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After we increased the minimum wage in 2016, unemployment didn’t go up (contrary to warnings)

It’s been argued that an increase in the minimum wage would lead to more unemployment among minimum wage workers.

Image: Shutterstock/Stefan Dinse

THE INCREASE IN the national minimum wage rate did not lead to greater unemployment among minimum wage workers, according to a new study published by the ESRI and the Low Pay Commission.

On the 1 January 2016, the minimum wage increase from €8.65 to €9.15 per hour. The Low Pay Commission make recommendations on what the minimum wage should be.

The commission has said previously that it should be increased from €9.25 per hour to €9.55 per hour, which equates to an extra €12 over a 40-hour week.

This study examined if that increased cost of wages on businesses led employers to reduce their number of employees or the number of hours worked, an argument often used by those against an increase in the minimum wage.

While the research did find that there was a reduction in the average number of hours worked by minimum wage employees, the evidence suggests this was driven by an increase in part-time workers joining the labour market following the wage increase.

The research found that the average number of hours fell by 0.7 hours per week. Among minimum wage workers on temporary contracts, there was a more pronounced reduction of 3.3 hours per week.

Those types of falls are generally attributed to employers reducing the hours of existing employees because of higher labour costs. However, further analysis revealed a rise in part-time minimum wage employment, including a rise in the incidence of voluntary part-time work.

Yesterday, the government announced in its latest Stability Programme Update that unemployment is set to fall to 5.8% this year, and will remain at 5.3% over the next two years, which would be considered full employment.

Unemployment rates peaked during the recession with a rate of 16% in 2012.

Seamus McGuinness, research professor at the ESRI said that there were “no negative employment effects” because of the 2016 increase.

“The results indicate that at least some of the reduction in the average hours of minimum wage workers may be due to more part-time workers being drawn into the labour market by the higher minimum wage.

There is little evidence that the 2016 increase in the national minimum wage rate had any immediate adverse impacts on low-paid Irish workers.

Dr Donal de Buitléir, chairman of the Low Pay Commission welcomed the publication of the research paper.

“The Low Pay Commission has a responsibility in legislation to ensure that any recommended increase in the national hourly minimum wage does not have a significant adverse impact on employment.

This report provides much-needed evidence of the impact of the 2016 increase in the national minimum wage on both hours worked and overall employment trends of minimum wage workers.

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