I am glad of the opportunity to table this motion on the floor of the Dáil this evening in my name and that of my Labour Party colleagues, on the question of the national minimum wage. I reaffirm the Labour Party's unequivocal and unambiguous long-standing commitment to the effect that we will not implement any reduction in the minimum wage. It is low enough. If legislation under which the Government proposes to cut the national minimum wage, section 13 of the Financial Emergency Measures in the Public Interest (No. 2) Bill is enacted, we will reverse this particular measure, which in the event will effect an 11.6% reduction in the minimum wage from €8.65 to €7.65 per hour, or in excess of €2,000 per year. That is a commitment we shall give if we are part of any future Government.
In the event that the necessary commencement order is not in place, our commitment is then simple. We will not bring forward a commencement order to allow the provision of section 13 to take effect. I do not believe we can be any clearer in our commitment in this regard. For those who doubt it, it is time they started to believe, in accordance with the words as set out in this motion. The strength of the Labour Party's conviction in this regard may be gauged from the fact that notwithstanding that this matter was debated in Dáil on Thursday and Friday last, we are back here tonight with a clear and comprehensive motion that deals with all aspects of this crucial issue.
Cutting the minimum wage makes no sense at any level. Indeed, it is under the guise of dismantling barriers to employment that the Government is claiming a cut in the minimum wage will ensure the viability of small to medium-size enterprises, SMEs, and will support job creation in those sectors where significant unemployment has occurred. A closer look at the actual sectors where the minimum wage is being paid might well show, however, that these sectors are in a process of significant contraction. The Government's own reports for these areas, indeed, indicate the difficulties of creating jobs in these industries in future years and that the problem of survival in these sectors is one of over-supply in the markets they service.
What is vital from our perspective is the fact that the national minimum wage is a floor, not a comfortable standard of living measure. To put that in context it is equivalent to only 45% of average earnings in the private sector, or just more than half of the rate for manual, production, sales and clerical officers' hourly earnings in the second quarter of 2010. Let us ventilate the facts, articulate the reasons the Government is putting forward and let us rebut them, one by one, as I intend to do along with my party colleagues, Deputies Broughan, Kathleen Lynch and others who will contribute over the course of this debate.
Cutting the minimum wage makes no sense at any level. It undermines the social floor and it is proof positive that the least well off and most vulnerable are fair game as far as this Government is concerned. The minimum wage is one of a number of false explanations in relation to the current economic crisis, intended to deflect attention from the banks and Government mismanagement. The Government's claim that the Irish minimum wage is the highest in the EU is misleading, as I shall show in the course of my contribution. It should be noted that in countries where there are lower minimum wages, workers have access to excellent free medical care and cheap public transport, which improves their standards of living. It is likewise misleading to say that the budget leaves those on a minimum wage outside the tax net. While they may not pay any income tax, they have very high taxes on goods and services and user charges, amounting to a regressive social charge, as was pointed out to the Dáil last Wednesday, by my party leader, Deputy Eamon Gilmore. Taken together with the €1 per hour rate cut the weekly wage will be reduced, in effect, by up to €44 per week.
More than 60% of workers on the minimum wage are women, and many will no longer find it worthwhile to enter the workforce, which is contrary to the policy of encouraging women to do so, as was specifically alluded to in the four-year plan. Reducing the minimum wage will do little to improve competitiveness, as most workers affected are not in exporting industries. Evidence from the USA shows that states with a minimum wage have lower unemployment than those which do not. If there is no worthwhile minimum wage, there is no incentive for employers to train workers, or for employees to stay long enough to acquire skills. The result is higher labour turnover and lower productivity.
Reducing the minimum wage will lead to a large number of working poor, as in the USA where almost 20% of the labour force must have two or more jobs to survive, with negative effects on family life and social cohesion. It is clear that a net effect of reducing the minimum wage will be a reduction in the incentive for people to take up low paid jobs and ultimately result in higher social welfare costs. The most likely response of employers to a reduction in the minimum wage will be to cut the wages of their workers. The assurances the Minister gave workers that employers will not cut their wages does not stack up. Such assurances are either naive or cynical. They are certainly not based on a realistic assessment of the likely actions of employers. With a handful of honourable exceptions, employers will not be able to resist reducing existing wages, and the Minister has created more fear and uncertainty among workers.
The National Employment Rights Authority, NERA, has recovered literally millions from employers who defy the law and refuse to pay the minimum wage, and this cut will be a bonanza for them. Other employers will be emboldened by the cut and will simply reduce the wages for their workforce by diktat to the lower rate, and with the threat of NERA effectively now removed the workers will be powerless to defend their wages. More cynical employers will ask the workforce to agree to the cut, making them an offer they cannot refuse, for fear of losing their jobs. Some employers will do exactly that, and cook up excuses to justify dismissal of their existing workforce so that employees may be replaced by "cheaper" workers on a lower minimum wage.
