Ireland’s minimum wage: let’s flex it to keep in step with our main trading partners

10 September, 2009

One of the rigidities of the Irish economy that is frequently discussed is the fact that we have a very high minimum wage, at €8.65 per hour.  This is particularly an issue because our main trading partners, and our main competitors for inward direct investment, have lower minimum wage rates. 

The appropriate level is more important than many will admit; it is often argued that very few Irish workers are actually paid as little as the minimum rate, so reducing it would not have any favourable impact on competitiveness, employment levels and comparative production costs.  However this ignores the fact that the minimum wage is a benchmark against which the relative wages of other, more highly paid, workers are judged and set.  If the minimum wage drops, this makes room for wages at all levels in the conomy to move back towards the sort of levels that our competititors pay.

I suggest that we should stop setting our minimum wage rate in a vacuum.  We are such an exposed economy that we cannot ignore what our direct competitors are doing.  I’m not suggesting that we should look at Eastern European wage rates, but there is surely an argument for a system which will flex our rate based on what happens in relevant countries.

Why not, for instance, aim to re-set the Irish minimum wage every 6 months or so at the average of the currently prevailing minimum wage in a chosen “basket” of countries such as UK, France, Netherlands, Belgium, and Austria. This particular selection currently comes to an average of €7.47, which means that our rate is 16% higher than important trading partners or competitors that are at similar or higher stages of economic development. (Many European countries, including those in Scandanavia, have no minimum wage; Germany is discussing introducing one, and a rate of at most €7.50 an hour is being talked about, depending on the sector.)

Critics will say that the cost of living in Ireland is higher so there needs to be a higher minimum wage; however this is a “chicken and egg” situation and the wage cost has to be the factor that moves first, to allow prices to be reduced.  In any event, the cost of housing, which is a major component of the cost of living, has already fallen dramatically.

I hope our Government will seriously look at this, although I’m not holding my breath.  I would like to think it there are still some Irish politicians who have the integrity to do what is right but unpopular, but I fear not (not in the current administration at any rate).   As John McManus so eloquently put it back in July, referring to the publication of An Bord Snip report: “….despite the hard lessons of the recent past, we are engaging in the same sort of of gutless dysfunction politics that got us into this mess….We still have a political class that is by and large congenitally unwilling and unable to devise and implement policy, and bizarrely doesn’t really think that such is the job of Government.”

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