JOINT COMMITTEE ON ENTERPRISE, TRADE AND INNOVATION debate -
Tuesday, 20 Jul 2010

Minimum Wage: Discussion with TASC and IBEC

Chairman

We are discussing the minimum wage with representatives of TASC. Representatives of the Irish Business and Employers' Confederation, IBEC, will join us later; I understand they are at another committee at present. From TASC, I welcome Ms Paula Clancy, director, Ms Sinead Pentony, head of policy, and Mr. Tom McDonnell, economist and policy analyst. I thank them for their attendance.

I draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence about a particular matter and they continue to do so, they are thereafter entitled only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

We have already received copies of the opening statements. I ask that the delegates present a synopsis of their presentation rather than reading out the entire document, because members will already have studied some of the points and we would prefer to have a more interactive discussion by way of questions. That is our modus operandi. The sooner we get to that point, the better for everybody.

Ms Paula Clancy

We thank the Chairman for inviting TASC to appear before the committee to discuss the issue of the minimum wage. Why are we interested in this? TASC is an independent think-tank and our aim is to work for a more equal society. In particular, we focus on economic equality, and we do this through evidence-based research. Our presentation today is in response to the recent call by the Restaurants Association of Ireland for a cut in the joint labour committee, JLC, wage rates, and the call from the RAI and others for a reduction of €1 in the minimum wage.

What would be the impact of such a cut on the real economy? TASC argues that positive action needs to be taken to restore demand in the economy, which is a fundamental requirement in terms of protecting employment and creating job growth. However, TASC does not accept that lowering either the minimum wage or the JLC rates will accomplish this goal. On the contrary, the overall effect will be to reduce the level of consumption in the economy.

The ongoing economic crisis has led to a general collapse in demand in the economy, and consumer spending has fallen at more than six times the eurozone rate. As an economy, we need to increase consumption and boost demand. Reducing the wages of low-paid workers would simply result in a lower level of spending throughout the economy. It is low-paid workers who, of necessity, spend all or almost all of their money. In recognition of this, the great majority of EU countries have increased the minimum wage since 2008.

What about the impact of such a reduction on the public finances? We argue that a cut in either the JLC rates or the minimum wage will damage the public finances. We would see a decrease in revenue from income tax, income levies, PRSI and VAT receipts. Thus, lower wages would result in lower tax revenue at a time when the ESRI is forecasting a general Government deficit of more than €31 billion in 2010.

TASC calculates that the direct cost to the Exchequer of reducing the JLC rate of €9.27 to the statutory minimum wage rate of €8.65 would be €1,143 per worker. The impact of this cut on each employee would be €645 per annum. Given our earlier point that low wage earners consume virtually all their incomes, this reduction would in turn translate to lower VAT receipts. As we show in our submission to the committee, reducing the minimum wage on top of reducing the JLC rate would exacerbate these effects. Moreover, reducing either of these rates would not have a significant impact on Ireland's competitiveness, as exporting companies tend to pay their companies considerably more than minimum wage rates.

In addition to its negative impact on the public finances, TASC argues that lowering either the JLC rates or the minimum wage would have a dramatically negative effect on low-paid workers. The minimum wage was introduced in recognition of the vulnerability of low-income workers. That vulnerability has not decreased in the intervening period. Its existence helps to boost overall wage equality between men and women, as the majority of minimum wage earners are women. It acts as a bulwark, protecting young people, migrants and other vulnerable groups against exploitation by employers.

A decrease of just one euro in the minimum wage represents a critical sum for low-income families and is equivalent to a cut in income of more than 11.5%. In the hospitality sector in particular, average weekly pay is roughly half the national average. Research by the Vincentian Partnership for Justice shows that this level of income is wholly inadequate for a minimum essential standard of living. Together with the impact of other budgetary decisions, reductions in the JLC rates or minimum wage would put tremendous additional pressure on living standards for low-income workers. It is important to point out that those firms that are unable to pay the minimum wage can already avail of the inability-to-pay clause in the existing law.

There is an argument that Irish minimum wage rates are uncompetitive compared to those of other EU countries. TASC contends that the more important comparison is the overall cost of labour to the employer. Overall, labour costs are made up of wages and payroll taxes, and employers' PRSI is low in Ireland compared to other OECD countries. The hospitality sector in particular is the largest employer of low-wage workers and labour costs in this sector are the third lowest in the EU 15.

The RAI has also put forward the argument that reducing enforceable pay scales in the restaurant sector will allow for a reduction in prices, which will increase customer spending. TASC argues, however, that reducing the JLC wage rate to the level of the statutory minimum wage would be in effect a wage cut of 7% but would actually facilitate only a minimal reduction in price. For example, our calculations show that such a wage cut would allow for a reduction of only 61 cent per customer for a meal costing €60 or more. We argue that it is unlikely that such minimal price reductions would actually increase customer demand, even in these straitened times.

TASC argues that action needs to be taken to sustain employment in low-wage sectors, including the struggling hospitality and retail sectors. There should be a full review of non-wage primary costs, including utility bills and commercial rates. Food prices in Ireland are the second highest in the EU 27, which is probably caused by non-competitive points in the supply chain. These should be investigated and steps taken to restore competition. Other suggestions which merit examination and are potentially helpful include a temporary reduction in VAT and excise taxes, the introduction of consumer vouchers, and measures to boost tourism.

There are four key points we wanted to make. First, lowering the minimum wage will damage the public finances and affect Ireland's growth potential. We need to get people spending again, and attacking the take-home pay of low-income earners will have precisely the opposite effect, as they have the highest propensity to consume. A return to consumption will have to be based on wage growth, not wage cuts. Second, Irish labour costs are already low by EU 15 standards. A reduction in the minimum wage and key joint labour committee, JLC, wage rates will reinforce earnings inequality and will negatively impact on the quality of life of low income workers and their families. A reduction of JLC pay scales to the statutory minimum wage would facilitate a minimum reduction in price and fail to increase consumer demand in the restaurant sector. Finally, to help struggling businesses in the hospitality sector we encourage the committee to investigate high food prices and other primary costs such as commercial rents.

Chairman

I thank Ms Clancy.

Deputy Richard Bruton

I thank Ms Clancy for her interesting presentation. Does TASC favour cuts to any wages as a tool to deal with the current difficulties?

Ms Paula Clancy

Our argument is that we need to consider mechanisms to stimulate demand in the economy. Wage cuts, in particular to wages for low paid workers where all of the expenditure is likely to take place in the local economy, would be counterproductive.

Deputy Richard Bruton

What surprised me about the presentation was that TASC did not consider the potential gains in competitiveness. I understand 3% or less of people are on the minimum wage and I do not see it as crucial to competitiveness. The suggestion which surprised me was that the issue was all about demand. The idea that we cannot tackle costs seems to run counter to the views of the National Competitiveness Council which said, as did TASC, that utilities have become too expensive. Part of that reflects pay costs or practices in the utilities sector. Our crisis is not solely demand led. We allowed ourselves to become too expensive. That is not to say that I favour cutting the minimum wage but for a balanced presentation we need to consider the fact that for six years in a row we lost export market share because we priced ourselves out of many markets. That is an issue which is of concern.