To ensure that workers were protected from these type of actions by unscrupulous employers, I tabled an amendment in the name of the Labour Party last Friday, that aimed to protect the existing situation of workers. It indicated that the amendment of the national minimum wage to be effected by section 13 would not affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act or under any contract of employment entered into before the coming into operation of the 2010 Act, and any legislation to which it applied. It had the distinction of being widely agreed and argued for by Fianna Fáil and Green Party Deputies, but it was still voted against. As Deputy Shortall said, shame on every Deputy who knows that protection is needed but refused to support the Labour Party amendment.
The legislation that will cut the minimum wage has another sting in its tail. It allows the Minister to change the amount employers can deduct from wages in respect of board and lodging. The current situation is that if an employee is given bed and board as part of his or her employment, the employer can deduct this from the minimum wage. The deduction must be fair and reasonable, not just a sandwich at lunchtime, it must be stated in the employee's contract of employment and he or she must be given notice of the reduction. The maximum that may be deducted is set out in S.I. 95 2000 and is currently: full board and lodgings — €54.13 per week or €7.73 per day; full board only — €32.14 per week or €4.60 per day; and lodgings only — €21.85 per week or €3.14 per day.
The fear is that employers will further reduce this provision to further reduce workers' wages. The European Court of Justice has previously ruled that the cost of board and lodgings cannot reduce minimum wages. The Minister should, therefore, in accordance with the ECJ ruling use his order to rule that board and lodgings cannot be charged against minimum wages. In addition he should reduce significantly the amount that may be charged for board and lodgings. After all, Government logic for reducing the minimum wage is that there has been a decrease in the cost of living.
The minimum wage cut is a massive transfer from the poorest paid workers to their employers. It could take as much as €150 million out of the economy and more than €2,000 per annum from workers' pockets. The figure of €150 million is based on a €2,000 per annum cut in the wages of 75,000 people in receipt of the minimum wage. If only half their employers implement this cut, this figure will be €75 million. At a time when working families are struggling every day to make ends meet and to put food on the table they are being hit with three cuts, namely, a cut in the minimum wage, a cut in child benefit and a cut in social welfare benefit. Cutting the minimum wage is counterproductive as it will destroy jobs and damage consumer spending. As I stated, the cut represents a possible reduction of as much as €150 million, which is all the more pointless when we know it is the lower-wage earners who spend proportionately more in their local area and have a higher marginal propensity to spend. Their marginal propensity to save is limited and currently stands at 1%. This figure exploded during the previous two years and increased from the normal 4.5% to 12% or 13%.
The Minister has presented the minimum wage cut as some sort of "job stimulus". It is unfair and cruel to demand that low paid working people should subsidise their employment. This will not work as the impact of removing so much money from the local and real economy of shops and services will be the destruction of even more jobs. The majority of employers will simply pocket the savings. It is equally unlikely that employers will pass on the wage cut to customers. Even if they did, it would be minimal. For example, a wage cut of €1 in the hospitality sector is equivalent to a reduction of 0.61 cent in the price of a meal costing €60.00 or more. This cut is, therefore, unlikely to have any effect on demand. Big businesses will benefit more from the cut to the minimum wage. For example, an employer with ten employees will save €400 per week as a result of the cut whereas an employer with 100 employees will save €4,000 per week. This will advantage large employers and increase their ability to undercut small local businesses, destroying more jobs.
The Labour Party argues that the minimum wage cut does nothing to improve the public finances. It reduces income to the State from the universal service charge and increases the level of payments from family income supplement. The Government motion refers to the family income supplement, which is important for many people. However, I never understood it to be in place to indirectly supplement employers, to which this is tantamount. Cutting the minimum wage will take money from the public purse. This type of thinking has already got us into trouble.
There is no justification for a unilateral across the board cut in the national minimum wage.The Minister's approach is based on a series of myths. The Irish minimum wage is not the highest in Europe. The Minister has stated that it is ranked sixth highest but this disguises the reality. In real terms, those earning the national minimum wage since the time of the last increase in July 2007 are worse off by almost 2.7% as compared to their position in July 2007. To suggest it is not the highest in Europe is to ignore the fact elucidated on numerous occasions by my colleague, Deputy Rabbitte, that in 2007 prices in this economy had reached an all time high. As well as making comparisons with other members states in terms of the minimum wage rate we must also, to validate this exercise and ensure it is accurate in all respects, make comparisons with the cost of living in those member states. We will then have a true measure of the wage involved. Bus fares here have increased by 22% since 2007. The cost of electricity has risen by 2.2 %, local authority rents have risenby 21.5 %, the cost of breadis up by 12.5 % and milk is up by 19 %. People on the minimum wage of €8.65 are being asked to meet these costs despite their not having received an increase in payment since 2007. This basket of basic necessities, which are important in the context of measuring CPI, have been significantly increased.
