Joint Committee on Enterprise, Trade and Employment díospóireacht -
Wednesday, 12 Oct 2022

Minimum Wage, Cost of Living and Low Pay Commission Report: Engagement with ICTU

Chairman

All those present in the room are asked to exercise personal responsibility to protect themselves and others from the risk of contracting Covid-19. Members are required to participate in the meeting remotely from within the Leinster House complex. Apologies have been received from Senators Paul Gavan and Róisín Garvey. Today we are going to discuss the cost of living, the minimum wage increase and the Low Pay Commission report. Most employees in Ireland are entitled to a minimum wage under the National Minimum Wage Act 2000. Since 1 January 2022, the national minimum wage is €10.50 per hour. In July 2022, the Low Pay Commission published its report, Recommendations for the National Minimum Wage. On 14 September, the Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Leo Varadkar, announced that he had received Government approval to accept the recommendations of the Low Pay Commission to increase the national minimum wage by 80 cent to €11.30 per hour from 1 January 2023.

Today I am pleased we have the opportunity to consider these matters further. I would like to welcome from the Irish Congress of Trade Unions, Dr. Laura Bambrick, head of social policy and employment affairs, and Mr. Liam Berney, industrial officer. We had invited IBEC but unfortunately its representatives were unable to attend. We tried to get others to attend but it was too late. That is why we just have one side, so to speak.

I wish to explain some limitations to parliamentary privilege and the practices of the Houses regarding references witnesses may make to another person when giving evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name, or in such as way as to make him, her or it identifiable or engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if witnesses' statements are potentially damaging to a person or entity, they will be directed to discontinue their remarks. It is imperative that witnesses comply with any such direction.

The opening statements have been circulated to all the members. To commence our consideration of this matter, I now invite Dr. Laura Bambrick to make the opening statement on behalf of the Irish Congress of Trade Unions.

Dr. Laura Bambrick

On behalf of the Irish Congress of Trade Unions, I would like to thank the committee for the invitation to input into its considerations on the cost of living, the minimum wage and the Low Pay Commission recommendation for 2023. I am accompanied by my colleague, Mr. Liam Berney.

The minimum wage is the lowest rate of pay an employer can legally pay their workers. It is currently set at €10.50 for each hour worked. Much is made of the fact that Ireland has one of the highest minimum wage rates in the European Union but this is misleading. Ireland was already the second most expensive country in the EU 27 before the ongoing inflation surge. In 2020, when there was zero inflation, the price of a sample basket of 2,000 everyday consumer goods and services was more than a third higher than the EU average. In other words, when the purchasing power of minimum wage workers is taken into account, it drops from second to seventh position in the rankings and behind our wealthy EU peers.

Likewise, much is made of the near doubling of the rate from when it was first introduced in 2000 at €5.58, which was £4.40 at the time. Again, this is misleading. Increases to the minimum wage have not kept pace with wage growth in the wider economy. When it was introduced, the minimum wage was equivalent to two thirds of the median hourly wage for all employees in the workforce.

This is official low-pay threshold set by the OECD. By 2019, pre-pandemic, it had dropped below 45% of median earnings and we had the third lowest minimum wage as a percentage of our median wage in the EU, only after Estonia and Malta. This is from European Commission research. The current minimum hourly rate of pay is 52% of the median hourly rate and remains below both the 60% poverty line and the 66% low-pay threshold. Put simply, despite 14 increases to the rate since its introduction in 2000 the adequacy of the minimum wage has significantly deteriorated over time.

The minimum wage will soon undergo radical reform. In anticipation of new EU law to ensure adequate wages for workers, the Government is at an advanced stage of planning to move to a new method for calculating the rate. The so-called "fixed threshold approach" calculates the minimum wage as a percentage of a benchmark. The Government is proposing that the rate will be benchmarked to 60% of the median hourly wage, to be phased in over four years, that is, by 2026.

Other member states are taking more immediate action. On 1 October, Germany increased its minimum rate of pay to €12 an hour. This is equivalent to 60% of their median wage, which is the poverty threshold, and represented a 25% increase in their minimum wage from the start of year, which was then at €9.60. This will benefit more than 6 million workers, mostly women. This is a total of 18% of the German workforce. In contrast, the Low Pay Commission recommended an 80 cent increase to €11.30 an hour for 2023. As told to this committee by the chair of the commission on 28 September, and widely repeated in Government messaging, "This represents a 7.6% increase and is the largest increase recommended by the commission to date.” While this is true, it is also true that prior to the establishment of the Low Pay Commission in 2015 to make recommendations on the appropriate rate of the minimum wage, larger increases were made to the rate. We saw a 10.2% increase in 2004, a 9.3% increase in 2005 and an 8.5% increase in 2007.

The Low Pay Commission’s recommendations for both 2022 and 2023 have also fallen short of inflation. Incomes would have to increase by 15.5% over the two years to maintain pace with inflation. An 80 cent increase in the hourly rate is inadequate to protect the living standards of workers on the lowest wage, which is why the two ICTU nominated members on the commission opposed the recommendation.

Trade unions do not underestimate the scale of the challenges facing some businesses. An estimated 165,000 workers, or 7% of the workforce, are earning the minimum wage or less and comprise those on sub-minimum rates and more than half of these are working in just two sectors, namely, hospitality and retail.