I want to understand what TASC said about the tax take. I am not familiar with the rates but it said if the rate was cut from €9.27 to €8.65, the Exchequer would lose €1,143 and the worker €645, a total of almost €1,800. There is no tax rate which takes €1,100 out of an €1,800 wage packet. What did TASC include in that example? Is it calculating that the Exchequer will pay family income supplement to top up wages? TASC might send the committee the worked examples to which it referred. I have no dispute with the other issues. Many of the TASC suggestions would be excellent.

Ms Paula Clancy

On wage rates in general, there is no question that there are individuals and groups in society who are very well paid and could cope with increased wage cuts or taxation. In general, one has to consider the OECD figures which state that Irish wages rank in the bottom half of the European Union 15 and fall nearly 11% behind the average European Union wage. When purchasing power or living costs are applied to that examination, Irish wages are barely higher than Spanish wages, falling from 11% behind the average European Union wage to 20%. One has to consider wage rates in the round. The argument that we are uncompetitive must be challenged.

I will ask one of my colleagues to address the second point the Deputy raised on the calculation of the figure of €1,100.

Mr. Tom McDonnell

Of the total sum of €1,143, €530 comprises employers' PRSI. As one moves beyond €356 per week to €356.01, the rate moves from 8.5% to 10.75%. The rate of 10.75% applies to the entire amount. It is a step effect and leads to a large increase in the cost to the employer. On top of that, in terms of what the employee——

Deputy Richard Bruton

Does this happen as one moves down the scale?

Mr. Tom McDonnell

Yes, as one moves down from €9.27 to €8.65 one encounters a step effect from 10.75% to 8.5%. That costs the Exchequer money. The money is lost by the employer and gained by the Department of Social Protection. The step effect occurs at €356 per week. We advocate that, from an economic efficiency point of view, the issue needs to be examined. In terms of the cost to the employee, as one moves from €8.65 to €9.27, one pays an extra €100 in income tax as one moves beyond the tax credit level. One pays an extra €25 in income levy and an extra €488 in employees' PRSI. That, in effect, is where the numbers come from. There is a real effect once one moves past €356 per week. The cumulative loss to the employee for moving from €9.27 to €8.65 works out at €645. The effect to the employee if he or she moves from €8.65 to €7.65, as was suggested by some business groups, would be a loss to the employee's annual net income.

Deputy Richard Bruton

If the Minister for Finance, as he proposes to do, moves to a uniform social levy which applies at the low rates, a lot of these figures will disappear in terms of this comparison.

Mr. Tom McDonnell

The figures will be altered.

Deputy Richard Bruton

They will be altered because of the threshold effects which are the nub of TASC's figures.

Mr. Tom McDonnell

Obviously if the threshold was increased beyond, for example, €361, it would automatically change. However, we advocate that making the entirety of the amount beyond €356 applicable at the 10.75% and the amount at one cent less being——

Deputy Richard Bruton

I do not think that proposal will survive the coming budget. We will see that rate changed, if we can believe what we are hearing.

Mr. Tom McDonnell

That creates a distortion in the labour market.

Deputy Richard Bruton

Undoubtedly it does.

Deputy Arthur Morgan

I thank TASC for appearing before the committee and giving its presentation which is very much appreciated. We heard from the Restaurants Association of Ireland a number of weeks ago and IBEC will appear before the committee today. I value the work of TASC because it is always exceptionally well researched and we can rely on what it presents. It therefore carries a significant value for us.

On the minimum wage, competitiveness is constantly put forward as a major problem in regard to JLCs, in particular. What is the average percentage of the overall cost of running an operation in terms of the minimum wage? Where does it fit into the overall cost? There are rent costs and various overheads. I am trying to get a context to the issue. The delegation touched on it in its presentation and I ask it to elaborate on that.

What factors should be compared when evaluating the minimum wage in this State with that in other states in the European Union? Is it education, the cost of health, public transport availability or whatever? I would appreciate any comment on the valuation which would bring it to a level we could measure accurately. Would the representatives speculate on the current campaign to reduce the minimum wage in the first instance? I would value their comment on that.

We have been told by the Restaurants Association of Ireland that if the JLC rate is not reduced in terms of Sunday working and so on, some restaurants will close. Whatever about the consequences of that for the people on the minimum wage, have the representatives considered the dire implications of that on those poor well-heeled people who use those restaurants? They might not want to comment on that point. I am being facetious.

Ms Sinead Pentony

I will take those questions. On the first question about the proportion of costs attributed to wages and labour, they vary between 35% and 40% — approximately one third to 40%. Focusing on cutting wages in the absence of examining the other cost factors will not yield the kind of results that have been put forward in terms of reducing prices and, as a result, increasing demand. That is the reason that in the document we prepared on the restaurant sector, Square Deal? The Real Cost of Making a Meal in the Restaurant Sector, the analysis of wages and labour costs in the restaurant sector, we reiterated the need to focus on the other factors such as energy costs and rents which are an ongoing issue not just in the restaurant and hospitality sector but across many sectors. That is our answer to that question in terms of focusing on other cost factors beyond the cost of labour. In our analysis, labour costs in the hospitality sector are competitive across the European Union and OECD countries.

With regard to comparing the minimum wage, the figure often trotted out is that we have the second highest minimum wage rate in Europe. In examining that figure more closely we must look beyond the monetary value and examine, for example, the cost of living. EUROSTAT said in its analysis that when it takes the cost of living into consideration, we fall from second to sixth out of the EU 15 countries.

Another consideration we must take into account is that the EUROSTAT calculations are monthly calculations for a minimum wage. It is what one would get for working for a month on a minimum wage. In France it is calculated for a 35 hour week, in the United Kingdom it is calculated for a 38 hour week, and in Ireland it is calculated for a 39 hour week. When those factors are taken into consideration they would reduce the wage costs in Ireland.

Another point I would make on the minimum wage rates is that EUROSTAT only compares countries that have statutory minimum wage rates. That does not include wages that have been agreed through collective bargaining processes. While the Nordic countries — Sweden, Norway, Finland and Denmark — do not have statutory minimum wage rates they have minimum wage rates agreed through collective bargaining processes, and they are significantly higher than minimum wage rates in Ireland. That puts Ireland in context and on the basis of our analysis it demonstrates that we are competitive in that regard.

On the question about the campaign on the need to reduce the minimum wage as a way of cutting costs, wages and labour costs are only a small proportion — one third — of the overall costs. It is our contention that other costs must be examined and I mentioned commercial rents, rates, energy costs and insurance. All of those factors must be examined. However, the wage rates are possibly an easy target because they are something over which they have more control. There must be a concerted effort at Government level to examine those costs, in particular food costs. We gave the example that Ireland has the second highest food costs in the 27 EU countries and a good deal of research and work has been undertaken by the farming organisations highlighting the gap in the price of food that farmers receive and the actual price in the supermarkets, and also in terms of the cost of food in the restaurant and hospitality sector.

