Failing To Serve The Low Paid

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Michael Taft

From top: Waiting staff have seen no increase in wages; Michael Taft

Employese are thumbing their nose at the state’s collective bargaining machinery, amassing profits while depressing wages.

Michael Taft writes:

The Low Pay Commission (LPC) will soon be making its recommendation for the National Minimum Wage.

Last year, they recommended a 50 cents increase in the hourly wage – nine years after the last time it was increased (in early 2011 the minimum wage was cut by €1 but this only lasted a few weeks as the new government quickly reversed it).

What will the LPC recommend this year?

We’ll know soon enough. But hopefully they will take note of what is happening in low-paid sectors.

Because in the hospitality sector, for example, profits are going through the roof.

1

The hospitality sector, comprising accommodation and restaurants / food services, took a big hit in 2008, continuing to slide until 2010. However, since then profits have risen considerably. By 2014:

Total profits in the sector had risen to 36 percent above their pre-crash (2007) level. In 2007, total hospitality profits were €517 million; by 2014 they exceeded €700 million.

Profits per hour in the sector increased by over 43 percent. They rose from €2.50 per hour worked in 2007 to €3.60 in 2014.

Since the sector hit its trough in 2010, profits have increased by more than three-fold. What accounts for this?

First, the Government rolled out a stimulus programme (at least in one sector they heeded what progressives had been advocating for years): a reduction in VAT and a cut in the low-rate employers’ PRSI (the latter has been reversed).

Second, tourism expenditure increased by 50 percent between 2010 and 2014.
In this same period total household income increased by nearly 6 percent, potentially giving a disproportional boost to discretionary expenditure.

The National Accounts data only goes up to 2014. The CSO produces a Services Index which tracks real (i.e. after inflation) gross value added. This brings us up to 2016 1st quarter. Gross value added is equal to ‘sales minus costs’. Profits and wages are paid out of Gross Value Added.

What has been happening in the sector?

Between 2014 and the first quarter of this year, restaurants and food services has seen an increase of 19.2 percent in real gross value added.

In the same short period accommodation increased by 22.3 percent.

This is a strong indication that profits are continuing to grow at a brisk pace.

There have been a lot of good things happening in the hospitality sector – except for wages.

CSO data only goes back to the first quarter of 2008 but it shows that wages and weekly income have stagnated despite the recovery in profits and enterprise activity.

Between 2008 and 2016 the hourly wage has fallen marginally – from €12.51 to €12.48 per hour

In that same period average weekly earnings have fallen from €334 to €321, as weekly working hours have fallen.

Profits are over 40 percent above their pre-crash levels; wages have fallen. That tells a tale.

Here’s another story.

2

Eurostat data differs from the above CSO number in that they include employers’ PRSI and other labour costs, using a different methodology (though the Irish data would have been supplied by the CSO).

We find that employee compensation (or labour costs) in the Irish hospitality sector rank 12th out of the 14 EU countries.

Irish hospitality wages are 20 percent below the average of the EU-15 countries (Portugal not reporting).

They are 26 percent below one of our peer groups – Northern and Central European economies (which excludes the poorer Mediterranean countries).

And they are 36 percent below other small open economies (Austria, Belgium, Denmark, Finland and Sweden).

Compared to their fellow workers in other European countries, Irish workers in the hospitality sector are ultra-low paid.

And what are the employers’ response to all this? The Restaurant Association of Ireland has not only called for a freeze on minimum wage increases for five years; they are boycotting the Joint Labour Committee which was re-established by the last government in order to allow collective bargaining across the entire sector.

In a similar vein, the Irish Hotel Federation is also boycotting the Joint Labour Committee.

In effect, the employers’ are thumbing their nose at the state’s collective bargaining machinery, amassing profits while depressing wages. How’s that for responsible social actors?