To move from the sectoral level to the firm level, Economic and Social Research Institute, ESRI, research from 2021 funded by the Low Pay Commission shows that just 3% of all businesses pay more than half of their employees a minimum wage. Where there is proven financial difficulty, there is provision under the legislation to exempt an employer from the obligation to pay the minimum wage rate. Ultimately, we draw the committee's attention to the European Commission’s comprehensive impact assessment of its directive, which finds that the negative impacts of an adequate minimum wage on SMEs are expected to be limited. The impact assessment summary states:

Firstly, they are likely to be able to pass on increased labour costs to consumers by increasing prices. Secondly, increased minimum wages may also increase demand for their services. Potential negative impacts of increased labour costs for SMEs would be partly counterbalanced by more gradual and predictable minimum-wage increases, which would improve the business environment.

Before Cabinet took a decision on the Low Pay Commission's recommendation for 2023, our general secretary Patricia King reminded them that the legislation allows for the Government to implement a different rate than that recommended and urged it to go beyond the recommended 80 cent. It did not do this. The Finance Bill provides it with another opportunity to do right by our lowest-paid workers, many of whom are the same workers who were lauded as essential during Covid.

I thank members for their attention and we are happy to take questions.

Chairman

I thank Dr. Bambrick. I now invite members to contribute to the discussion with the representatives who are here. I remind members who are joining us remotely to use the "raise hand" feature and, importantly, to take it down when they are finished speaking.

Deputy Louise O'Reilly

I thank our witnesses for the information provided. I would have preferred to receive a copy of this before I read about it on RTÉ. We can discuss that on another date.

On the calculation of the living wage, which is a stated aim of the Government - although it has put the timeframe for it outside the lifetime of its own Government, which is quite handy - 60% of the median hourly rate is where they are going. Do the witnesses have a view on how that should be done? Would the Irish Congress of Trace Unions, ICTU, be agreeable with 60% of the median? Would ICTU favour the minimum essential standard of living, MESL, approach? I understand there are pros and cons to both approaches but does ICTU have a preference for that? As encompassed by the living wage, does ICTU see the move to the living wage as being a realistic roadmap to the complete elimination of the sub-minimal rates of pay? We have not spoken about that. I understand it is not in Dr. Bambrick's submission but I am sure that she does have a view on it, as do I. There is an issue. It is not just that the headline figure is the minimum wage, there are still people who, some for legitimate reasons, do not attain the full rate. Some people are doing the same job but with the wrong date of birth are getting less money. I am interested in the witnesses' views on that.

Dr. Laura Bambrick

I thank the Deputy. The first thing to say is that the commitment to move to a living wage, or 60% by 2026, is making a virtue of necessity. As this is coming from European law, this is happening. The only thing we really have to discuss and flesh out today is when it is going to happen and the timeline, as the Deputy has mentioned, and possibly the calculation method.

Let us take the calculation method first. ICTU supports the proposal of using the fixed threshold approach for a couple of reasons. First, no other country has a national living wage that uses the MESL approach. There are a number of reasons for that. It is very subjective to do as it is based on focus groups. There would be a lot of consternation about how those focus groups are selected and then what they decide as to what is the basket of goods. We sort of would be going back to far-gone times where it was for others to decide what the low-paid should be spending their money on. Do we include alcohol? How much to include for socialising? Do we include housing, especially in the context of an economy and a society with high housing costs? It is highly subjective, there is an administration burden on it and it is financially burdensome to the State. The main thing is that it is not very responsive and it does not give employers clarity. At least if we peg it to a fixed-threshold approach, it is more responsive for the employees and it is much more realistic for the employers.

They can see what is coming down. For those reasons, while the fixed threshold approach is not without its problems, we do think it is superior. We also think it should be pegged at 66%, in other words, the low pay threshold. That has the added benefit that at 66%, or the fixed threshold approach, it is at or slightly above the minimum essential standard of living, MESL. Therefore, we get the benefit of having that basket of goods without all the problems the MESL approach can bring. We think that is an appropriate approach.

The four-year timeline is very problematic. Economies like Germany are not known to be fast and loose in economic terms. As I mentioned, on Saturday two weeks previous, they moved a 25% increase from €9.60 to €12. They are showing it can be done. They have the same percentage of their workforce, that is, 18%, that would benefit in our economy if we moved to 60% this year. To be fair to the Low Pay Commission, in its recommendations around the living wage, it does make allowances in certain situations, whether it be economic or evidence-based experience from other countries, for the process to be speeded up over those four years. We think four years is too long, however, as the Deputy mentioned. It is outside the Government's own commitment to move to a living wage within the term of this Government.

Deputy Louise O'Reilly

Dr. Bambrick might mention the sub-minimum rates of pay.

Dr. Laura Bambrick

Ireland is really unusual in the EU. We are one of four European members of the OECD that pays a sub-minimum rate to young adult workers, that is, those aged over 18. We are well behind the curve. Many countries would have had them previously but they have moved away. We are delaying that.

We were really disappointed because we were very strong in our evidence to the Low Pay Commission when it was looking at how the progress to a living wage would be structured. A large chunk of our evidence was made looking at this area of sub-minimum rates for young adults. We were very disappointed to see that the commission decided the new living wage should exclude those workers.