There has also been a contention regarding the need to abolish the Sunday premiums which the restaurant association says have resulted in many restaurants being unable to open on Sundays. There is no evidence to support that contention. The evidence being presented that it is preventing restaurants from opening must be examined but in the absence of evidence, it does not stand up.

Chairman

Does TASC have any evidence of companies pleading inability to pay or anything of that nature with regard to——

Ms Sinead Pentony

That is built into the minimum wage legislation. If companies are legitimately in trouble and are having difficulties making their commitments to their workers they can put forward that contention through the legislation in terms of inability to pay. As far as we know there has been one case to date of an employer putting forward the contention that they have been——

Chairman

They show their books and so on.

Ms Sinead Pentony

A point I did not mention on the Sunday premium is that the employment legislation has machinery in place. For example, SIPTU and the Irish Hotels Federation have negotiated a reduction in Sunday premiums from double time to time and a half. That is where these debates need to take place and where the evidence, the figures and the arguments can be put forward and negotiated on foot of that.

Chairman

Ms Pentony is saying only one company of which she is aware relied upon the inability to pay clause in the context of the——

Ms Sinead Pentony

On the basis of our research that is what we have come up with.

Senator Brendan Ryan

I have always felt that the effect of the minimum wage rate in Ireland has been exaggerated. I am thankful to the TASC group for the detailed research-based paper its members presented today in terms of an analysis and a powerful summary. Deputy Bruton suggested it may not have been a balanced presentation in that it did not deal with general costs but the representatives were asked to appear before the committee to deal with the specific issue of the effect of the minimum wage and, to be fair to them, that is what they have delivered.

To take an argument from the other side, in terms of the effect of the reduction in the minimum wage and ending up with a 21 cent, 51 cent or 61 cent increase on the cost of a lunch, dinner for two or whatever, could it be argued by people who operate those restaurants that that would be a significant saving for them and might be the difference between them staying in business or not, depending on the volume of plates of food they serve in a week or whatever? Did the representatives examine that possibility? One might say that 61 cent is a very small amount but if it was a busy restaurant it could have quite an effect on its bottom line in terms of profit.

Ms Paula Clancy

It is switching the argument the other way. The argument is that a 60 cent difference is unlikely to affect the average customer's decision whether to take a meal. That is the point we are making. It will not act as a motivator to consumers——

Senator Brendan Ryan

The effect on demand.

Ms Paula Clancy

Exactly, yes.

Senator Brendan Ryan

It could conceivably have an effect on the profits and keep a business running or not.

Ms Paula Clancy

Yes, if there was a withdrawal of 60 cent per meal calculated over a period of time, but our argument is that that is not likely to happen.

Deputy Damien English

On the last point, the argument is not that there would be fewer people eating out but that fewer profits would be made on a Sunday. That is the impression we got from the last discussions we had with people in the industry. However, the analysis is useful.

The debate on the minimum wage is a pointless one. We should move on to other debates because there are many others areas of cost that we must tackle. I have said previously, and perhaps it might happen in the next presentation, that no one has yet put a case before me to explain the reason we should even consider this proposal. I can do figures but I have yet to see the case made for the argument. If the wages of people on the minimum wage are cut much more, there will be no point in them going to work. They may as well stay at home. There are costs involved in going to work. Most people who work on that wage have a car to run and need a uniform to go to work. It would be cheaper for those people not to work and to stay at home. It is unfair to say that the solution to our economic problems is to pick on those in receipt of the minimum wage because it is not. I have said previously that the issue is that money being paid to employees in addition to the minimum wage. People are using the minimum wage as a bargaining tool. That is the key issue and we should discuss that. I assume that people, when negotiating their salaries, say that they want to be paid the minimum wage plus X, Y and Z. That is the issue in this area. The minimum wage is being used as a benchmark. It is unfair to try to reduce the minimum wage to solve some other problem. It is the wrong argument to use in that respect. I agree with most of what is in the representatives' presentation.

The figures show that of the EU 15 only Greece and Portugal have lower labour costs per employee than Ireland. Is that correct?

Ms Paula Clancy

Could the Deputy repeat that point?

Deputy Damien English

It seems that of the EU 15 only Greece and Portugal have lower costs per employee than Ireland. Greece and Portugal have massive problems like ourselves.

While Ms Clancy checks up on that, I wish to point out that another issue is the complications in the operations of JLCs and the fact that, in some cases, these might led to job losses. While I do not see much evidence of that, there is an issue regarding costs. The difference in costs between a business and a neighbouring business is an issue. This does not apply so much to restaurants but to businesses in other sectors. The fact that a business selling a product does not have to pay the minimum wage while the business next door selling the same product does have to pay its staff the minimum wage causes a problem. That issue needs to be examined and solved. This practice occurs in certain sectors. It would be unfair of us not to tackle that practice because what is happening is wrong.

Ms Paula Clancy

We did not address the structural issues of how a JLC is constructed. It comes down to the rates.

Deputy Damien English

We will have to examine that practice because it is unfair that competing businesses are not operating on a level playing field. If the minimum wage is meant to be a level for all businesses, the JLCs do not always ensure that. That puts undue pressure on certain businesses. I will leave it at that.

Chairman

Mr. Tom McDonnell wishes to respond to a point that was made.

Mr. Tom McDonnell

The figures for labour costs per hour were taken from the EU KLEMS database, which is a European Commission database that is being developed. The figure for Ireland is €12.84 for 2007, which was the last year the minimum wage was increased. That rate is lower than all the EU 15 except for Greece and Portugal. The EU 15 average was €15.56. The reason the labour costs are low in Ireland is because of payroll taxes, which in Ireland is employers' PRSI. Our payroll taxes are low by EU 15 standards. Although wage costs are in one place, as it were, because our payroll taxes are so low, that results in our ranking of 13th place among the EU 15 in terms of labour costs.

Chairman

We have now been joined by Mr. Brendan McGinty, director of industrial relations and human resources services in IBEC, and Mr. Fergal O'Brien, senior economist with IBEC. I thank the delegates for their attendance. We know they were attending another meeting. That reflected productivity, getting two for the price of one, as it were.

I wish to draw their attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by the committee to cease giving evidence in relation to a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice that members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

I call on Mr. Brendan McGinty to make his presentation. We have already received a comprehensive statement. In the interests of fairness, we asked one of the delegates from TASC to synopsise its presentation. It is a significant document, but there will be key points that Mr. McGinty will want to make in regard to it. Members have already studied it and the delegates of TASC have been asked significant questions on it. The delegates from IBEC can anticipate the same will apply to their presentation. This is best way to proceed to try to ascertain and elicit the various issues that are germane to their presentation.