Hopefully, the Low Pay Commission will take note of all this and respond accordingly. The chefs, floor staff, cleaners, clerical staff, bartenders – these are the men and women that make our hospitality sector work. The least, the very least they should get is a living wage.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

44 thoughts on “Failing To Serve The Low Paid

  1. Fact Checker

    Michael – the data on profitability per hour in the sector is very interesting and confirmed by own (anecdotal) suspicions about what has been going on. You might usefully complement it with some CPI data which shows hotel prices growing ahead of the rest of the basket since 2012.

    However, back to your points, a business has essentially three levers to pull with regard to employment:
    -Hours worked
    -Hourly wages
    -Employment

    You only mention the second one. Let’s talk about the other two.

    Hours worked
    In the sector are now up nearly 4% from the trough of 2010, although they have not recovered close to the levels seen in 2008.

    Employment
    There are now 146k employed in the hotel and accom sector. An ALL-TIME high and up 30% from the trough of 5 years ago. In this upturn firms are clearly preferring to take on more staff rather than provide (much) extra hours or create pay higher hourly wages.

    This is the mirror image to the downturn where firms cut staff and hours worked rather than cut wages. This was not socially optimal by any means at the time.

    Now that firms are growing again firms are hiring staff rather than increasing wages. Is this socially optimal? It depends on your point of view but unemployment is still above its natural rate. And employment of low-skilled workers (more likely to work in the accomodation and food service sector) is still low by historical and comparative standards.

    If you believe there is zero trade-odd between wages and staff employed then we have a win-win. Maybe in the very short run there is no trade-off, but in the long run it is certain that there is. Compare a restaurant in Belgium in India. In Belgium capital is abundant and labour is expensive: you have few staff and lots of automation. In India capital is scarce and labour is abundant. So you get lots of staff.

    I think a lot of people have to accept that low-skilled people in the rich world still need jobs, and that a low-paying job is better than none at all. The current vogue for minimum wages may have unintended consequences in the form of lower employment down the road. We will see in a few years.

    1. MoyestWithExcitement

      So by ‘Fact Checker’, you mean ‘Right Wing Neoliberal Opinion Giver’.

      “I think a lot of people have to accept that low-skilled people in the rich world still need jobs, and that a low-paying job is better than none at all.”

      Amazing. Wages are on a downward trend and profits are higher than they were before the recession and all you can do is say ‘Yeah, well, accept it.’ Contemptuous in its simplistic stupidity.

      1. Cloud9

        Profits went from 517 to 700 million in 7 years.. The thieves!!!!!! Wait……. Until you remember in 2007 and before the “industry” was just a huge hotel tax break with no real effort to make money. The profits being made here are relatively modest. As ever the devil is on the detail.

    2. DubLoony

      “low-skilled people” – Have you ever worked in a hotel cleaning rooms, or in a restaurant preparing & serving food? Or in any service level jobs requireing customer interaction?

      There are a range of skills needed to pull off any of the above tasks well – people skills, food & hygene regulations to be complied with, payment systems, physical stamina (on your feet all day) as well as knowing all about the products you’re serving.

      Why do we accept that low pay is inevitable? What is wrong with doing a job and getting paid sufficiently to put a roof over your head, bills paid & having some money over at the end to live.

      1. Fact Checker

        Yes I have worked in these jobs.

        I do not mean anything pejorative by the term ‘low-skilled’.It is a pretty standard term in the social sciences to describe a group without high levels of formal educational attainment.

        Regarding your other point, you are essentially proposing that a group of bureaucrats in an office decide on a wage to prioritise a social welfare objective above all others. The alternative is tens of thousands of individual-level negotiations which respond to constantly changing conditions (better known as a market).

        What I am suggesting is that your proposal (which WOULD of course boost wages for at the very least SOME workers) may have unintended consequences in the form of lower employment or hours worked for those without formal levels of educational attainment.

        We are both in the realms of theory here, empirics does not have anything too conclusive. I am more proposing the physician’s maxim of ‘Primum non nocere’.

        1. Mickey Twopints

          “It is a pretty standard term in the social sciences to describe a group without high levels of formal educational attainment.”

          Really? Low-skilled formal educational attainment? That offers an insight to the breadth of your world view.