What is particularly worrying is that at the same time, we are quite rightly seeing Government encouraging apprenticeships. That is a gold standard of trade union policy. We have a concern, however, that we will see more quasi-apprenticeships and traineeships as a workaround to a living wage because, of course, apprentices are the other large group that are not covered by either minimum wage or a living wage. It is, therefore, an issue on which we are behind the curve. There is no reason for this. More worrying, it is EU law that if we are going to exempt certain types of employment from minimum wage legislation, it must be evidence-based. We cannot find the evidence base for not covering young adults for a minimum wage and in turn, a living wage.

Deputy Louise O'Reilly

I am relieved that Dr. Bambrick cannot find the evidence because I cannot find it either. It is fair to say we have both been looking. It would also be reasonable to say that the evidence does not exist. To be fair, if we have looked and others have looked and we cannot find it, the evidence or justification cannot be found.

Dr. Laura Bambrick

The strongest justification we have been told is that it is there to encourage young adults to stay in education. This is contradictory, however. We have the highest cost of education for young adults. Therefore, how can those two opposing facts sit side by side? We would say that it really is open to challenge.

According to the Tánaiste's evidence to this committee last week, a paper is going to Cabinet around what the living wage will look like now we have had the public consultation. We hope this has dealt with it. It is, however, something we will be pursuing and campaigning about for the rest of this year and into next.

Deputy Louise O'Reilly

I should mention that my colleague, Senator Gavan, also introduced legislation on this issue previously. It is something that is of concern to Sinn Féin as well.

Dr. Bambrick mentioned the minimum wage increases ranging from between 8.5% and 10.2% between 2004 and 2007. I absolutely know this was not Dr. Bambrick's intention but it looks on paper as if the Low Pay Commission was getting in the way of those increases.

I want to make a broader point regarding a potential for wage spiral, however. It has been put to us in flashing blue lights that any increases in the minimum rates of pay that are beyond the very modest one that was announced recently would cause a wage spiral inflation. I am not convinced of that. Does Dr. Bambrick have a view on that?

Dr. Laura Bambrick

To be clear, we are not saying that the Low Pay Commission itself has resulted in lower recommendations than when it was a decision by Government. However, we are saying the consensual approach for reaching agreement on what the rate of pay is has failed. To be fair, it has not just failed in Ireland, because 19 of the 21 EU countries with a statutory minimum wage have minimum wage rates below 60%. This is why the EU has to step in. Right across the block, we have minimum wages that are not keeping workers out of poverty. The consensual approach was introduced in 2015. We have an equal number of worker representatives, businesses and independents, as well as a chair, to make a decision, taking into account various evidence and factors. It is majority rule, however. It goes to Government and, as I mentioned, the legislation allows Government to accept or reject and make its own recommendations. That has never been done but that safeguard is built into the legislation. As I said, however, the consensual methodology of the commission has added to the inadequacy of the minimum wage over time. That will be dealt with in this move to a fixed-base approach.

On the wage spiral, we are talking about pay increases to 167,000 workers out of a working population of 2.5 million. These are the people who will be spending those extra few cent they are getting in their hourly wage and who will be driving up the demand in the sectors in which they are working. Therefore, no, there is no evidence of wage spiral.

Deputy Louise O'Reilly

I could not find any of that either. I thank Dr. Bambrick. In the last couple of days, civil and public servants voted to accept pay rises that do not keep pace with inflation. That has been acknowledged by ICTU. It is 6.5% for the average and 7.8% for those on the lowest pay. I am not in any way trying to interfere with the democratic process within the trade union movement, nor did I ever thank any politician for interfering in it when I was on the other side of the table. I want to make a point with regard to returning, however. The president of ICTU said that should the need arise, and it very well might, the union reserves the right to use the clause within the agreement to return back to the negotiating table.

Similar can happen with regard to the minimum wage. Would Dr. Bambrick see there being a reasonable case to be made for reconvening the commission and asking it to make another suggestion? Would she see a scenario whereby the relevant Minister, obviously, in conjunction with the Minister for Finance, could take that decision independently if inflation is to go way further than is recommended?

As Dr. Bambrick rightly pointed out, it is money in, money out when a person is on a low income. It goes straight into the local economy. It goes right down to the local shop and into local businesses. However, would Dr. Bambrick foresee a scenario whereby either the Government itself can make a decision or the Low Pay Commission can be reconvened and asked to make an additional suggestion? It is very clear within the public service agreement how that will happen. Clearly, there is a mechanism in place to trigger those negotiations. How can that happen outside of that provision within the recommendations of the Low Pay Commission?

Dr. Laura Bambrick

I will let my colleague talk about the public sector. With regard to the minimum wage, however, our two colleagues who did not sign off on the Low Pay Commission recommendation made a minority report. They recommended in their report that the increase would be done in a two-step approach.

This is exactly what Germany did. Although the minimum wage there went from €9.82 at the start of the year to €12, there was a midpoint, in June, when it increased to €10.40. In our recommendation and minority report-----

Chairman

Dr. Bambrick's time is almost up and Mr. Berney might wish to come in on that.

Dr. Laura Bambrick

It can be done at a second interval in six months for the public sector.

Mr. Liam Berney

As Deputy O'Reilly pointed out, when the sums are calculated, the rate of increase has not matched inflation. However, the results of the ballots from trade unions last week indicated that workers in the public sector are broadly in favour of the recommendations, and on that basis, we have given our indication to the Government. Nevertheless, the increased rate of pay in the public sector, and in particular the 3% from 1 March, came about as a review of the Building Momentum agreement, which was referred to. The trade union movement will not be shy in triggering the review if that is required on another occasion.

