Is the ‘Living Wage’ a living wage?

 

Introduction

The Living Wage for the Republic of Ireland, established in 2014, is updated in July of each year. It is part of a growing international trend to establish an evidence-based hourly income figure that full-time workers need to earn so that they can experience an acceptable minimum standard of living. The research is done by the Living Wage Technical Group.^[i]

The living wage for 2017 is estimate is €11.70 per hour. Put another way, €11.70 represents a figure that allows employees afford the essentials of life; earnings below the living wage suggest employees are forced to do without certain essentials so they can make ends meet.

The new figure represents an increase of 20c per hour over the 2016 rate (€11.50). The increase has been driven by changes in the cost of living and changes in the taxation system. The current housing crisis, and associated increases in rent levels, has been the main driver of the wage rate increasing for 2017.

Box 1 sets out the key assumptions that the Living Wage Technical Group uses in calculating the living wage.

 

Box 1: What is the Living Wage? The Living Wage Technical Group concluded that the living wage is a wage which makes possible a minimum acceptable standard of living. It is evidence-based and grounded in social consensus. Moreover, it is: based on the concept that work should provide an adequate income to enable individuals to afford a socially acceptable standard of living; the average gross salary that will enable full-time employed adults (without dependents) across Ireland to afford a socially-acceptable standard of living; a living wage that provides for needs, not wants; an evidence-based rate of pay that is grounded in social consensus and is derived from Consensual Budget Standards research, which establishes the cost of a Minimum Essential Standard of Living in Ireland today; and unlike the National Minimum Wage in that it is not based on the cost of living. In that sense it is an income floor; representing a figure that allows employees afford the essentials of life. Earnings below the living wage suggest employees are forced to do without certain essentials so they can make ends meet.   Source: The Living Wage Technical Group, http://www.livingwage.ie/

 

 

Is the Living Wage widely-accepted?

The debate about the living wage in Ireland is relatively recent. In a paper published in 2013, Dr Michéal Collins pointed out that:

“While discussions on the adequate remuneration of labour have been around for centuries it is only since the emergence of campaigns in the United States and more recently by London Citizens that the living wage has gained policy traction. In early 2014 a discussion on this issue commenced in Ireland”.^[ii]

To that extent not all sectors of society in Ireland have entered the debate and many stated views are negative. The rare exception of positive action was that taken by Lidl in October 2015. It became the first Irish nationwide employer to introduce the living wage – see Box 2.

 

Box 2 : Lidl and the Living Wage Lidl introduced the living wage in October 2015. At the time, 80% of Lidl’s team were already earning in excess of the living wage so this move brought the remaining 20% up to an hourly rate of €11.50. In a statement to PAI, Aoife Clarke, Head of Communications, Lidl Ireland & Northern Ireland, pointed out that, “At Lidl we are in a fortunate position that the last few years have seen our business go from strength to strength in a difficult economic situation. Key to this has been the dedication and commitment shown by our team so for us this move is a way of recognising that commitment and investing in future proofing our business. From our perspective, attracting and retaining the best employees will mean we’ll have an even better proposition for our customers which will help us continue to grow market share as we build a bigger business more deeply rooted in communities across the country”. (Article available here)

 

 

The introduction of the living wage at Lidl did not go without criticism. On 8 October 2015, the then-President of the Irish Framers Association, Eddie Downey, said that “… everyone is entitled to a living wage, but not at the expense of someone else in the supply chain”.^[iii]

More recently, Ibec, the group that represents Irish business, said that “the ‘living wage’ is a fundamentally flawed concept and is the wrong way to address cost of living pressures. The concept of a ‘living wage’ does not take any account of a business’s ability to pay”.^[iv]

This sharp comment points to the need for a wide-ranging debate involving the different sectors of the economy, if there is to be a better understanding of the living wage. Dr Michéal Collins put this challenge very well when he stated that

“… the implementation of a living wage… raises issues regarding its impact on different actors in society (employees, employers, civil society and the state). Similarly, successful implementation faces a number of challenges”.^[v]

 

Living wage versus the national minimum wage

It is important to distinguish between the living wage (now €11.70 per hour) and the national minimum wage (currently at €9.25 per hour). The living wage has no statutory basis. It is an informal benchmark, not a legally-enforceable minimum level of pay like the national minimum wage. An Taoiseach, Leo Varadkar, pointed out in response to questions in the Dáil on 5 July 2017 that:

“… As I understand it, the living wage technical group is separate. It is non-statutory and it is comprised of a number of groups, including trade unions and community and voluntary sector advocacy groups. It is based on certain assumptions…but does not include employers or independent economists in the group making that assessment”.^[vi]

 

Some Final Observations

There is no doubt that the living wage debate generates different responses from different sectors. There are many employers who would resist the introduction of the living wage, arguing that it would raise labour costs, threaten economic recovery, and erode Ireland’s competitiveness. And yet, individual men and women working full-time should be able to earn enough income to enjoy a decent standard of living. The living wage, if fully implemented, would ensure some reduction in the level of poverty. But action is required on a much broader front, starting with education. Improving the education system can mean people will be better prepared to earn high-wage jobs. If those entering the workforce are better educated and more skilled, they can qualify for payment in excess of any living wage.

In the short run, much more can be done through investing in the skills of low paid workers and encouraging the creation of more productive jobs. A living wage is not a panacea; it is a measure of what is needed to allow for a minimum standard of living.

 

 

Notes

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^[i] Living Wage Technical Group, 2017. Available here.

^[ii] The Impacts and Challenges of a Living Wage for Ireland, NERI Working Paper, 2014. Available here.

^[iii] Lidl’s Living Wage Will Ring Hollow for Farmers and Fresh Produce Suppliers – IFA, 2015. Available here.

^[iv] ‘Living Wage’ a fundamentally flawed concept – Ibec, July 2017. Available here.

[v] Living Wage Technical Group, 2017. Available here

^[vi] Dáil Debates; Questions on Promised Legislation (Continued) Wednesday, 5 July 2017. Available here.