Mr. Brendan McGinty

I thank the Chairman for accommodating us. We welcome the opportunity to discuss the issue of the minimum wage with the members. It is an important issue and one that is of concern certainly to employers generally. The context for this discussion is very much what we are experiencing in the environment in which businesses operate. What has been brought sharply into focus during recent years in particular as a result of the international downturn is the unsustainable nature of the cost base in Ireland. An element of that is regulation and how we regulate our labour market. Notwithstanding the fact that, technically, as recent economic forecasters suggested, we are out of recession, the ordinary citizen and those engaged in business know it does not necessarily feel like that.

To summarise our sense of what is happening in the business community, there are two parts to this, one of which is that multinational organisations, many of which are engaged in the export sector, are starting to experience some pick-up in demand as the global economy has begun to show signs of recovery and exchange rate movement in those circumstances has improved to the benefit of exporter in this country. However, the reality is that there are many businesses that are hugely dependent on the domestic market. Those businesses are experiencing extremely difficult trading circumstances. In terms of gross national product, GNP, figures, we know that activity in the domestic economy has fallen by about 25% in money terms since the start of the crisis. While the gross domestic product, GDP, figures show reductions of 3.5% and 7.6% for 2008 and 2009, respectively, the more accurate picture of the scale of the recession is the one quarter fall in nominal GNP that has occurred. The fact that this has happened essentially matches the drop in turnover that many businesses are experiencing in the domestic market. However, many businesses have fared worse than that depending on what has been happening in their sectors. In the retail sector, turnover has fallen by up to 30% in some cases and similar reductions in turnover have occurred in the hospitality sector and elsewhere. While everyone is trying to cut prices and costs as best they can, costs have not fallen in proportion to the reduction in business turnover. That is why we have seen many businesses go to the wall. People in business have been trying to tackle their cost structures in whatever areas they can, whether it be rent, local authority charges, energy charges and so on. Those issues, as cost headings, remain a significant challenge for business.

We are now in a period of potentially jobless growth. The number on the live register is startling. Some 270,000 jobs have been lost during the past two years. In terms of the sectoral spread of job losses, 60,000 jobs have been lost in the manufacturing sector, 25,000 jobs have been loss in administration and support services and 12,000 jobs have been lost in the hospitality sector. There is now a risk of embedded long-term unemployment. Youth unemployment is at the level of affecting about a quarter of all those aged under 24 years of age. That is a significant structural issue in the approach to what needs to be done in terms of the labour market.

As far as the minimum wage is concerned, I will not labour the history in terms of percentage adjustments, but it is important that members understand that this does have a disproportionate effect on employers in particular sectors such as the hospitality sector, the retail sector and parts of the manufacturing sector. In those sectors, contrary to some analysis, labour costs are a very high percentage of operating costs. That means that any adjustment in the minimum wage has an acute effect in that regard.

During the Celtic tiger years many aspects of Government policy were focused on managing the transition to the higher value economy, to which we all signed up, but it gave rise to difficulties in the higher price of labour. Unfortunately, it was a higher price for labour in a bubble economy. The bubble has certainly burst, with implications in terms of job losses. In areas in which wages are regulated we are left with the implications of these decisions. Typically, it was the ESRI which undertook the analysis and it tended to come to the view that the minimum wage had minimum effect on unemployment levels. Arguably, that is understandable, bearing in mind that it was at a time of full employment, when the domestic economy was booming and prices were rising. However, the world has changed utterly and the minimum wage is becoming a deterrent to companies in hiring new staff. We, therefore, press the committee to call for a detailed assessment of the impact of the minimum wage on key sectors in keeping with a commitment made by a previous Minister of State with responsibility for labour affairs when the minimum wage was last adjusted. We should also examine the manner in which the minimum wage is adjusted and its frequency. This must be actively pursued.

Consistent with the debate on the minimum wage, there should be a sustainable employment test in the making of all employment regulations. Ministers and officials should explain to the public and the Houses how proposals will contribute positively to the sustainability of employment. We are all seized by the potential to galvanise the nation of the opportunity for Ireland to achieve sustainable growth and employment, regardless of our perspective. This needs to be debated with the public. Current Government policy is not oblivious to these challenges. Our paper acknowledges the decision to provide an incentive for employers to recruit additional staff through the PRSI exemption scheme. It is about trying to reduce the cost of employment to employers and encouraging them to creat more jobs. The wider debate about the minimum wage needs to be seen in that context.

A further observation is important. In the drive towards higher value activity there is a tendency to give up much too easily on aspects of the manufacturing sector. That is a mistake, as there are many valuable manufacturing jobs to be created in our towns and cities if priced properly to ensure sustainability in the longer term. Through productivity gains and cost adjustments, we can price ourselves back into international markets. There is some evidence of this happening in the export sector but we are failing miserably to achieve the same goal in the domestic sector.

Regarding the minimum wage and our competitive position, average wage rates have grown to 20% above the EU15 average. This is a factor in our high wage costs. The minimum wage is the third highest in the European Union, after Luxembourg and France, and approximately 30% above the EU15 average. Whether we like, this is a serious issue in terms of our competitiveness. The minimum wage in the United Kingdom is currently £5.80 or approximately €6.80. That represents a competitive advantage of 20% in terms of wage cost for businesses in the United Kingdom. If it were not for what has happened to sterling in the past number of months, the differential would be as high as 30%. The minimum wage acts against the directing downwards of wages, costs and prices and if in the single currency environment wages do not reduce, the only result will be higher unemployment. Wage rates have been falling across the economy and in the private sector, but the real difficulty has been experienced in those sectors in which wages are regulated. It seems the debate on the minimum wage has not kept pace with developments in the economy as a whole.

A factor that must be considered in the debate on incomes policy is the positioning of social welfare in addressing the challenge presented by the unemployment crisis. Our view is that social welfare rates should be adjusted in line with wage and price trends across the economy. There must be fundamental reform of the unemployment benefit and tax systems to create stronger incentives to encourage people to take up employment. We are raising for discussion the notion of refundable tax credits or a more streamlined family income supplement scheme which might prove helpful in this regard.

Those who have jumped to the defence of the minimum wage have sometimes pointed to the provision in legislation under which employers can claim inability to pay. While that provision is in place, it has never been used. One of the requirements to be met before an application can be made is that one must have the consent of the majority of employees affected by the measure which is narrowly drawn; therefore, the scope for access to it is limited. The requirement to secure consent should be removed. A counter-balance is needed, whereby the Labour Court, in reviewing any case, would be required to ensure any outcome would not result in a figure of less than 70% of the minimum wage at the time of application.

As we were coming in, I heard references to the JLCs in the responses to committee members' questions. This is a serious issue, given that the national minimum wage is the third highest in the European Union and affects a significant number of employers in a number of important domestic sectors. This is in contrast to the position in the United Kingdom in which wage councils were abolished some years ago. There is divergence in statutory wage rates between businesses here and those in Northern Ireland. It is striking that a hotel worker receives the JLC rate of €9.08, compared to a figure of £6.80 in Northern Ireland, a difference of 34%. Likewise, in categories such as catering, contract cleaning and security the difference in rates is up to 58%. With these numbers, there is a serious question to be asked about the relevance of the JLC system. There is also a question about its constitutionality. The Industrial Relations (Amendment) Bill, currently before the House, seeks to amend the existing legislation. We argue that the JLC system should be abolished for the reasons detailed in the paper we have presented. We believe it has outlived its usefulness, not least because the minimum wage is now in place. An additional 40 employment protection statutes protect the legal rights of employees. This country has developed a significant number of employment rights which are available to employees.