Deputy Louise O'Reilly

I thank our guests. I apologise that I will have to leave before the end of the session because I am due to speak in the Chamber.

Senator Ollie Crowe

I thank our guests for their time. I did not receive their opening statement until after 9 a.m., which is not acceptable.

Between February 2015, when the Low Pay Commission was established, and July 2021, prices increased by 4.4%. In February 2015, the minimum wage was €8.65 and in July 2021, the commission recommended a minimum wage of €10.50 an hour, which the Government agreed to. That equated to a 21% increase over a period when there was an increase of only 4.4% increase in prices. Clearly, for a variety of reasons, we have seen much higher inflation most recently and that needs to be addressed. Nevertheless, does Dr. Bambrick believe that prior to the recent surge in inflation, and certainly until July 2021, the Low Pay Commission was ensuring that the situation of lower income workers was improving consistently?

Dr. Laura Bambrick

I confirm that our opening statement was submitted at 9 a.m. on Monday. I do not mean to throw anybody under the bus but I am not taking responsibility for that either.

Senator Ollie Crowe

I appreciate that but I did not receive it on my system. Perhaps the Chair will check it out.

Dr. Laura Bambrick

The way we see whether a minimum wage is adequate relates not to price but to the percentage of income in the workforce. As I set out in my opening statement, we have not kept pace with that. We started at 66% of the median wage and over time we have dipped as far as below 45%. We are back at 52% but the 80 cent will bring us down to 51%, so we will be back down further. We do not peg the minimum wage to prices but rather to other wages in the economy. This is a better barometer of how much people will have to spend on the cost of living in that economy, and over time the value of the minimum wage related to wages in the economy has rapidly declined. It is not like index-linking in social welfare, where it is indexed either to wages or to prices. With the minimum wage, it is just about wages.

Deputy Richard Bruton

I welcome our guests. It is good to renew old friendships. I think the Government's objective, which is in line with my belief, is that we need the fastest sustainable move to the living wage, but we do not have IBEC or any other employer representatives before the committee during this meeting, so I will put to our guests what I hear from small business. It is looking at the 1.5% auto-enrolment, the new sick pay scheme starting in January, extended parental leave and the remote working legislation, and it is saying to us that this is a lot happening very quickly together and that we need some question of phasing and of understanding that the capacity of some businesses is very different from that of others. That is the sort of question the Government tries to balance. Today, the Central Bank indicated that 4% of businesses are at high risk of going under, and it suggested half of them can survive while the other half will go. In the budget, the Government attempted to support workers through a difficult period when pay increases they would like to get might not be possible because of other pressures in the economy.

I would be interested to hear our guests' takes on those sorts of issues. I acknowledge they do not represent small business and I do not expect them to, but are these issues they are hearing across the table? Do they see scope for this sort of balance? It is correct to say we could accelerate things if the economy does not go as badly as some fear. This is a bit like "Hamlet" without the prince but I would like to hear our guests' views on those sorts of pressures that the other side, particularly the representatives of small business, has highlighted to us.

Dr. Laura Bambrick

I can go first on that. To be clear, unions are in the business of keeping people in their jobs; that is our ultimate reason for turning up for work. We do not put forward recommendations that put jobs at risk. The Deputy is correct that a lot of change is coming down the road. This week, we heard that auto-enrolment has had several false starts, there will be sick pay at the start of next year and there is the move to a living wage, but that just means we are moving to a European style of pay compensation where it is not just about the wage that is paid at the end of the week but about the full package, of which the wage is one part. The wage is protected when the worker is sick or retired or when he or she needs family leave. Other countries are able to do this and there is much more predictability in wage demands when it is part of that package. The crux of the Deputy's question, as I understand it, relates to the phasing-in of this and how we can ensure it will not have those unintended consequences. I remind the committee that employers' contributions to pensions, sick pay and wages are all tax deductible for them. Before they start paying taxes on their profits, those payments are all tax deductible. To return to the ESRI research, we are talking about just 3% of all firms that are going to be impacted by this increase in a minimum wage, that is, 3% of them that pay it to more than half of their workforce. Thankfully, lots of employers are not paying wages at the minimum wage. While we hear very vocal contributions, they are not representative of what is going on in the wider economy.

Mr. Liam Berney

I might add one point. In our submission, we talked about the transposition of a new European directive on minimum wages.

An important part of that directive is the issue of extending collective bargaining coverage to 80% in the economy. Research shows that the most effective way of combatting poverty and increasing wealth redistribution is through collective bargaining procedures at the level of the sector, of the enterprise or at a national level. Over time, as collective bargaining coverage increases in the economy through the implementation of the directive, the type of issues to which Deputy Bruton referred will become less relevant, because collective bargaining will produce better outcomes for workers. It will produce a more equal society and it will reduce poverty. In our view that is the most effective way of dealing with wage adequacy in the economy.

Deputy Richard Bruton

I do not really dispute what Mr. Berney is saying. The one issue at the back of my mind is that there will be an end of tax warehousing and the end of the employment wage subsidy scheme, EWSS. There is an energy support that some people will say is inadequate-----

Mr. Liam Berney

Yes.

