Notes on the Front

The Living Wage Technical Group has today produced the hourly Living Wage for 2018:  €11.90 – a 20 cents rise over last year.  Since the Living Wage was first launched in 2014, it has increased from €11.45 – a 4 percent increase.  What has been driving this increase?

One word:  housing.

The Living Wage is constructed on the work of the Vincentians’ Minimum Essential Standard of Living with some variations introduced by the Technical Group.  This is a comprehensive and detailed breakdown of the cost of all goods and services that go into a minimum living standard.  When we separate out housing costs from the rest of the expenditure (food, transport, health, utilities, etc.) we can see the issue.

In the four years, housing costs increased by 37 percent.  All other costs fell by -4 percent. 

This leads us to a particular insight:  if general pay increases in the economy are merely going to pay higher rents or higher house prices, then employers are essentially subsidising economic rents, whether to a landlord or developers / financial institution.  This is a drain on the productive economy and leaves many people’s living standards no better off except that they may have kept pace with housing costs.

For many people the solution is to increase the minimum wage to the level of the Living Wage.  This would require an hourly increase of €2.35 or 25 percent.  Leave aside the issue of whether this would be feasible without employment or working time loss (just to note: the ESRI found that the 50 cents increase in the minimum wage in 2016 had no negative impact on employment).  The Living Wage, while expressed in an hourly payment, is actually based on a full-time worker (39 hours per week).  Therefore, the Living Wage is:

• Weekly: €469
• Annual: €24,444

Anything less than those benchmarks and workers fall below the Living Wage.  So someone may be paid, on an hourly basis, above the Living Wage.  But if they only work 35 hours, they may be below the weekly and annual Living Wage. 

This is important because there is evidence from the US that businesses facing substantial increases in the minimum wage are cutting back hours and forcing more work on to employees.  In this way, firms can ease the increase in overall payroll. 

When the minimum wage in Ireland jumped by 50 cents in 2016 there was anecdotal evidence that in the hospitality sector some workers faced higher targets (mattress changing, room cleaning).  All this to say that without strong labour protection some employers may attempt to clawback minimum wage increases by sweating labour.

This suggests that we need a broader, multi-pronged strategy in order make the Living Wage a living fact.  I would suggest three areas:

First, reduce high living costs which would reduce the Living Wage.  For instance, if rents increased by just half the pace they did over the last four years the Living Wage would be lower.  There are other living costs that could be reduced:

• Public transport fares: we have one of the least subsidised public transport systems in Europe, resulting in high fares and a poorer service.  Increased subventions would mean lower fares.
• Healthcare: reduce insurance, GP and prescription medicine costs – through a free, universal health service. 
• Communications: yes, Ireland is a high-cost country.  Consumer prices are 17 percent higher than EU-15 levels.  But why is communication 24 percent higher?  It would be helpful if the Government commissioned a study into all prices to get a real handle on the reason for our high living costs – rather than assume that current market pricing is somehow ‘natural’.

Second, provide for collective bargaining at company and sectoral level.  The Irish private sector is generally low-paid compared to our EU peer-group.  It also has much lower collective bargaining coverage.  This is especially so  in the low-paid sectors – retail and hospitality – where Irish pay and collective bargaining levels are even further down the EU table.  By providing workers with the tools to bargain together, they can drive up wages consistent with the company’s ability to pay and, so, bring workers closer to the Living Wage.  Further, workers can better protect themselves collectively if employers try to claw back wage increases by degrading working conditions.

Third, the minimum wage does have a role but what is needed is a more robust approach.  For example, minimum wage increases could be linked to overall wage increases in the private sector but instead of expressing them in percentage terms, they could be expressed in terms of a flat-rate pay increase or a combination of the two.  This would use general wage increases as parameters but express the increase in terms of an egalitarian calculation.  In this way, the minimum wage would rise as a proportion of the average or median wage.

This three-pronged approach would help bring workers above the Living Wage while reducing living costs, which would be a benefit to all workers and the productive economy. 

In short, the drive to achieve the Living Wage for all workers must take place at a social level (living costs), in the workplace (stronger workers’ rights) – both combined with a solidarity minimum wage strategy.

This broad-based strategy can help make the Living Wage a living fact.