Michael Taft: Low Pay Is A Moral Issue

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From top: Irish waste workers would need nearly 60 percent pay rise to reach their EU peer-group’s mean average; Michael Taft

In their EU peer group, the Irish low-paid are some of the lowest paid, according to recently published Eurostat data.

In the overall economy, Irish employees are paid less than their peer group – other high-income EU economies (essentially, the EU-15 excluding the poorer Mediterranean counties and, very shortly, the UK).

Eurostat estimates employee compensation (including labour costs which make up a fraction of the total) for firms employing 10 workers or more. Public Administration is excluded as many countries do not report this.

Ireland is at the bottom of the table, above only low-paid UK. On average, Irish employees would need an 18 percent increase in compensation to reach the mean average of our peer group.

It should be noted that the average is mean; another measurement would be the weighted average but Eurostat does not provide this. However, the weighted average would, in most cases, be somewhere between German and French levels since they dominate this grouping. This would still leave Irish workers requiring a 13 percent increase.

Let’s turn to the Irish low-paid sectors in the market economy (essentially the private sector), which for the purposes here are calculated at 2/3 of the Irish average.

There are eight sub-sectors below this benchmark: retail, hotels, restaurants, waste collection, security, building services (cleaners and gardeners), and wearing apparel and furniture manufacture.

There are 315,000 people employed in these sectors, or one-third of market economy employment.

The largest sub-sector is the retail sector with over 153,000 employees. Ireland is at the very bottom, even below low-paid UK.

Irish retail workers would need a 43 percent increase in compensation (a 33 percent increase if we use our short-cut weighted average; that is, half the difference between Germany and France). The gap between Irish and average peer-group pay is more than twice as much as the national gap.

The next two biggest sectors are in the hospitality industry: hotels and restaurants.

If anything, the situation is worse for the 128,000 Irish hospitality employees – with a larger gap with their peer-group than retail workers have.

There are two other low-paid service areas: private security personnel and building service workers (primarily cleaners and gardeners).

The 27,000 Irish workers in these sectors also see their compensation trailing significantly.
The story is much the same for the other sectors. The small manufacturing sectors of furniture and wearing apparel also find themselves well behind their peer-group.

There is one last group: the waste collection sector. These are the workers – 3,500 of them – who pick up, treat, recycle and dispose of our rubbish.

Irish waste workers would need a nearly 60 percent compensation increase to reach their peer-group’s mean average. Even taking the short-cut weighted measure, they would need a 42 percent increase, but this probably understates this measurement given the high compensation levels pertaining in other countries.

None of the above factors in inflation (purchasing power parities). If we did that we would find the gap with the mean average shrinking but, when using a weighted average, it would widen (largely because Germany is low-inflation economy).

It should be further noted that employee compensation includes both the direct wage (paid directly to the employee) and the social wage (paid to a Social Insurance Fund).

Through the social wage, employees in continental Europe can access free (or low-cost) health care, subsidised prescription medicine, and in-work income supports (pay-related sick benefit, maternity and paternity leave, etc.).

Further, in many countries the social wage – apart from social insurance – subsidises public transport (e.g. Paris) and generous family supports (e.g. Austria).

Even when you exclude the social wage, Irish wages are low – with retail workers needing a 22 percent increase just to reach their peer group mean average (or 15 percent when inflation is factored in).

Add in all those costs Irish workers bear that workers in other countries get subsidised through the social wage, and we now we see why Irish living standards are relatively low.

Getting a pay rise is only one aspect of correcting this situation.

There is a need to increase the social wage (employers’ social insurance) so that workers can consume more public services and supports collectively.

We need to focus on the lowest-paid in society. It is scandalous that so many are left behind on such low wages.

We need to focus on employees’ rights in the workplace (e.g. collective bargaining), bargaining across sectors and, just as importantly, a social-cultural transformation that no longer tolerates such grim conditions.

These are the people – our neighbours, friends, family members, and fellow residents – who serve our meals, clean up after us, secure our buildings, assist us in the shops, pick up our rubbish and manufacture the goods we use.

