By Sinéad Pentony.
Low pay is endemic and entrenched in the Irish economy, and the situation for many low paid workers can only be described as grim. The government is setting up a Low Pay Commission and introducing a range of legislative changes to address a number of issues relating to low pay. Will it be enough to reverse the trends of erosion in workers terms and conditions?
The incidence of low pay refers to the share of workers earning less than two-thirds of gross hourly median earnings. Median earnings is the level of earnings which divides the employees into two equal groups. Half earn less than the median and half earn more. Recent international data from the OECD show that the incidence of low pay in Ireland was among the highest in the OECD at 21.8% (more than 1 in 5 Irish workers) and this has increased since 2003.
Research by Eurostat (2012) calculates the low pay threshold in Ireland at €12.20 per hour, which is paid to a single adult. The Eurostat research uses 2010 data, and incomes have continued to fall since then, which means the low-pay threshold will also have fallen in recent years. Using the latest CSO income data for 2013 it is possible to estimate that the low-pay threshold is now approximately €11.50, which is very close to the ‘living wage’ rate of €11.45.
The low-pay threshold of around €11.50 is significantly higher (over 30% more) than the minimum wage, which is set at €8.65. The minimum wage is the wage floor but this is not sufficient for working people to make ends meet. 12.6% of adults who are employed are living in poverty. A growing number of workers earn so little that they qualify for Family Income Supplement (FIS), an in-work, means-tested State benefit for low-income working families with children.
The Department of Social Protection’s annual report shows that in 2013 the number of working families in receipt of FIS increased by almost 30% to 42,000 families, supporting over 90,000 children. While FIS provides essential income support to families on low pay, is it being used as a State subsidy to low-paying employers who could pay their workers more?
There is a gender dimension to low pay, with the Eurostat research finding that almost one quarter (23.6%) of women are in low paid jobs compared to 17.6% of men. Education is a factor influencing the extent of low pay. Over 30% of workers with a low level of education are in low paid jobs compared to 13% of workers with a higher level of education.
The type of contract of employment impacts on the prevalence of low pay. Twenty-eight percent of workers on fixed-term contracts are on low pay, compared to 20% of workers on contracts of indefinite duration. Zero-hour contracts have become increasingly common. These contracts oblige workers to be available at the employer’s discretion, with no guarantee of a minimum number of paid hours per week. They are particularly prevalent in the catering, hospitality and the fast food sectors. Workers on zero hour contracts are more likely to be on low rates of pay with no minimum number of hours guaranteed.
The Low Pay Commission is expected to consider a range of issues including:
• The changes in earnings since the minimum wage was last increased in 2011.
• The unemployment and employment rates generally.
• The expected impact of a change in the minimum wage on employment, the cost of living and national competitiveness.
• Changes in income distribution and currency exchange rates.
The Low Pay Commission will be made up of employer and employee representatives, labour-market experts and civil-society organisations. It will be set up on a non-statutory basis initially pending an amendment to the National Minimum Wage Act, expected in 2015. The government has given approval to legislate in 2015 for an improved framework for workers who seek to better their terms and conditions where collective bargaining is not recognised by their employer.
These are positive and necessary steps required to improve the terms and conditions of low-paid workers. While the Low Pay Commission does not appear to have the scope to deal with the issue of zero-hour contracts, research has been commissioned by the Department of Enterprise, Jobs, and Innovation into the prevalence of zero-hour contracts and the impact of such contracts on employees. Hopefully this will highlight the exploitative nature of these contracts and pave the way for their abolition.
The UK experience provides some useful lessons. A Low Pay Commission was established there in 1998 to address issues including: eliminating ‘extreme’ low pay and introduce a wage-floor; addressing the situation whereby many people on very low pay who also qualified for in-work benefits were subsiding low-paying employers; and reducing the incidence of child poverty by increasing family incomes.
The UK Low Pay Commission is charged with balancing the need for wage growth with concerns about the impact on employment, and enjoys widespread industry support as a result. However, its role is now seen as too narrow and short term. Some say it should have been called the Minimum Wage Commission as that is its main remit. A broader and more ambitious strategy is required to tackle low pay in the UK, the prevalence of which has increased in recent years.
The Irish Low Pay Commission should have a broad ‘decent work’ agenda, which is more than setting wage rates. Fragmentation in the world of work needs to be addressed – characterised by job insecurity, non-family friendly working conditions, and a lack of quality opportunities. The planned introduction of collective bargaining rights and approval for new legislation that will replace sectoral wage-setting mechanisms will help address some of the issues on this agenda.
However, the protection of part-time workers’ terms and conditions remains a big issue. Mandate and the Irish Congress of Trade Unions argue that the EU Directive on the protection of part-time workers has not been fully incorporated in the relevant Irish legislation. Unions are concerned that in the current climate, employers can too easily reduce the size of their full-time workforce, and increase the proportion of part-time workers.
The Code of Practice, designed to give effect to this Directive in Ireland, merely provides for changes in working hours of employees to be agreed between employer and employee. In effect, employers have a veto in this regard. Further, even when conditions improve, many part-time workers may be denied the opportunity to transfer to full-time contracts. Unless action is taken to fully incorporate the EU Directive on part-time work there is likely to be a growing incidence of precarious work in the Irish economy.
The Irish Low Pay Commission should engage in building an evidence base and setting targets to reduce low pay. The government recently set a 3 year target for full employment by 2018 to illustrate political commitment to creating more jobs. The same commitment should be applied to low pay, with a 3 year government target to reduce the incidence of low pay from 21.8% to the OECD average of 16.3%.
The Irish Low Pay Commission should take a lead role in developing the research and evidence base on low pay and its wider impacts. This is central to an informed debate on this issue and the policy measures that are required to reduce the incidence of low pay. The evidence base should include the identification of profitable sectors in the economy and place the burden of proof on employers to provide evidence to support any claims relating to ‘inability to pay’.
The Irish Low Pay Commission should aim to have a broad remit on matters relating to pay, and be much more than just the minimum wage plus a cent. This means creating the conditions for more low-paid workers to be paid a ‘living wage’. Ireland has joined a growing international living-wage movement and a Living Wage Technical Group was established in 2014.
A living wage is intended to establish an hourly wage rate that should provide employees with sufficient income to achieve an acceptable minimum standard of living. The living wage for Ireland is €11.45 per hour. The government should use its power of procurement to ensure that all government funded bodies and contractors pay a ‘living wage’.
Many in Government have lauded 2015 as being the year of the pay rise. We will have to wait and see if 2015 is the year of the pay rise for the workers who need it most. •