          1. Mickey Twopints

            I’m surprised at the implication – I thought better of Fact Checker. You, on the other hand, are predictably asinine.

          2. Anne

            I thought better of Fact Checker

            Eh, I didn’t… he always showed his disdain. Just sayin’.

        2. DubLoony

          We have a live one!

          “you are essentially proposing that a group of bureaucrats in decide on a wage to prioritise a social welfare objective above all others”

          People work for a living – meaning that their work should pay sufficiently to meet their needs. Its the main reason why most people do it. If the “market” is left to its own devices, they would happily pay as little as possible.

          the “market” is not free – it relies on employers groups, courts, contract law, politicians to back it up. A group of bureaucrats in your words. Nothing wrong with workers having their say too.

          1. Fact Checker

            Please define “needs”. Yours are different to mine and to someone else. It is an inevitably subjective definition.

            The at-risk-of-poverty line is (arbitrarily) set at 60% of median income which allows everyone to have the same conversation.

            As the links below show, the rate of at-risk-of-poverty for people actually IN WORK in Ireland is quite low.

            Those at risk of poverty are generally not working. A minimum (or even a maximum) wage rate does very little for these people.

          2. Anne

            “Please define “needs”. Yours are different to mine and to someone else.”

            Housing, healthcare, childcare, education.. basic stuff like.
            These shouldn’t be a privilege of the wealthy in any decent society.

            Sorry to butt in, I’ll leave ye to it.

  2. dav

    “I think a lot of people have to accept that low-skilled people in the rich world still need jobs, and that a low-paying job is better than none at all. ” aka, know your place serfs

    1. DubLoony

      That’s how it comes across alright. New York chambermainds are organised and consequently much better paid. Lower staff turnover, a job that pays real money and skilled staff who know what they are doing.

      1. Bonkers

        Yeah that argument about it being better to be exploited than starving was used extensively by the likes of Nike & Adidas when they set up their Asian sweatshops based on child labour in the late 90’s. I see two decades on it still gets airing by those on the right

  3. ,Anomanomanom

    Non skilled job equals non skill pay rates. Simple. Iv done non skill jobs, it does not mean it’s easy work but you have to be realistic with the rate of pay you get.

    1. DubLoony

      Realistic is fine – but the concept of “working poor” is one we should consign to the history books.

    2. Anne

      It must be glaringly obvious with the massive inequality we have in society, that people don’t earn what they’re worth, or what value to society they contribute. The game is rigged sweet cheeks..

      1. ,Anomanomanom

        People say “the game is rigged” all the time. The facts are it’s hard to make something of yourself but it’s not impossible. People just like blaming everyone bar them self for all the hardships in life. I hated those crap jobs I worked in, for crap pay. So I worked doing the crap jobs and got experience and retrained.

  4. Fact Checker

    I am totally convinced that there has been widening income inequality in the RICH world over the last 30 years. I have many (speculative) conclusions as to why that is the case, as do many other people.

    Interestingly enough, there has been a compression of the GLOBAL income distribution over the same period mainly due to high growth in India and China. This article is well worth a read: (http://voxeu.org/article/greatest-reshuffle-individual-incomes-industrial-revolution).

    Getting back to the case at hand, there is obvious merit in trying to reduce income inequality in Ireland. I fully support my own taxes being used this way. But remember folks that we ALREADY have the most effective tax-and-transfer system for reducing income inequality in the OECD (and probably the whole world).

    But is there a case than an additional layer of minimum wages is necessary? Particularly given that there is (comparatively) very little in-work poverty in Ireland: http://economic-incentives.blogspot.lu/2016/06/at-risk-of-poverty-rates-and-work.html

    The more pressing issue is that we have lots of households where there is no work at all.

    1. DubLoony

      Here’s some research to back it up: http://www.tasc.ie/download/pdf/tasc_inequality_ireland_brief.pdf

      The value of incomes has stagnated over the years. Example, it used to be posible for a bus driver to have a house in Tallaght with a wife who wasn’t working, raising their kids. It was not high living but it was possible.
      Can we say the same today?