Maybe it’s a bit passé or old-fashioned to say that this is a moral issue. But given the level of low pay, hopefully not.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front.

24 thoughts on “Michael Taft: Low Pay Is A Moral Issue

  1. qwerty123

    Couldn’t agree more, it does not pay to work in this country, especially at the minimum wage. Huge poverty trap.

    On a related note, re: the housing crisis, all I hear is increase supply and relax lending rules to earnings. I hear nothing about increasing wages. We need to get out of this low pay mindset.

    1. Cian

      I agree with your first point – low-paid wages need upping.

      However, the only way to ease the housing crisis is to either increase supply or reduce demand. We can increase supply by building more houses, by stopping short-term-leases (Air BnB), or encouraging empty-nesters (pensioners with large empty houses) to move into smaller places. We can reduce demand by encouraging people out of Dublin.

      Increasing wages simply to allow people pay more for housing is self-defeating.

      1. Fact Checker

        Nonsense.

        Full-time work at the minimum wage is much better than dole, especially as you retain housing benefit and medical card.

        In general Michael’s analysis is somewhat lacking. Total compensation for an Irish rubbish collector is low, but that’s partially because they pay the lowest levels of social insurance. They also pay very low income tax, so their take-home pay is not as starkly worse than the EU average.

        In addition to that, low-paid workers get the benefit of pensions which are pretty generous given the very low level of PRSI contributions involved. A worker on €25,000 makes PRSI contributions of about €3000 (employer and employee). For that they get a state pension of about €12,000, or nearly half their previous earnings.

        For high-earning workers, in Ireland you get the benefit of generous tax relief for private pension contributions. This is not available in most EU countries.

        1. Michael Taft

          Fact Checker – this is where the debate gets interesting. The Irish low-paid will pay lower tax/PRSI (though in other EU countries, social insurance payments are deductible from tax) but, on the other hand, will not enjoy pay-related in-work benefits (e.g. sick pay – in other EU countries workers can get up 80% or more of their income while out sick; in Ireland, if you’re not covered by a company plan you are not likely to afford going sick; again, in other countries, workers can get 100% of their pay while on maternity/paternity leave; in Ireland it is well below that). In many EU countries, low-paid workers can avail of free, or heavily subsidized, health care and prescription medicine. And none of this refers to larger social wage issues (e.g. childcare, public transport, etc.).

          As to pensions, the OECD shows that Ireland’s net replacement ratio for low-paid workers is about mid-table in our peer group – with Danish and Dutch retirees getting 100% of their previous income.

          This is why I made the point that merely seeking pay increases is not sufficient. We need reform to enhance social security. That is a key issue in living standards.

          1. Fact Checker

            Thanks Michael. I agree that in-work social insurance benefits in Ireland are much lower than elsewhere.

            I still think that PRSI is *not* a bad deal for the low paid in Ireland, given that the replacement rate for out-of-work benefits is flat-rated, ie, it’s a much higher share of a low income than a high one. Actuarially, you would need something like a fund well north of €300,000 to generate an index-linked annuity of €12,000, and most low-paid workers pay nothing near that in PRSI contributions over a lifetime, even if you allow for an implicit rate of return.

            PRSI is an *extremely* bad deal for someone with a pattern of high pay and a long working life. That said, this person will get the big advantage of tax relief on private pension contributions.

            I hope that the mooted reform of pensions smooths out some of these kinks, makes the state subsidy for pensions explicit and transparent, and eliminates some of the ridiculous fees charged by pension managers.

        2. Qwerty123

          “Full-time work at the minimum wage is much better than dole, especially as you retain housing benefit and medical card.”

          So you’re better off working as long as you retain considerable social welfare benefits…right… Thanks. So you’re better off working on min wage but never getting a pay rise. This would be the poverty trap I was referring too.

          1. Fact Checker

            That’s not a poverty trap though.

            A poverty trap is when you earn less in work than out of work.

            There is no poverty trap for full-time earners at the minimum wage in Ireland. Anyone on the minimum wage takes home a positive amount when they get a pay rise too.