Without prejudice to that position, we recognise that public policy favours the retention of the JLC system in some form. We understand that is the policy position of all the main political parties. We have made it clear, however, that if public policy continues to support the JLC system, radical reforms need to be introduced to make it fit for purpose. If there is to be any potential for the system to be supported by employers, the introduction of a non-bureaucratic mechanism, whereby an employer could seek a temporary exemption from the terms of an employment regulation order, is an absolute requirement. We are not satisfied that the current contents of the Bill will make it fit for purpose in that regard. We need to see the retrospection periods for claims being brought into line with the payment of wages legislation. The chairs of the joint labour committees need to have non-voting roles if they are to replicate the principle of genuine agreement between the parties, as would otherwise happen in a collective bargaining environment. A job sustainability focus and requirement need to be introduced to the principles and policies underpinning the JLCs. That would be consistent with our general policy on what needs to be introduced in employment policy generally.

I have outlined some of the main issues we want to raise with the committee in the context of the wider debate about the minimum wage. We understand the process has been formally deferred, in terms of engagement between IBEC and the ICTU at the Labour Court. That is where the matter rests.

Deputy Richard Bruton

Apart from the minimum wage argument, the data produced by IBEC show that employers in the private sector have not generally been cutting wages. Some 75% have not cut wages at all. It does not appear to be the case that employers see a competitive opportunity in cutting wages but are being held back by the application of these rules by the State. If the competitiveness of wage structures is such a significant issue, why are employers in the private sector behaving as they are? Will the delegation tell us what percentage is on the minimum wage in the manufacturing, administration and hospitality sectors which have been mentioned?

When I looked briefly at the wage figures last week, I was not struck by substantial deviations by sector. It did not seem that some sectors were constrained in cutting wages, while others were gung ho about doing so. Employers in sectors in which workers are not paid anything like the minimum wage do not appear to be gung ho about cutting wages. I wonder to what extent this argument is exaggerated. Should we not be looking further up the wage scale, at those who are paid much higher wages? We are familiar with the payment of horrendous legal and medical fees. Is the argument about the minimum wage a serious element of the cost competitiveness agenda? Should the enforcement of our laws on competition, barriers to entry and many other aspects not be at the top of our agenda?

I have no problem with the delegation's ideas about impact assessment which were very well made. One of the things that came out of the TASC presentation was the extraordinary burden on employers who were paying the minimum wage but who decided to increase payment. The TASC delegation was making the case in reverse. Under the tax structure, if an employer who is paying the minimum wage decides to pay €9.27, hardly a huge amount, he or she will be absolutely hammered by the cost of employer and employee PRSI. The way we administer the system seems to be perverse. It might not survive the forthcoming budget.

Perhaps the members of the delegation can amplify on what they have said about refundable tax credits. Many at lower wage levels are not eligible to receive significant refunds. Is that an issue at this level, or is it just an issue at a higher level? How does one see this clicking into the debate?

Mr. Brendan McGinty

The analysis we are seeing suggests nominal wages in the private sector have fallen significantly in the last two years — by approximately 5.3% in the year to the last quarter of 2009. In terms of the overall profile, it is important to make a couple of distinctions. One in four firms cut nominal pay levels during 2009. The average cut was approximately 14%. The cuts ranged from approximately 18% for management grades to approximately 12% for production workers. That gives the committee a sense of the scale and spread of the cuts. Such an adjustment has been happening dramatically across the private sector and is continuing in 2010.

Deputy Richard Bruton

However, 75% of private sector companies are not cutting wages at all.

Mr. Brendan McGinty

Yes, but they are freezing wages. They are also reducing payroll costs. That is different, as the committee will appreciate. It can involve the curtailment of overtime, redundancies and short-time working in one form or another. It is important to draw that distinction. The important issue we need to debate is the relationship between the minimum wage and social welfare levels. I spoke to an employer in recent days who had offered a position to somebody for €13 an hour. Having accepted the position, the person in question rang the employer the evening before he was due to start. He said that having reviewed his social welfare entitlements, etc., he had decided not to accept the position. We need to examine the range of benefits made available and the circumstances in which they are paid to ensure we do not lose sight of the absolute imperative of retaining the maximum incentive for people to take up employment. It is becoming a real issue in the real economy. I ask my colleague, Mr. O'Brien, to speak about the specific profile of minimum wage coverage.

Mr. Fergal O’Brien

Perhaps I will start by discussing general wage trends in the private sector. Deputy Bruton is right to say just one in four firms is cutting pay levels. Increasingly, firms are endeavouring to reduce their labour costs through decreases in new higher rates. A series of obstacles is making it difficult for companies to cut the wages of existing employees. In the unregulated labour market new higher rates have decreased by between 15% and 30%. Starting salaries in the IFSC and in manufacturing are considerably lower than they were prior to the crisis. I suppose that is where Ireland will eventually restore its competitiveness. It is going to be a long and drawn out process. If we examine the experience of monetary union, we will see that it took Germany a decade to correct its competitiveness problems. Much of what is happening in the private sector, in the unregulated wages sector, relates to new higher rates which are coming down.

We do not have much up-to-date data to indicate how many workers are employed at the minimum wage. The ESRI did some work of this nature in its impact assessments going back to 2005. The CSO published figures last year but we have only the results for manufacturing and financial services. In manufacturing, in the first quarter of 2007 a total of 2.5% of the workforce was employed at the minimum wage. By the second quarter of 2009 that was down to 1.4%. Could one draw the conclusion that because the minimum wage went up that we moved some of those jobs offshore and that some of the people at the lower end of the scale lost their jobs? We do not have the evidence base to do that but it is the kind of thing we would like to see an up-to-date impact assessment examine.

In financial services for example, 0.1% of workers are on the minimum wage. The big percentages are in the hospitality and retail sectors. The historic data showed they were up to 25% in some sectors but we would need to get an up-to-date impact assessment to see what is the current percentage.

In terms of what we say about refundable tax credits, what we are getting at is the policy rationale for a minimum wage. If it is a policy aimed at providing a safety net on income levels, to date that cost has been borne by employers and businesses. To a fair degree during the relatively recent economic boom, employers were able to pass on those higher costs through higher prices. Hence, we have the chicken and egg situation of higher prices and higher wages. In the future employers simply cannot bear those costs. If the price of labour goes up we will have a lower demand for labour. Eventually, in the long run it comes back to economics. We want to examine whether there is another way to ensure minimum income standards in the economy. The FIS clearly has not worked and we need to consider a more effective approach. The FIS has not been proven to be a successful instrument in terms of addressing income levels at the lower end of the scale. Perhaps a refundable tax credit system could be another solution. It is not something on which we have done extensive work but we thought it would be useful to introduce the idea at today's meeting.

