Notes on the Front

Commentary on Irish Political Economy by Michael Taft, researcher for SIPTU

Awaking to Low Wages

Livingwage_issues It may not be as sexy as the debate over the Celtic and Christian character of Irish society, but the issue of endemic low-pay in the economy is one of the biggest ‘sleeper’ issues coming up to the general election. That it may not get an airing owes much to the personality-driven, issue-free nature of politics generally and this election in particular. But it’s not for want of trying.

Next Monday night the Dublin City Council will be debating a potentially far-reaching motion that could see the local authority directly intervening into the Dublin economy to drive up wages – namely, the Living Wage motion.

That so little political attention is paid to low-wages is perplexing. The CSO’s National Employment Survey showed that nearly 30% of the workforce earned €10 an hour or less in 2003 (the last year data is available). That was only slightly higher than the EU’s Low-Pay Threshold. Extrapolating from the data, over a third of those employed in the private sector were either below or hovering around the low-pay threshold. This shouldn’t be surprising. Historically Ireland leads the wage-poor European tables, vying with the UK for top spot.

The Living Wage motion, proposed by Cllr. Eric Byrne, seeks to address that by using the City Council’s procurement procedure to drive up wages. Every year the Council purchases hundreds of millions of Euros worth of goods and services from private sector companies. The motion would require that if any company wants to successfully bid for a contract, they must show that they pay all their employees a ‘Living Wage.’ This wage would be set by the Council and would, therefore, be in well in excess of the minimum wage. Thousands of workers could see their wage packets increase substantially.

This practice is not new – it used by a number of US cities and public agencies to drive up wages well above their lowly Federal minimum wage. So successful has it been that at last count over 140 local government agencies have implemented it – resulting in a boon for the low-paid and the communities they live in.

To bring Irish employees up to a Living Wage would mean, in today’s terms, paying between €10 and €11 per hour. For those on the minimum wage or just above that, this would be a considerable increase in their living standards. This shows that public sector instruments can be used to assist those on low wages.

There will, of course, be a backlash to this – primarily from the Right who will argue that such measures to improve the living standards of the low-waged will drive up the price of goods and services to the City Council and, thus, the taxpayer.

However, studies of the effects of the Living Wage in US cities suggest otherwise. They have shown that, at most, Living Wage measures increase the price of goods and services by 1% – 1.5% and in many instances have actually decreased the cost. This occurs for primarily three reasons:

  • Companies are willing to reduce their profit levels to compete for public sector contracts because the money is still good. In effect, therefore, profits are redirected into workers’ wages.
  • Instead of competing by driving down wages (the ol’ race-to-the-bottom phenomenon) companies concentrate on improving productivity and commercial efficiency in delivery of services.
  • Companies actually experience reduced costs and overheads because employees with higher pay are less likely to leave. Higher staff retention means less recruitment and training costs.

So, higher wages and more competitive companies – it would seem to be win-win. That’s why many employers in the US actually support the Living Wage – believing that its only by taking the ‘high-road’ of business performance that prosperity, profits and higher wages can be achieved.

The direct effects of Cllr. Byrne’s motion would, of course, be limited. Only a small percentage of employees work in firms that contract with the Dublin City Council. However, the motion goes further, not only condemning low-pay but also committing the Council to work with trade unions, businesses, social organisations and communities to highlight and combat the issue. While symbolic, this could have a galvanising effect and put low-pay at the top of the agenda. Already, SIPTU and the ATGWU have come out in support of a Living Wage, as has Pat Rabbitte, TD.

Further, if the City Council adopts the motion it could set off a chain reaction among other Councils and public bodies such as universities, health agencies, etc. The combined effect of a number of such agencies adopting the Living Wage could be significant.

For the issue of low-pay is the biggest sleeper issue. It affects a large constituency – especially women and young people who are the most exploited in the workplace. It should be a major discussion point as we enter the general election. If the City Council passes the Living Wage motion we will hopefully see political parties waking up to an issue that affects so many.