Deputy Richard Bruton

-----for some vulnerable businesses. There is a balance that the Government is trying to strike. That may explain why phasing is an area. People are saying that we should walk out on the ice slowly to make sure that it holds us up.

Mr. Liam Berney

Let us not forget as well that during the pandemic - and this is continuing - the sectors in which the minimum wage is most prevalent are hugely supportive of this. Hospitality and those areas are hugely supportive. The Deputy may have attended meetings during the pandemic and since the pandemic has eased where the Government met with representatives of small businesses and in particular with hospitality. Those sectors continue to have their hands out for continuing supports. Sometimes, quite frankly, it was a bit embarrassing to listen to it.

The other thing I would say is that they benefit from the 9.5% VAT rate. In our experience, that 9.5% VAT rate is not passed on. They soak it and they take it in increased profits. While the representatives of small business do complain about all of the things that the Deputy has spoken about, a more balanced view about how small businesses are supported generally by Government, as well as the necessity to have workers compensated fairly, is the right approach that we should be taking in the longer term.

Deputy David Stanton

I thank ICTU for the presentation, which was very interesting. It is a pity that we do not have the other side here as well, because I would like to have that balance. It is hugely important that we do that-----

Chairman

Just to clarify that, and I will not take from the Deputy’s time, we did invite them.

Deputy David Stanton

Yes, I know.

Chairman

There were reasons that they could not make it. We will ask for written submissions from them.

Deputy David Stanton

I was taken when ICTU said that 3% of all businesses have more than half of their workers on the minimum wage. I thought that was an interesting point that ICTU made. ICTU also said, I think that 5,000 workers, or 7%, were earning the minimum wage and that less than half of 54% are in hospitality and retail. There are approximately 90,000 working in that area. Does ICTU have any detail with respect to how many of those workers are under the ages of 24 or 25? I note that the ESRI had a paper on decent working quite a while ago which said that 33% of the 18- to 24-year-olds were in temporary employment. Many of those would possibly be students who would be working in those sectors in part-time jobs etc. They would be working in the evenings, and they are needed. I am also curious with respect to the other side of 54%. Where are they and what areas are they in?

My other question relates to how when we walk around any towns now we will see signs in windows here and there for vacancies and jobs that are available and so forth. In ICTU’s view and in its experience, have the pressures in the area of labour pushed up wages? In other words, if I am an employer and I want to employ somebody and if my competitor down the road is paying more, there is a risk that the worker will move to the competitor, rather than staying with me. Has that had an impact on wages overall and on pushing them up? Those are just a couple of questions to start with.

Dr. Laura Bambrick

I will go first on that. I have the figure for the percentage of under 20s, although I do not have it with me because I did not expect us to go down this rabbit hole. I should have expected that. However, we know from the research that minimum wage workers are more likely than the overall workforce to be younger, to be female, to work part time and to be migrant. That is a general point and I will get back to the Deputy with that percentage of the sub-minimum wage rate.

Regarding the point about the pushing up of wages, one of the issues we mentioned was that the two big sectors that are employers of people who are on minimum wage are also the biggest sectors that are seeing the problems with retention and recruitment. If we are not seeing wage increases, we are seeing people following the wages. This started coming out of Covid-19 where people were changing. We have seen a lot of people not just moving, but employers moving sectors. That has sped up now with inflation, so we are seeing people moving into higher paid, more predictable hours and more secure employment. It is a difficulty for these low-paying sectors. Wages and low pay is a real difficulty for these sectors. They have skin in the game to get involved in addressing the wages of their staff. This is therefore inadvertently pushing up the wages in these sectors because of the recruitment and retention difficulties. This is more than the cost of living in the first instance.

Deputy David Stanton

I have a further question as I have a few minutes left. Deputy Bruton has already alluded to some reports and some that I think were in the Irish Independent that 4% of 10,000 businesses are facing the restructuring, liquidation or dissolution of the business completely. Could increasing the minimum wage in those circumstances actually accelerate the closure of some of these businesses? We know from a more recent discussion that we had here that there are some methodologies where businesses can plead inability to pay and they do not do that. Why does ICTU think that they do not do that, if they cannot? They often instead go out of business or let people go.

Dr. Laura Bambrick

In the first instance, is it the pay packets of minimum wage workers that is causing this tsunami, or expected tsunami, of closures? Absolutely not. If one's business model is premised on paying below-poverty wages, then there is something wrong with the business model. It is not pushing that. As Deputy Bruton mentioned, there is a withdrawal of Covid-19 supports, so we are seeing a delay in closures. Many businesses have been kept on life support over the last two and a half years because of what were correctly very generous Government supports to keep vulnerable but viable businesses in place. In doing that, we kept vulnerable non-viable businesses in place. It is difficult to separate out how many of those businesses are failing because of the last recent crisis and the ongoing crisis. However, this is certainly not about paying an extra 80 cent or more to 160,000 workers of a working population of 2.5 million.

Deputy David Stanton

I have two more brief questions. Is Dr. Bambrick saying, then, that she expects quite a lot of businesses to go out of business in the short to medium term because of the other pressures and because their business model, as she says, is not sustainable? This may be through no one’s fault other than that maybe the business is not working and is not viable anymore. That is the first question.

Is the percentage of workers who are on the minimum wage over the years going up or down? Has it improved or disimproved overall? This is bearing in mind that we did say that quite a number of people on the minimum wage are part time, temporary etc.?