Ms Paula Clancy

I have a couple of points to make although we have not had an opportunity to examine the entire presentation. On maintaining the minimum wage and its impact on unemployment, I refer to empirical research and a wide-ranging review of the literature that was conducted at the London School of Economics published by David Metcalf in 2007. It is important to say that it found that the British national minimum wage had little or no impact on employment.

In contrast to our colleagues, we worry that a reduction in the minimum wage would have a downward pressure on social welfare. That is in the context that social welfare is already not generous by European standards. Again, that is contrary to what many believe. We have an at-risk-of-poverty rate of 14%. The Vincentian Partnership research is interesting because it calculated carefully a minimum essential rate of pay for a living wage. It came up with approximately €540 per week for a family with a single earner and two children. When we talk about sustainability of wages we must think in terms of people's capacity to live.

Deputy Arthur Morgan

I am very interested in Mr. O'Brien's comment on refundable tax credits. That is something on which we would share territory, although perhaps not for the same reason. Let us bag that as a positive and move on.

On lowering the minimum wage, does IBEC recognise the value of that small extra percentage that the JLC rates and the minimum wage present to the local economy? Conversely, if the money is taken out of the local economy, does IBEC accept the effect it will have on many of its current or future members? I would welcome a comment on that basic fact of economics.

Mr. McGinty said that contrary to the analysis presented, labour costs are high. Perhaps he would share the information with us or point us in the right direction to access it. That is contrary to what TASC has said. Mr. McGinty also said that the minimum wage is deterring job creation. Would he point to some examples of that? It occurs to me that any mug could run a business if the workers were working for free or if they were not working for a sustainable wage.

I asked Mr. McGinty a question last year when he appeared before the committee. He has gone through the social partnership process and met the trade unions and Social Justice Ireland, formerly CORI. Is poverty on IBEC's Richter scale? Is it an issue for IBEC? Is value placed on workers as a team in any enterprise? I have an old-fashioned notion that people in the workforce are part of a team and that it is not all about the person at the top. Where does IBEC stand in that regard? I would welcome a comment from Mr. McGinty.

Mr. Brendan McGinty

On the value of JLCs and the rates being paid in terms of the local economy, whether in hospitality or elsewhere, the tenor of Deputy Morgan's question assumes the rates are affordable in the first instance and that the business model being pursued is capable of sustaining those rates in the medium to long term. What the balance should be is at the heart of the debate we need to have. We are not calling for an immediate reduction in the minimum wage. What we are saying is that the place of the minimum wage must be assessed in terms of the impact it has on employment, the sectors that are most exposed and the relationship between the minimum wage and social welfare rates. Because of what is happening in the social welfare system it is becoming a deterrent to people taking up employment. The most serious issue——

Deputy Arthur Morgan

I apologise for interrupting but I would like Mr. McGinty to please clarify something. Did he say that IBEC is not pressing for a reduction in the minimum wage?

Mr. Brendan McGinty

To increase the minimum wage would be anathema and not what is needed in the economy. The minimum wage should be frozen for a significant period. What is needed is a fundamental review of what role the minimum wage should play in Irish income policy. We must have a real debate about social welfare rates and the relevance of the joint labour committee system that has introduced a second tier minimum wage that no longer has a place as a regulated wage given the level of the minimum wage and the other protections that exist in the labour market. I put that firmly on the record.

On the issue of the linkage to poverty, the only real antidote to poverty is a job. Let us be blunt about it.

Deputy Arthur Morgan

What if it does not pay to raise one to the poverty threshold?

Mr. Brendan McGinty

Is that not all the more reason to get real about what is affordable in the economy given what has happened in terms of the effects of the international downturn on our capacity to fund existing benefit structures and to create jobs? We have lost 270,000 jobs in the past two years. Some of those jobs have gone in sectors where the minimum wage issue and the joint labour committee system have had their greatest prevalence, whether it is in services or hospitality. What we need is imaginative approaches to how we encourage employers to create jobs because, otherwise, we are looking at a potential period of jobless growth, which none of us wants.

We suggest the JLC system should be abolished given we have the minimum wage floor and the 40 other employment statutes by way of employment rights protection. We need to examine our income policy in terms of what place the unemployment benefit system has, with our tax system, in terms of providing an alternative means by which incomes can be supported. This is the debate we need to have. We seem to be unwilling to open up an honest discussion about alternative measures in circumstances where, in relative terms, as a result of having a second tier minimum wage, some employers on a pure labour cost basis are at a disadvantage of anything up to 58%, which is not sustainable.

Senator Brendan Ryan

In terms of trying to fully understand the impact on key sectors, which is of critical importance to the debate, I would have thought IBEC might have carried out that analysis for itself at this stage. From Mr. McGinty's comments, that is not the case and IBEC hopes for independent analysis on the issue.

There is nothing wrong with the sustainable employment test suggested by Mr. McGinty. It should be standard and I have no difficulty with it.

When Deputy Bruton referred to the fact that 75% of companies and employers have not reduced wages, Mr. O'Brien responded that they are attacking payroll costs generally. Is that not what companies should do in the first instance rather than focusing on pay rates? This should be the initial response from industry and it is not satisfactory to suggest that while employers have not reduced wages, they are reducing payroll costs. Having worked in industry for many years, I would see that as a basic requirement.

Is it the case, as suggested by anecdotal evidence, that some employers are using the recession as an excuse to reduce wages where profitability has been maintained during the crisis? This has happened in some sectors.

Mr. Fergal O’Brien

Some 270,000 jobs have been lost since the start of the crisis and that is the real human scale evidence of the impact of the downturn. I do not believe employers see this as an excuse to increase profitability; they are fighting for survival.

Senator Brendan Ryan

I referred to some employers. I was not generalising in that sense.

Mr. Fergal O’Brien

We have not seen any evidence of that.

Employers have been addressing labour costs from the outset of the crisis in every possible way, mainly through non-pay costs, various employee benefits and bonuses, which are a distant memory for most people. Productivity has also been a big part of what employers and workers have been doing. Significant workplace changes have been agreed during the crisis and have made a significant contribution to the sustainability of employers, and the trade unions and workers have played a big part in terms of ensuring the sustainability of many employers.

As part of the overall labour cost disadvantage which still exists here, we will have to examine the issue of wages. It is simply unsustainable that we can have wages approximately 20% higher than the EU-15 average — we are not talking about Bulgaria or Romania but about mainland Europe. We remain excessively expensive on wage rates and employers must consider this as part of their overall cost structure. Mr. McGinty may wish to add more on this point.