7 responses to “Awaking to Low Wages”

  1. Lorenzo Avatar
    Lorenzo

    I am curious as to how this proposal is any different from making an argument for a minimum wage of 10-11 euro.

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  2. Michael Avatar
    Michael

    There are two differences that I can immediately point to.
    As it started out in the US, it was an attempt by local authorities to address inaciton at the Federal and sometimes state level. In that respect, Cllr. Byrne could argue that Dublin doesn’t have to wait for either the Government or the social partners to take action themselves. Especially since living costs are higher in Dublin than in the rest of the country.
    Secondly, differentiated ‘minimum’ wages are a feature of industrial relations and state policy. For instance, even before we had statutory minimum wage we had – and still have – Joint Labour Committees, which maintain higher minimum wages in particular sectors.
    Byrne’s motion is of a similar nature – applying a different minimum wage to particular sectors or, in this case, to the process of public procurement. The thinking would be that these companies are in a better posiiton to absorb wage increases since, by definition, they operate in more competititive markets. That’s the theory anyway but this would have to be examined by the City Council during the consultation stage that Byrne’s motion sets up.
    The ESRI suggests that, so far, minimum wage has had little impact on jobs or even prices. But obviously there would come a tipping point. Otherwise, we could just double the minimum wage and pat ourselves on the back. However, we could see job losses, price rises and a shift to the black market.
    The minimum wage was always intended as safety net of last resort against the worst type of exploitation and not as an instrument to drive wages up. At the end of the day wages can only rise to the degree that economic units can absorb them and workers have the representation to maximise that absorption. There is no legislative short-cut. Without the one (efficient, competitive businesses) or the other (trade union representation) we’ll be stuck on low wages. In this respect, Byrne’s intiative is intended to nudge the economic process along while trying to push the general issue up the political agenda.
    It’s a small step. But, then again, the Long March was full of them.

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  3. Lorenzo Avatar
    Lorenzo

    Hmm. I’m afraid I am not convinced I see a significant difference. I think you are proposing actually three differences:
    Difference 1a: It addresses inaction on low pay at a national level.
    The intention behind the proposal may be different but the effect on the companies involved is the exact same as pushing the minimum wage to the proposed level. In fact it may even be worse than a general across the board MW increase, as the companies who provide goods and services to both Dublin Corp. and the general market are put at a relative cost disadvantage to those companies that don’t supply Dublin Corp and hence are not affected by the proposal. The upshot is that these companies will either stop supplying to Dublin Corp (lessening competition and ultimately increasing prices) or will hive off their public contracts into separate businesses or work through additional ‘pure Corpo supplier’ intermediaries (lessening efficiency and thereby increasing prices).
    Difference 2: Living costs are higher in Dublin.
    The companies supplying goods/services to Dublin Corp. are not necessarily based in Dublin. Some, possibly even the majority, will be but a significant amount of companies are not affected by higher living costs in Dublin. Would the proposal apply to employees of the company in other countries? If so, how would this be checked? If not, it would give added incentive for companies to move what employment they could out of the country.
    Difference 3: It is similar to sectoral statutory minimum wages such as the JLC schemes.
    The problem with this is that we are not talking about a homogenous sector of workers (like construction workers or catering workers) but to a sector of suppliers which will have different types of employees (from carpenters to cleaners to whatever). It applies to all employees across the board. It applies equally to the woman working behind the canteen counter and the guy digging trenches. It’s reach within certain industries could be as broad as a minimum wage raise to that level. Some severe difficulties with wage rate relativities are bound to occur, formally or informally.
    Raising the minimum wage to this level could, as you point out, result in “job losses, raised prices and a shift to the black market”. I would argue that all these problems – and some additional ones – would occur in some sectors with the proposal. Furthermore – given the ridiculous way local government is funded in Ireland – the effect of this would be largely hidden from Dubliners. Costs would rise and this would have to be funded by business rate increases, which are of course ultimately passed on to Dublin consumers.
    Forgive my cynicism but I would suggest one of the chief attractions of this proposal to the unions supporting it, is that it lessens the attraction of using external, private firms for doing Corpo work. That’s a perfectly justifiable position from their point of view but not one I personally agree with. If they wish to advocate that position then fine, do so – but don’t try to introduce it by stealth, disguising it in a lets-do-something-about-low-pay argument.