      The values of incomes has dropped with employers using social welfare payments to top up their empployees incomes.

      1. Rob_G

        As per your example above – that has as much to do with societal changes as it does economic ones.

        E.g. there is much higher participation among women in the workforce now, meaning that there are much more double-income families to compete against when looking to buy a house.

        1. DubLoony

          Its more subtle than that. Single wage used to be enough, but stagnation of its value started way back. It co-incided with the 70s when women started to enter workforce in large numbers. for many, this was just to maintain a standard of living, not out pace or compete with what was there.

          See Robert Reich’s Inequality for All documentary for a great explainer. https://www.youtube.com/watch?v=9REdcxfie3M

        2. Anne

          The main reason women needed to start working was because of men’s stagnant wages.
          Wages are still stagnant. See Michael’s post above.

          1. Fact Checker

            The big increase in female labour force participation in Ireland occured in the 1990s.

            Please show (by resort to evidence) that real wages for men in Ireland were not rising at the time.

            Tip: you won’t be able to.

          2. Rob_G

            I think it was down to more women wanting to have a life outside the home. This was largely a positive thing, but did have an impact on increasing the prices of things like property.

          3. Fact Checker

            Rob, correct, but only for goods where there is a highly inelastic supply like housing and sailing-club memberships.

            The doubling of the stock of private cars in Ireland between the mid-80s and mid-00s was a consequence of women in the workforce.

      2. Fact Checker

        “The value of incomes has stagnated over the years.”

        That TASC link actually shows that average real incomes increased 133% between 1975 and 2006.

      3. Clampers Outside!

        “The values of incomes has dropped with employers using social welfare payments to top up their employees incomes.”

        With you 100%.
        The welfare state was intended for those in need of welfare. It was not intended to do what it does today… subsidise poor pay.

    2. DubLoony

      “we have lots of households where there is no work at all.”
      That is one of the peristent problems that we have. Peoples confidence goes through the floor if out of work for a long time. Emphais should be comign up with a personal plan of confidence building, skill acquisition, dealing with specific personal circumstance e.g. childcare and getting a job. In the middle of a recesion it tough but as we come out of it, it should get easier.

      http://files.nesc.ie/nesc_reports/en/137_Jobless_Households_ExSum.pdf

      1. Fact Checker

        I agree.

        Low levels of (adult) educational attainment and expensive childcare are big barriers to employment in Ireland.

  5. Eoin

    Well, as Peter Sutherland has said, wave after wave of unskilled Muslim migrant arriving in the Eurozone is good for the labour force. Nice cheap labour that’ll undercut the lowest of the lowest earners. So where’s the incentive to raise minimum wages to any reasonable level? This is Sutherlands belief. And EU migration is his bag.

    1. DubLoony

      Serioulsy? The ones who have the income to get out of Syria are the skilled middle classes. Lot of highly trained people there. Sutherland needs to get out more.

      1. Rob_G

        I have my doubts that that utterance occurred anywhere other than Eoin’s fevered mind.

  6. Serval

    At least waiters get tips.
    It was stupid to single them out in a minimum wage article as they earn more than minimum wage (when tips are added).
    Tips are stupid in Ireland because there is just one minimum wage, not a lower one for waiting staff as in USA.
    Waiting staff in USA are tipped because the minimum wage for certain jobs is lower than the regular minimum wage.
    It is usually less than half the regular minimum wage.

  7. Andy

    Hotel & restaurant work is largely low skilled.

    There are more “do you want fries with that” jobs in the industry then there are “do you want a hint of juniper or bruised tea leaves in your cocktail”.

    At the upper end the money is better, at the basic level the money is low. When I was young I worked in the industry and most of my colleagues were also students – it was a stepping stone, it paid for college and holidays and worked around school and college hours.

    How can you set a wage based on an employee’s need? If we worked with a guy who had a wife and two kids, his needs would be much higher. Should be have been paid twice what we were paid for doing the same job? Would that not be the definition of inequality?

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