Mr. Brendan McGinty

In response to Senator Ryan's comments, the sequences tended to be that in the first wave of restructuring employers would typically assess the low hanging fruit in terms of cost that could be addressed, whether that is in terms of renegotiating contracts with suppliers or prices on professional fees, which have remained extraordinarily high, as we all know. However, in the employment arena, labour cost is high in some of the sectors that are subject to the minimum wage and could be 40% to 50% of cost in parts of the hospitality sector and elsewhere. In those circumstances, we have seen employers open up discussions with their staff, either in terms of accepting reduced hours, in some cases redundancies, the elimination of overtime payments where applicable and the like. As a last stop measure, which is to employers' credit also, in some cases agreements to give effect to pay reductions have been arrived at of the order we have outlined. This has meant sensible pragmatic agreements being entered into by staff which recognise that their own longer-term interests are better served by managing to hold on to a job and creating a level of job security, with the potential at least for better prospects down the road when things improve.

That is what has been happening in the private sector so it should not be any surprise that it has unfolded in the way it has. Nonetheless, the scale of pay adjustment has been of the order we have witnessed. For whatever reason, political or otherwise, it has not been possible to have a proper debate about where the minimum wage should be positioned relative to pay movements generally in the economy and relative to what is happening in the social welfare system.

It is worth making this point about the JLC system in particular. In some sectors, such as catering and the hotel sector, we have managed to enter into pragmatic agreements with a number of the trade unions, SIPTU in particular, which it would be wrong not to acknowledge, to give effect to reductions or changes to particular terms and conditions. This committee will remember very major differences of opinion about Sunday premiums and the like in the hospitality sector. We sat down, agreed arrangements and gave effect to a revised provisions on those issues. However, that kind of progress is, unfortunately, but a drop in the ocean of what is now required given what has happened in this economy over the past two years. This is why we have positioned our policy position to state the JLC is now anathema to what this economy needs relative to the amount of protection that is available for workers. Whether public policy and the Government remain of the view that this system has to be protected, radical reform is necessary because it is simply not working and it is not flexible enough to recognise the scale of the problems to which many employers in those sectors are now exposed.

Senator Brendan Ryan

In percentage terms, does IBEC have many members who operate at minimum wage levels?

Mr. Brendan McGinty

Yes. The profile in terms of overall numbers would be similar to the national average. Typically, such companies employ 5% to 6% of the labour force.

Chairman

If the JLC rate was dismantled or taken off the pitch, is this not just an excuse to make the minimum wage the new level from which everybody cascades down?

Deputy Arthur Morgan

That is correct.

Chairman

Is that not what would happen? Let us face up to the reality. Mr. McGinty makes strong points as to how it can be reorganised, and neither the unions nor anybody else is afraid to engage constructively and positively in this regard. However, if we emasculate this, the human spirit being what it is, the first thing to happen is that wage levels would fly down towards €8.65.

The issue of social welfare was raised. Social welfare rates are only sustenance rates and would not give a person any degree of luxury. For example, we have a small business that is not profitable at present. I acknowledge it is hard to maintain and sustain a corner shop and so on in the current climate. However, I would not like to ask my workers to work for less than the minimum wage. I would tell them that they would be better off going elsewhere. I would not bring myself to that point because by doing so, one effectively is putting such workers back on the rates that prevailed a decade ago in 2000. No matter what anyone might suggest, there is an issue in respect of the cost of food. The point was well made by TASC that although farmers get very little for their production costs and often only barely cover them, people must pay substantial sums for basic food requirements. While the delegates are considering that point, I will let in Deputy English.

Deputy Damien English

Most issues already have been covered and I only wish to make a couple of points. I agree that in some cases, the social welfare package for certain groups of people acts as a disincentive. While in many cases it does not, some cases arise and I completely agree that this issue must be examined because social welfare benefits should never act as a disincentive to working for a reasonable wage. I am familiar with many stories concerning people who have been offered jobs but who do not take them up. This is in part due to the step-down in people's entitlement to facilities such as medical cards or whatever over a couple of years and does not simply pertain to social welfare benefits. Other elements that provide security to one's family are the major factor. Securing a new job does not provide such security because there is no guarantee the job will exist two or three years later.

Chairman

It is a property trap.

Deputy Damien English

Yes, I had intended to mention that. I have no difficulty with the proposal to conduct an analysis of this issue, which would be worthwhile. I welcome IBEC's call for such an assessment, which can be backed by the joint committee because it will clarify many issues that must be considered. The debate on the minimum wage really takes place because people wish to discuss the other wage rates that obtain. IBEC's presentation mentioned it has an impact on the costs of employing other workers whose wages are linked to the minimum wage. This really should be the focus of discussion because wages are too high in many other sectors. However, I fundamentally believe that the minimum wage rate has reached its present level because of the cost of living in Ireland and that it may not be possible to reconsider this rate for a while. Perhaps the debate can be reopened in the future after Ireland has become a cheaper place in which to live but at present, anyone in receipt of the minimum wage finds it difficult to survive. There is no point in picking on them because it is not sustainable.

I understand that the minimum wage is causing difficulty to IBEC in its wage negotiations elsewhere. I accept this probably is a major cause of concern. I have a problem with the amount of time spent discussing the minimum wage when Ireland's costs associated with factors such as property, energy and insurance are sky-high. Perhaps other joint committees are tackling these issues but members of this joint committee rarely discuss the other factors. Moreover, they all are regulated by the Government and all can be addressed. They have been too high for a long time because they were let go. These costs must be reconsidered rather than picking on the minimum wage, because business in Ireland cannot be competitive until all such costs are tackled. The problem does not simply lie with wage costs.

I am familiar with the hotel and restaurant sectors and accept that wages are a major issue there. As for manufacturing businesses, I would love to base a discussion on a set of accounts from a few manufacturing companies showing the number of employees who were in receipt of the minimum wage. While the names of the companies concerned would not be needed, I seek some real data. I requested this of IBEC at a previous meeting so that members can go through a company and ascertain the exact impact of the minimum wage. It is easier to pick out a restaurant and state that there are low profits and high costs associated with wages, food and so on. As profits are relatively low, the minimum wage has a major impact. However, I would like to have sight of sets of accounts from larger manufacturing companies to which IBEC might have access. Businesses do not approach me in my capacity as a Deputy on a daily basis with regard to the minimum wage, although they approach me about all the other costs. Perhaps they approach IBEC, which represents them in this regard.

Although IBEC made the point that the average wage in Ireland has grown by approximately 20%, the average wage is not really the minimum wage. As the minimum wage is a small percentage of the overall wage bill, the debate should be about wages in general. This in turn will lead to the cost of living in general and much of that comes back to high property costs. This probably is a matter that must be discussed once and for all and perhaps a once-off adjustment to property costs is required. While the broader subject of rents, wages and so on requires proper discussion, this is not simply a matter for the delegates. As a country we must face up to this issue, rather than taking a drip-feeding approach to tackling the problem. One cannot tackle the wage problem without addressing the problem of property costs and people's burden of debt. This is a matter for society. IBEC's representatives referred to the public decision. This is the issue on which the debate must be centred because were that problem to be resolved or mitigated, one then could consider wage costs and so on.