Dr. Laura Bambrick

I will take the Deputy’s second question first, and then I will let my colleague come in. It did dip for a while and then last year it went up. That is because we are seeing many more young workers entering the workforce because of the tightness of the labour market. The Deputy might have heard representatives from the hospitality industry speak about how when the schools and colleges reopened they were having real staffing problems because much of the previously available labour was not there. We have seen an increase in 2021 and 2022 but it had reduced.

We have to remember as well that our workforce has been growing and has never been as large as it is now.

There were lots of good things about the State supports during the Covid crisis. Not only were they generous but they have been one of the longest-running supports. Unlike in other jurisdictions, when they were removed, there has been not been the tsunami here we were told to expect. My colleague wants to come in at this point.

Mr. Liam Berney

We mentioned in our submission that there is the possibility a business in trouble can seek an exemption from the payment of the minimum wage. I am certain that has never happened.

Chairman

It has been there since the legislation was introduced. The next speaker is Deputy Paul Murphy.

Deputy Paul Murphy

I thank the witnesses for their presentation. If the Government sticks with its proposal of an 80 cent increase in the minimum wage, is it fair to say it is deciding on a pay decrease in real terms for the lowest paid workers in the State?

Dr. Laura Bambrick

Given the difference between what income is worth between 2022 and 2023, we would have had to see a 15% increase. We are not going to see that; the increase will be about 9%. We have been told, and it is correct, that wages cannot chase inflation. That is why we had the €11 billion budget package only two weeks ago, the bulk and lion's share of which related to cost-of-living measures. However, as I mentioned, low-paid, minimum wage workers, first, will not benefit from the €1.1 billion tax package because they do not earn enough to get the €800 per year and, in addition, because they are mostly young, part-time workers, migrants and women, they will not benefit from a lot of what is in the cost-of-living packages. A single worker with no children, for example, will not get the benefits of the 25% reduction in childcare costs, which we really welcome, or the move to free schoolbooks, which, again, we hugely welcome. They might get the benefit of the income disregard increases for the medical card, which means they may be able to get GP care free at the point of use, and they will get the reduction in public transport. If they are able to live outside the family box room, they may see the benefit of the tax relief for renters.

These workers are earning too little to benefit from the very generous tax relief package and, because of their circumstances, they will not benefit from many of the cost-of-living measures. In addition, the vast majority, if they are working full-time, will not be on social welfare income supports. They are caught between those two tools and their wages are the only avenue available to them for keeping up their living standards. In that respect, the decline in the real wage is really important to this cohort. We absolutely understand what the Government was trying to do with the budget. It goes back to Deputy O'Reilly's point about public sector workers agreeing to a below-inflation increase. Many of those workers will benefit from the childcare package, free schoolbooks and the other very good and permanent cost-of-living measures around the social wage the Government has introduced. However, for the cohort of workers we have been discussing, their wage packet is the only buffer to protect their living standards.

Deputy Paul Murphy

What would ICTU call on the Government to do in the Finance Bill? What level of increase in the minimum wage would it seek?

Dr. Laura Bambrick

Our colleagues in the Low Pay Commission have recommended it be raised to €12, which is just to keep people standing still, that is, where they were in 2021. That is what we have said. We have also asked the Government to look again at the roll-out and phasing in of the living wage.

Deputy Paul Murphy

Dr. Bambrick mentioned a consensual approach and the problems associated with it. I want to unpack that. The unions did not agree with the proposed increase in the minimum wage. It does not look very consensual when the body representing the vast majority of workers in this country did not consent to this inadequate increase. Can she explain that?

Dr. Laura Bambrick

It is a case of majority rules at the ballot box. As the Deputy knows, not everybody has to vote for one's position but once enough people do, one gets a seat at the table. To be fair, a year of work was put into coming to this decision. It was not based on a show of hands. Ultimately, that is what it comes down to, but there is a lot of trying to find a balance. As Deputy Bruton laid out, it is about the cost for employers and making sure the wage is adequate but sustainable. That is really important.

Mr. Liam Berney

If we look back at the history of the reports by the Low Pay Commission, there has been, on nearly every occasion, a minority report on behalf of either an employer group, an independent party or union representatives. It is not unusual for that to happen and employers have done it as well.

Deputy Paul Murphy

Mr. Berney mentioned something that is a very important part of the adequate minimum wage directive, which is the issue around increasing the total number of workers covered by collective bargaining. The directive sets out that Governments shall provide a framework for enabling conditions for collective bargaining, by law and after consultation or agreement with the social partners, and shall establish an action plan to promote collective bargaining. What level of consultation has taken place with the unions on that?

Mr. Liam Berney

We estimate collective bargaining coverage in the economy is somewhere around 40% at a maximum. In advance of implementation of the directive, there has been engagement at a high-level group comprising employer and union representatives. The Government has accepted three very important recommendations around how to increase collective bargaining coverage. These are to increase the use of the joint labour committee system and remove employers' veto on the operation of that system; increase the adequacy of the 2015 legislation whereby employees can make a claim to the Labour Court if their employer refuses to engage in collective bargaining by making that process much easier; and, more important, to encourage and provide a legislative framework for good faith bargaining whereby employers will be required to negotiate and have discussions with union representatives where unions represent employees in an enterprise. People remember the LloydsPharmacy dispute, which was the most recent of several such disputes, in which the employer simply refused to negotiate with the union that represented its workers. That will not be possible any more if the report of the high-level group is transposed into law in the way in which its report envisages.