          2. Qwerty123

            There are traps, read up about HAP, as an example, once household income goes over a certain level, and then you lose it. If you were getting 1600pm in HAP, 19,200 a year net to your household. You would need to earn approx. 24000 gross (assuming 25% effective tax rate) a year extra in your household income to make up for the loss of this benefit.
            This is the trap. People only stay part time, work limited hours, don’t’ move up the chain etc so they won’t lose their benefits. This is wrong. It most definitely is a poverty trap

  2. diddy

    Sydney Australia is just 2% more expensive than dublin according to numbeo. wages however are much better. min wage doesn’t cut it in dublin

  3. Worlds Biggest Ranter

    I’m being very anecdotal here but in my own personal experience the reasons behind the relatively lower wages in certain industries here are thus: Economy of scale relative to expense of business. For someone to run a small to medium enterprise in Ireland, compared to our European counterparts, the risk level and financial outlays are far greater than those of our cousins. From a business owners perspective they’ve got personal guarantees and potentially long bankruptcy orders to contend with should it all go wrong. They have some of the highest interest rates in Europe to contend with when trying and fund such endeavours. They have some of the highest administration costs (taxes,rates etc) plus what can only be described as punitive land/building costs anywhere in Europe. Roll that up with the economy of scale of a small population and the profits & returns for such risk have to come from somewhere otherwise nobody would ever consider starting a business at all. Remember the majority of employment in Ireland comes from small and medium local enterprise. Where does profit come from? You just called it Michael. Wages.

  4. Catherine costelloe

    Thank you for this article Mr Taft. I thought bin men would be on a much higher wage …..I am definately doubling my Christmas tip to them this year!!

  5. MaryLou's ArmaLite

    Are these numbers before tax?
    On Ireland the low paid pay little to no income tax, this is not so in other countries.

    1. Rob_G

      Indeed; one million workers in Ireland pay no income tax.

      Whereas relatively low-paid workers in Belgium are already paying 30-40% in income tax.

      1. Fact Checker

        That’s not the case.

        A lot of that one million are _pensioners_ who don’t earn enough to pay income tax.

        1. Rob_G

          They don’t ‘earn enough to pay tax’, because we tax people on lower incomes very little; most of the countries that you list above tax lower-earners quite a bit more.

          In Germany, for example, figures from the Irish Tax Institute show that a person on a salary of €18,000 will give up more than €4,700 in income tax. In Ireland a person on that income would lose just €510.”

          https://www.irishtimes.com/business/economy/more-than-1-million-workers-will-not-pay-income-tax-this-year-1.3544848

          I’m not really sure of the policy of paying people higher salaries if it is all just recouped in higher taxes; seems kind of inefficient.

          1. Fact Checker

            My point is that they are not ‘workers’, at least not any more.

            There are lots of households who live on a combination of pensions, investment income and savings. Many of them don’t have enough income to pay income tax.

            They are not really workers.

  6. Dhaughton99

    He future of work is cycling with a large green carbuncle on your back to deliver a crepe to the great and the good in the IFSC for spare change.

    That and A.I. It’s always about the A.I.

  7. Junkface

    Ireland is looking pretty bad compared to our European neighbours, regarding the low wage and wealth gap. Its a harsh country to be on a low wage, one big lump of bad luck and you’re homeless.

  8. phil

    The thing is , from what I can see, in the IT sector , employers are showing a preference for European workers, I assume its because they are cheaper , but I now know 2 Irish IT guys who cant find work in Dublin, they have over 10 years experience, never had a problem in the past , they are not even getting interviews … its very strange , Im tempted to look for another job , but Im nervous about falling between 2 stools ..

    This may just be anecdotal ….

  9. gringo

    Now all we need is a union to fight for the low paid workers, unlike SIPTU, who cater only for the public service.

    1. Fact Checker

      SIPTU have lots of members in the private sector.

      Many unions in Ireland are public sector only.

      SIPTU have a mix of both.

      This is not difficult information to find.

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