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  4. david Avatar
    david

    That’s a dangerous thought Lorenzo. Of course the people who pushed this plan through (trade union politicians and other trade union activists) have no personal interest in this matter whatsoever. They fought tooth and nail to get this motion passed out of purely altruistic motivations, Public Choice Theory does not exist, and nobody in the history of human civilisation has ever conflated the interests of the general public with their own.

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  5. Michael Avatar
    Michael

    You make some excellent points, Lorenzo. As to Difference 1: There is an assumption that higher wages translates into an equal cost increase. But the experience of the Living Wage in US cities doesn’t suggest this for the reasons I outlined in the post. To be honest, I have not seen any data on the particular issue you raise but I will try to follow it up by asking those who study the phenonomena stateside. However, I would point out – as more and more reports are starting to (see my post on ‘What’s France?’) that there are other, more importan causes for the competititive success of a firm. Simply put, if a company, through higher wages, realises reduced costs of recruitment, training, abstention, etc. while at that same time increases productivity, service, etc. they could very well have a competitive advantage over low-road companies. In every case? No, unfortunately the ‘market’ doesn’t work that logically. But the issue here (and this is terribly difficult to quantify at the enterprise level) is do we have the managerial competence in this country to achieve that? I try not to be pessimistic.
    Regarding Difference 2 and 3, I don’t know the balance of workers in Dublin as opposed to other places. However, taking cleaning and secuirty, obviously the workers live in Dublin or the commuter belt. In the US, cities apply widely varying criteria so if the City Council were concerned about issues of compliance (or, indeed, the issue you raised above), it could restrict the contractual stipulation to those ‘on-site’. Would this create a two-tier wage standard in the same firms. It very well could – but then we have that anyway, in particular between those on full-time and part-time, performing the same work but receiving different wages.
    But the spillover effects can be extremely beneficial. When the Los Angeles City Council adopted a Living Wage, workers at the airport (under a different public employer) said, well if its good enough for them its good enough for us. They succeeded in getting a Living Wage for themselves. Hopefully, workers in those firms not affected by a Living Wage will become aware of the issue – Dublin City Council did, after all, condemn the extent of low wages everywhere in Dublin and is now committed to working with trade unions, business, social oragnisations and community groups to address it. Becoming aware, and seeing the benefits for those working under Living Wage contracts, they will hopefully organisse themselves to demand better wages. Sure, they might even join a trade union and start voting Left.
    Now that the City Council has passed the Living Wage motion, they will be studying it in Committee. They would do well to consult widely with London which has, after months of study and consultation, introduced a similar measure – at £7.05, a similar rate as being suggested here in a city which shares many of the same problems – low wages, high living and accomodation costs, etc. No doubt, they examined the issues you raised, in particulr the effect on businesses competing for both public and private contracts.
    Don’t be cynical, Lorenzo. The truth is that, yes, this is an attempt to stop wage depression or the race-to-the-bottom from outside contracting. That’s the very reason why the Living Wage was established in the first place. There’s no hidden agenda here.
    We will need many instruments to intervene into the labour market to increase wages. After all, we have an economy with one of the worst records on low-pay. Of course, it would help if the managerial standard improved and that is something that more attention must be paid to. But the Living Wage is one more weapon in the arsenal, if you will.
    Its a small rock tossed into the water, admittedly. But hopefully it will create a wave.

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  6. Lorenzo Avatar
    Lorenzo

    For a very alternative view on the general minimum wage issue, have a look at http://www.slate.com/id/2103486/

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  7. Avatar
    Anonymous

    Public sector tenders are open to challenge, you won’t be awarded the contract because they like you, they can only award it on marks, and can only mark what they see

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Commentary on Irish Political Economy by Michael Taft, researcher for SIPTU