There is already in place a mechanism under section 41 of the National Minimum Wage Act 2000 which allows employers who have difficulty meeting the minimum wage to apply for a reduction under a claim of "inability to pay". If the rate at which the minimum wage is paid is the problem it is being made out to be, it would be realistic to expect there would be a long queue of employers at the door of the Labour Court. However,no employer has at this point made an application in respect of "inability to pay".This is, in my opinion, a case of do not waste a good crisis.
At €8.65 the Irish minimum wage is not the highest in Europe. As I stated, according to the Minister it ranks sixth. Well informed others, including the Irish Congress of Trade Unions rank it ninth. There is already a lower starting rate of €7.79 for adults,highlighting just how unnecessary is a unilateral across the board cut in minimum wage. Existing rates are €6.06 for under 18s, €6.92 for first year adults and €7.79 for second year adults. Therefore, rates significantly lower than € 8.65 are already built into the minimum wage regime. There is a sting in the tail: the new minimum wage rates will be as low as €5.36 for under 18s and €6.12 for first year adults. Arguably, this impacts disproportionately on women, young people and migrant workers. 25% of workers in the hospitality industry and 12% of workers in the retail sector are on the minimum wage. These are sectors where women and migrant workers dominate. When it comes to the first in line to be kicked by this Government, it is a case of women and children first.
I question the legal underpinning for this approach. This wage cutting exercise is contrary to the approved wage-setting mechanisms established by the International Labour Organisation, a sister organisation of the IMF, which has confirmed that it has not sought this reduction. The Minister for the Environment, Heritage and Local Government, Deputy Gormley, went on the public record to confirm that a cut in the national minimum wage was insisted on by the EU Commission. The National Recovery Plan 2011-2014 contains a provision requiring consultation with the Commission on low sectoral wage setting mechanisms. How is this intervention by the Commission consistent with the objectives for social inclusion as set out in Article 3 of the Lisbon Treaty? Pay policy is not an EU competence. How then can the Commission be involved in these issues? The Labour Party sees this cut in the minimum wage as mean spirited and counter productive. All it does is inflict hardship on a significant number of people and households who rely on minimum wage employment. As I stated earlier, it will act as a disincentive to work.
People on the national minimum wage have not been immune to the fiscal adjustment. In real terms, those earning the national minimum wage since the time of the last increase in July 2007 are worse off by 2.7%. The income levy imposed a de facto cut of 2% and consumer prices, excluding mortgage interest, is 0.7% higher than in July 2007. Relative to our trading partners, Ireland's national minimum wage is lower than in the UK, Netherlands, Belgium, Luxembourg and France. This is important. In terms of the purchasing power of the national minimum wage in competitor EU countries, Ireland ranks sixth. Expressed in terms of the prevailing cost of living in each country, the purchasing power of the UK's minimum wage amounts to €7.33 compared to €6.78 for Ireland. Notwithstanding a significant fall in consumer prices in Ireland last year, the cost of living remained 34% dearer than in the UK in 2009 due to a combination of a fall in UK consumer prices and a depreciation of sterling during 2009.
During the course of 2010, this differential is likely to have narrowed due to UK inflation running at 3.2% in October and Irish inflation running at just 0.7%, along with a strengthening of sterling. The UK rate is, in purchasing terms, expected to be higher than in Ireland due to a 2.2% increase in the UK national minimum wage rate in October 2010 to bring the rate to £5.93, which is €6.93 in nominal terms. The impact of the national minimum wage on the cost of services in the Irish economy is grossly exaggerated. Some 5.1% of those employed in private sector services in the Irish economy were earning the national minimum wage as of the second quarter of 2010 and while a larger number of workers were receiving sectoral wage levels, which are calculated as a premium over the statutory minimum wage, just one quarter of the total basket of goods and services is made up of services regulated by EROs and REAs.
The Labour Party is strongly of the belief that we must reaffirm and confirm that a statutory minimum wage is the very minimum and it is a statement of a core value of our country. It provides a threshold of decency under which society agrees workers' wages should not fall. A reduction would signal a race to the bottom, in which everyone, including low wage workers in the public and privates sectors, social welfare claimants and pensioners, will suffer. We will not condone this cut and, at the first opportunity if this legislation is enacted, we will reverse it. If it is not and a commencement order is required to ensure the reduction is introduced, we will not bring into operation the relevant and necessary order. That is a clear and unambiguous commitment from the Labour Party and every Member should support working class people who work in the minimum wage environment, particularly women, who comprise 60% of those on the minimum wage.