There are other provisions in the directive around how public procurement can be used to increase collective bargaining coverage. How that will be done is yet to be worked out. As the Deputy said, it is a very important directive and its transposition will be crucial. Members of the Oireachtas can have a strong role in ensuring the recommendations of the high-level group are implemented and active measures to increase collective bargaining coverage are put in place.

Deputy Paul Murphy

I thank Mr. Berney.

Senator Marie Sherlock

I thank Dr. Bambrick and Mr. Berney for being here for this important discussion. When we talk about low pay, there is an obvious focus on the national minimum wage but it is not the only tool to address low pay. I am conscious that while some 7% or 8% of people are on the national minimum wage, between one fifth and one quarter of all workers in the economy are classified as being low paid. As this meeting is taking place, there is a large crowd in the Dáil Gallery watching the Labour Party motion on section 39, section 56 and section 10 workers and community employment scheme workers and the appalling situation they have found themselves in, whereby they have not seen a pay increase in 14 years. I would like to hear the views of the ICTU witnesses on this sizeable group of workers, many of whom are low paid, who are providing a vital service to the State in the health, disability and other sectors and who have not seen any sort of pay improvement for well over a decade.

Does ICTU have strong views about how we ultimately crack that nut and ensure those workers are better paid because they form a large part of the low paid in this country?

Mr. Liam Berney

The workers referred to by the Senator work for organisations that rely predominantly on State funding. For many years before the financial crash in 2008, in providing resources to the organisations in which these workers work, Governments would have provided money to give workers either the increases applying in the public sector or another type of increase. There was a link between what was happening in the wider economy and the grant paid by Government. When the Government of the day cut public sector pay in 2008, it also insisted on the pay of these workers being cut. We had a campaign to restore that pay that was partially successful but the majority of these workers have not received a pay increase for over 14 years. The only way we can see that happening is if there is a mechanism through which there is a sectoral collective bargaining mechanism that allows employers and unions to discuss how wages should be adjusted in light of the circumstances these organisations face with the Government playing an active role in that in providing resources for whatever the results of those negotiations are. Unless we have something like that, we will not solve this problem. I noted that last Friday the Tánaiste said that the Government would provide €100 million or €110 million for one portion of the problem, that is, the section 39 organisations, but we have yet to see the detail of that. It does not solve the problem for the remaining workers who would be classified as being in the voluntary and community sector who need an active process of collective bargaining that would allow their wages to keep pace with wage growth in the economy generally.

Senator Marie Sherlock

I understand from that announcement that it is a once-off payment to the organisations and does not deal with the ongoing pay issue. What strikes me is the number of people who are stuck on the minimum wage. There is a perception that the minimum wage is a labour market entry wage or that people move off it fairly quickly but we know that 56% of those on the minimum wage are on it for 12 months or more while 23% of those on the minimum wage are on it for four years or more. How do we fix that? The minimum wage is supposed to be this wage floor upon which people can progress and yet we are seeing very substantial numbers stuck on that wage for a particularly long period of time.

Mr. Liam Berney

The solution to the problem is providing mechanisms to increase collective bargaining coverage and allow workers to engage in collective bargaining. In Scandinavian countries, whose model we all believe should be followed, minimum wages across the board do not exist. They set minimum wages through collective bargaining in sectors. The Low Pay Commission does not exist in countries like Sweden and Norway but collective bargaining produces good-quality outcomes, prevents low pay and inequality and increases workers' spending power. All of the evidence points to collective bargaining as being the way to deal with the problem.

Senator Marie Sherlock

It also reduces wage dispersion within organisations, which is really important.

Mr. Liam Berney

Absolutely.

Senator Marie Sherlock

Regarding the directive that will be transposed in this country over the next two years and the recommendations in the report published last week, which have three distinct parts, how do the witnesses see this playing out? There is the bit relating to joint labour committees, the bit relating to enterprise bargaining and the bit relating to good faith bargaining. How will it play out in the medium term and who will see the benefit the most?

Mr. Liam Berney

At the industrial relations news conference last Thursday, the Tánaiste said that he envisaged the directive being transposed by the end of 2023. However, it requires either amending or primary legislation to bring about the changes about which we have spoken that form part of the high-level group report. Members of the Oireachtas have a crucial role to play in ensuring that the report is implemented. However, there are no recommendations relating to other provisions in the report, particularly around public procurement and using public procurement as a tool to encourage collective bargaining. If the Tánaiste is faithful to his word, we should see enacting legislation or a draft Bill very shortly if the process is to end by the end of 2023. The devil is in the detail. I remember when the information and consultation directive at national level was being trumpeted as the directive that will increase collective bargaining coverage through information and consultation. The transposition process was a disaster because it excluded firms with fewer than 50 employees, which made it meaningless for most workers because, as we all know, many workers work in small and medium-sized enterprises, so transposition is crucial. The legislation that transposes the directive and the high-level group report is where the game will be won or lost.

Deputy Matt Shanahan

Like others, I have a concern that we are in a very one-sided discussion this morning. I know employer groups were asked to come in but it is always good to have the balance and, hopefully, we will have that again in the future. I have stated a number of times in this committee that I would support a living wage but it must be done on a phased basis that is cognisant of the pressures in the marketplace. Oftentimes when we have these discussions, we tend to use large employers with the ability to pay as the standard across the working environment when that is certainly not the case.

