A MUCH-NEEDED discussion is beginning to take place on the need to tackle income inequality. President Obama now describes income inequality as the “defining challenge of our time”. The Oxfam report “Working for the Few” shows that income inequality is worsening in Ireland and throughout the world. Shockingly, just 85 people control a staggering 50% of the world’s wealth. Key to tackling income inequality is tackling low wages.
Labour Youth is campaigning for the minimum wage to be increased to €13 an hour, to create a living wage in Ireland. The introduction of a living wage would be a strong commitment to decent living in our society and enable workers to afford the basic requirements of everyday living. Eurostat statistics show that 20.7% of the workforce is low paid. Shockingly, one in four people now suffer from multiple cases of deprivation. Not only would the introduction of a living wage have huge societal benefits; it would also be an economically beneficial move.
Boris Johnson, the Conservative Mayor of London, notes the success of the living wage in London in improving living conditions and stimulating economic growth: “the Living Wage is not only morally right, but makes good business sense too.” In fact he has made it his New Year’s resolution for 2014 to attract more support for the living wage.
Falling consumer demand is a danger to our economy
One of the biggest challenges facing the economy is the collapse in consumer demand. Ireland has witnessed the biggest fall in demand in Europe. The fall in consumer demand doesn’t benefit workers because they face job losses, it doesn’t benefit businesses because they face reduced profits, nor does it benefit the government which faces reduced VAT revenue and more social welfare spending. Nowadays you hear a multitude of commentators talk about stimulating the economy, and introducing a living wage would be one of the most effective ways to do just that. Once people start spending more it benefits business, employees, job-seekers and VAT returns for the government.
The successful introduction of a $17 an hour living wage at the large US supermarket chain Costco shows that, at a time when its low-wage competitors are struggling, a business which pays a living wage can be highly profitable and keep prices low for consumers.
An argument often brought up by some in the business lobby is that Ireland already has too high a minimum wage and that employers cannot afford to pay extra. This was the same line of argument used to oppose employers paying sick pay, holiday pay and over-time, in all these cases, businesses adapted and living standards improved.
Minimum hourly labour costs are below European average
A study by NERI shows employers’ minimum hourly labour costs in Ireland are actually below the European average. Labour costs are the total amount of money the employer pays each hour an employee works. It includes wages and employers’ PRSI contributions. In Denmark it costs an employer €39.61 for each employee per hour, while in Ireland it costs €24.57. Research also shows that business profits in Ireland have increased by 21% since 2007, at a much faster pace than anywhere else in Europe. The argument that employers can’t afford to pay a living wage should be dismissed in the context of lower-than-European-average labour costs, high increases in business profits, and the increased benefits to business of paying a living wage.
Employers shouldn’t see a living wage for employees as a burden, but rather as an investment. An employer may think paying their staff low wages will increase their profits, but when this becomes the dominant trend across the economy it does not benefit businesses as workers, who are consumers too, don’t have enough surplus income to spend. That’s why there is a high level of support from businesses in the UK for a living wage. Over 100 high street business in the UK support the living wage. Unite the Union estimates that increasing the minimum wage to just 2007 levels would grow the economy by €1 billion and create 17,000 jobs.
Government subsidies for low-wage workers
Introducing a living wage would also save the government and tax-payers a lot of money. Currently the government is subsidising low-paid workers. Last year the government spent €161 million on the supplementary social welfare allowance, €214 million on family income support and €400 million on rent allowance. These measures support low-income workers with the daily cost of living. Rather than the government spending hundreds of millions each year subsidising low pay, which could be spent building new schools and hospitals, it should introduce a living wage so low-paid workers are no longer dependent on income supports from the State.
A living wage would make a real difference to our society. It makes sense for workers, businesses and the government. For too long the social narrative in Ireland of encouraging speculation and focusing too much on what’s best for an elite few rather than what’s best for society has allowed income inequality to widen. The introduction of a living wage would do what’s best for society and create a threshold of decent living.
Ciaran Garrett is the National Chairperson of Labour Youth.