The delegates from IBEC suggested that it had been promised a review in the event of further wage increases being proposed. Such a review should take place anyway. I would welcome a sensitivity analysis in respect of the effect the minimum wage has on whether jobs are lost or kept. If it could be proven that jobs are being lost on a large scale because of the minimum wage, everyone would reconsider it but this has not been proven. Perhaps a jobs and sensitivity analysis will demonstrate this but as far as I am aware, no one has produced such evidence to me or to any of my colleagues. The reason that all political parties are strongly in favour of retaining the minimum wage as it stands is that no concrete proof exists that it has a negative impact. Were such a study to produce concrete proof, it must be debated but it does not exist at present.

I accept there has been an assumption in many Government and local government circles that all businesses are making a fortune. I know this is not the case and that they never did. I acknowledge the assumption and that it must be excised from public policy because it is unfair to assume that all businesses make a fortune. The majority of business people, especially those involved in small businesses, only make their own wages. For some reason, this idea is ingrained in people's minds. It may be possible to dispel it through proper discussion to provide fair play in the future. However, the minimum wage is not an area on which members can work.

Chairman

I know of some small business owners who only take the minimum wage. The minimum wage has been fixed since 2007 and consequently, one cannot blame it. The people concerned have been on fixed incomes at a time when even the rates of social welfare benefits either increased or for the most part held firm. I acknowledge there have been isolated instances of reductions, particularly for the under 25s and under 23s and so on. Does Deputy Morgan wish to contribute further before I wrap up? Deputy English made a fair number of points.

Deputy Damien English

I simply was clarifying my position. While members do not need to go back over it again, I simply was setting out where I stand.

Chairman

Yes. I do not ask delegates to comment on some of those points. I understand Ms Pentony wishes to comment.

Ms Sinead Pentony

I wish to make one or two comments in response to IBEC's responses to some questions from various members. While I am open to correction, I understand a figure was put forward to the effect that our minimum wage is just 20% above the European average. I stress the need to look beyond the monetary value. When one takes into consideration the cost of living and the point that the minimum wage in Ireland is calculated on the basis of a 39-hour week, as opposed to 35 hours and 38 hours in France and the United Kingdom, respectively, our minimum wage is competitive. In 2008, the OECD found that in the private sector, Irish wages ranked in the bottom half of the EU 15 and fall nearly 11% behind the EU average when one considers the various factors. In addition, from an employer's perspective, the cost of PRSI must be factored in, and it is very low compared with other European countries.

As for what has been happening to labour costs during the recession, I note that the inspectorate of the National Employment Rights Authority, NERA, found that between 70% and 80% of businesses investigated in the catering and hotel sector were in breach of employment laws. In the two-year period from 2008 to 2009, it found workers in the sector who were receiving as little as €3 to €5 per hour. Consequently, while the legislation is in place, it is very important that it be enforced. It also is important to reiterate that these measures exist for a reason, namely, to protect employees and this is an example of what can happen unless there is in place the requisite legislation and enforcement to protect low-wage workers.

Deputy Arthur Morgan

This discussion has been interesting, in that IBEC has more or less acknowledged that the battle on the minimum wage is now over. Fair play to IBEC and I sincerely am delighted to hear this message from its representatives. I note the battle now has changed and that the orientation in the forthcoming debate will pertain to welfare payments. It is important that we take this battle on as enthusiastically as we took on the battle around the minimum wage, as we must defend welfare payments for the reasons outlined to the committee.

I agree with the comment on the trade unions, in particular SIPTU. In a number of knife-edge cases, significant compromises were made by trade unions with employers. The day was saved by being practical. Like others, I am in favour of a discussion with ICTU on welfare payments. We look forward to dealing with the matter.

Mr. Brendan McGinty

Regarding the analysis by TASC, why should it be our ambition to be at the top of the league table of pay costs or employment costs generally? In an environment in which we are bleeding jobs and companies are going to the wall, we must fight for every job and do not have the luxury of taking a beggar thy neighbour approach, that is, claiming the economy is only interested in high-value, research-driven jobs. They are important and desirable, but we must create the kind of economy that can sustain jobs matched to the appropriate skill profiles of our labour force. We want to improve skill sets over time, but we cannot afford the luxury of pricing ourselves out of international markets.

I would not want Deputy Morgan to put words in our mouths where the minimum wage is concerned. The battle about where the minimum wage should sit in terms of our national income policy is alive and well. We are not convinced that the argument for where it currently sits has been well made, as the debate includes other factors, for example, social welfare and joint labour committee, JLC, rates. We have set out our views on this issue strongly.

The Oireachtas needs to support a national effort to put jobs back at the heart of what is required in the economy, thereby avoiding a jobless recovery, and to have a proper analysis of the impact of the minimum wage. It is costing jobs in the most exposed sectors. The analysis of the effect of the minimum wage in the UK in the Learning and Skills Council, LSC, study reflected an economy that was in growth at the time. Were the same analysis conducted now or during the coming years, I suspect there would be a dramatically different picture.

Chairman

We have had a significant and constructive debate on this issue, perhaps more than was warranted. While we acknowledge the need to be competitive and to have every option considered and every practical step taken, there is no proof to the effect that the minimum wage has led to a leakage of jobs or a sizable loss in competitiveness. The minimum wage does not offer its recipients any great luxury or benefit, but provides them with a minimum acceptable return on their input. By "acceptable", I mean what is acceptable to Irish society. This is important.

As Chairman, Mr. McGinty and Mr. O'Brien will not be surprised to hear me state the minimum wage should be retained so that it can continue to allow those who contribute to the economy for a relatively small return to maintain their economic independence and their ability to sustain themselves without needing to seek extra support from the State. We cannot lose track of this fact in the current environment. It is a fundamental principle of what is acceptable to our society that everyone's contribution is adequately rewarded.

One cannot claim that €8.65 will set people on the road to luxury. It will not always meet subsistence levels for a family. Family income supplement payments and so on present a benchmark put in place by the State to ensure people maintain certain living standards. The minimum wage also ensures there is no exploitation, as it is important that there be a floor. We have heard of instances of exploitation.

Business has a tough job. In particular, we must pay small and medium-sized enterprises, SMEs, more than lip-service, since they are at the coal face. We have failed to recognise the contribution of small business. However, business must also be more imaginative in its cost-saving endeavours, as other costs impinge significantly on businesses' ability to survive. These must be tackled with the same degree of vigour that Mr. McGinty and Mr. O'Brien have always exhibited in respect of the minimum wage. I am sure they are addressing those other issues as well.

I thank Ms Clancy, Ms Pentony, Mr. McDonnell, Mr. McGinty and Mr. O'Brien for attending. They have had a busy day contributing to a constructive debate. It will help to keep us informed, but this issue is only one part of an overall framework that will allow us to return to our previous position, one in which everyone who wanted a job was able to get one. This is the best way to fight poverty and to ensure people maintain a decent standard of living.

The joint committee adjourned at 4.40 p.m. until 11 a.m. on Thursday, 29 July 2010.