of work in Kerry has almost doubled. Whilst people can debate the causes of the increased unemployment the trend is alarming.
Of consideration also is the recently released Consumer Price Index released by the Central Statistics Office in December 2009. The figure that has been picked up in the National Media and its discussions is the overall price fall of 5.0% in the year to December 2009. Drilling down into the figures themselves makes interesting reading however. Mortgage interest repayments decreased on average by 40.0% in 2009. As a result while prices on average fell by 4.5% in 2009 the consumer price index excluding mortgage interest decreased by only 1.2%
The following recorded decreases in price in 2009:
Food and non alcoholic beverages purchased in supermarkets, small shops and petrol stations were down 3.5%.
Clothing and footwear which includes not just retail but laundry, dry cleaning shoe repair and dress alterations were down 11.7%.
Housing, Water, Electricity, Gas and other fuels were down 22%. This includes rents (down 14% with private rents falling in excess of 17.4%) mortgage interest repayments (down 40%) waste collection and disposal charges, goods and services in relation to dwellings and domestic energy products. (while the price of electricity and gas rose marginally the cost of home heating oil fell by 32.4% in 2009)
Transport which includes the purchase of new and second hand vehicles, spare parts, car maintenance, public transport and services such as parking, car washes, toll charges, driving tests, licences and car hire was down 4%.
Household furnishings and equipment was down 3.1%. This includes furniture, carpets, textiles and soft furnishings. Household electrical appliances and other household items.
Recreation and Culture was down 0.3%. This includes all services connected with recreation and culture and includes music and DVDs, games and toys, sports and recreational goods, gardening items, sports and cultural activites, newspapers, package holidays and other items connected with recreation and leisure.
Restaurants and Hotels actually recorded no change in the entire year 2009 but prices were down 0.4% in December 2009 in isolation. This includes meals in restaurants and hotels, fast good takeaways, cafes, canteens, alcohol on licenced premises and accomodation services.
Conversely the following recorded increases in prices in 2009:
Alcohol products and tobacco were up 6.3% on alcohol purchased in off licences and supermarkets but excludes alcohol in licenced premises which are under Restaurants and Hotels. Changes in tax have to be borne in mind.
Health costs were up 3.5%. This includes medical products, appliances and equipment, hospital charges and outpatient services supplied by doctors, dentists, opticians and practitioners of alternative medicine.
Education was up 6.4%. This included primary, secondary and third level and other training such as night courses and play schools and examination fees. A factor in this is the increase in student registration fees at third level.
Communications was up marginally by 0.5% which included post and telecommunications.
Miscellaneous Goods and Services were up by 7.6%. This remaining category covers a wide range of items including hairdressing and other grooming, goods for hygiene, hair and body care, personal items such as jewellery, handbags and wallets, childcare and other social protection services, insurance and financial services and other services including funerals, weddings, legal and professional services.
Now it's all well and good to examine prices in isolation but one has to bear in mind the realities of the situation. Just because prices have increased or decreased speaks nothing of volume or turnover. While detractors may point to the cost of a haircut going up the average hairdresser may point to the number of customers walking in the door. There is no central register for that. The closest thing we have is the level of tax take and employment figures which is reflective of the economic activity as a whole and the tax take has taken a nose dive in every sector. Income tax and VAT takes have evaporated over the last 24 months and the government is borrowing billions to keep the country afloat. So too as we have seen unemployment in Kerry has almost doubled in the last 24 months.
In short the issue of the minimum wage is a complex one, both moral and economic. To take a distorted average price figure and use it as justification to slash social welfare, which has happened, and minimum wage is far too simplistic an approach and does not reflect the realities of the situation. To lean on employers who have seen huge drops in turnover to pay a minimum wage they cannot afford leads to redundancies. The question therefore becomes, does reducing the burden of minimum wage and social welfare in conjunction with the governments plan of reducing the public sector paybill lead to controlled deflation? Only time will tell but there are no easy answers to this recession. Only hard questions. If they are not answered soon we may soon see another “stabilisation of the live register” as Ireland youngest and brightest proliferation abroad turn the trickle into a flood that washes away the immediate future of the country.