Dr. Bambrick identified two sectors with regard to SMEs with 54% of low-paid workers working in hospitality and retail. As a general rule, if one walked in and found 20 or 30 people in an organisation, how many of those does she believe would be represented by the minimum wage?

Dr. Laura Bambrick

We know that if one walks into three businesses out of every 100, only three will have half of their people on minimum wage. The figure is 3%.

Deputy Matt Shanahan

Could Dr. Bambrick repeat that?

Dr. Laura Bambrick

If the Deputy left the building today and walked into 100 businesses, only three would have half of their staff earning the minimum wage so 3% of all businesses pay half or more of their staff the minimum wage.

Deputy Matt Shanahan

Does it suggest to Dr. Bambrick that those two sectors are very prone to competition? In particular, I think retail will see the most fall off in jobs over the next three to six months. I think it will be the sector that suffers the most. In fact, it is already happening largely because of competition, inflation and affordability. Although we want to raise wages, how does it help workers if we increase business costs at a time when business volume is reducing? Regarding whether we do a one-step or phased increase, I do not think we have a choice other than to consider a phased increase. We have full employment.

What is Dr. Bambrick's perception of the labour market over the next six months in terms of where she sees indicators going?

Dr. Laura Bambrick

Retail and hospitality have a jobs problem at the moment. They have problems finding individuals who are willing to take up those jobs and, specifically, in recruiting and retaining people in those roles. That is because workers are acting with their feet and moving to employers that can guarantee them more predictable hours, more secure employment and better pay that allows them to have an adequate standard of living. That is the biggest problem facing retail and hospitality.

The other issue is the question of whether it is right to inflict an adequate minimum wage on certain sectors. As was mentioned at the outset, this is coming from European law. It is not about a small group within the Government using their leverage to push through a very noble pet project. We know that the European law will be signed by the end of this year, and two months after it goes into the journal, the clock will be ticking down for two years in the context of having a process in place to ensure that no worker will be earning less than 60% of the median wage. This is happening; it is not some idea that was dreamed up by trade unions. It will soon be law. As my colleague mentioned, Ireland has the fourth highest rate of low pay in the eurozone and the eighth highest in the EU 27. All of the countries that do not have the level of low pay still have vibrant retail and hospitality sectors. The idea that paying staff an adequate wage is the difference between a viable business or not is just a fallacy. It just does not add up. There is no evidence to support it.

Deputy Matt Shanahan

With respect, we have to take the wider economy into consideration. We will probably see, over the next six months, where the fallacy lies in terms of the cost of employment. I would say that the costs relating to employment are not divorced from the other inflationary costs in the business environment. Unfortunately, costs are going north at a time when revenues are going south. I am all for adequate wages and a living wage in principle, but we are at full employment at the moment. Obviously, there are some industries in which people with very low skill levels unfortunately do not have much bargaining power and are therefore subject to only being offered the minimum wage. We have a lot of talented people in the workforce who are doing far better than that. Our biggest problem is inflation eating into everybody's ability to pay. I am a supporter of adequate wages for people. Obviously, I would like to see everybody earning enough money to pay their bills, live, eat and all the rest of it.

All I am concerned about are the two issues that Dr. Bambrick mentioned. One is the single step transition up to a living wage. I do not think it is possible to deliver in the economy. It will cause a lot of damage to the SME sector. The second issue that was discussed is collective bargaining across all sectors. Again, that is going to be very difficult for the SME community. That is where my interest lies primarily, as a member of this committee. I would like to see us taking stock and taking time to reflect on all these changes. As Deputy Bruton outlined earlier, we have made a number of significant advancements in terms of pay and social supports for employees over the last year, with more to come. All of this has been loaded onto the SME sector, which employs 1 million people in this country. I am dealing with many business owners at the moment who are in significant financial distress and are reporting significant losses. Adding more costs to their businesses is not going to make them any more sustainable.

Mr. Liam Berney

I genuinely do not see how increasing collective bargaining coverage can be a problem for SMEs. I really do not understand that.

Chairman

Nobody else is indicating to speak. Unless people want to come back in a second time, I have a question for Dr. Bambrick. She said that 3% of companies have more than half of their staff on the minimum wage. Without mentioning any companies, do we know whether it is a particular problem with a number of bigger companies? Is one company distorting the 3% figure?

Dr. Laura Bambrick

I do not know. I do not have the names of employers to reel off anyway, so the Chairman does not need to worry about cutting my mic. We know that it is 3% of all companies in the economy, but that those companies are more likely based in two sectors, the hospitality and retail sectors. I am not sure if there is a correlation between the size of the employment and the minimum wage. We hear a lot about the SME sector, but it is the bigger part of our economy. Most workers are in workplaces with fewer than 50 employees.

Chairman

That concludes our consideration of the matter today. I thank the representatives of ICTU for assisting the committee in its consideration of this important matter. The committee will consider the matter further as soon as possible. As I said at the outset, we did invite business groups to attend the committee and, unfortunately, for a variety of reasons, they were not available. We will ask them to make written submissions to the committee. The committee will go into private session.

The joint committee went into private session at 10.46 a.m and adjourned at 10.59 a.m. until 9.30 a.m. on Wednesday, 19 October 2022.