Sargent: Ask Olli Rehn About the Minimum Wage

Anyone left in any doubt as to which of the outside parties was calling the shots in setting the terms of the EU-IMF agreement should consider checking out the clip from last night’s Week in Politics show. About two minutes in, there is a clip of Green Party TD Trevor Sargent discussing the decision to cut the minimum wage with a protestor. Sargent tells the protestor to take it up with Olli Rehn and that it was the EU, and not the IMF, that insisted on the cut in the minimum wage.

86 thoughts on “Sargent: Ask Olli Rehn About the Minimum Wage”

  1. Lowering our minimum wage conveys a message to the countries providing the bail-out money that Ireland is taking pain and not simply standing with its hand out. It is the same as the reduction in the Greek pensions.

    Personally, I would have preferred to see the JLC rates abolished and a lower minimum wage for people who may receive gratuities (as is the case in parts of the USA), rather than the reduction of the minimum wage for all.

  2. But the minimum wage cut only applies to new hires. Assuming our benefactors read the newspapers they will not be impressed by this particular austerity.

  3. Whatever about who’s calling the shots, are you advocating that we try to maintain our position as one of the most expensive places in Europe to do business and see how that works? Add the costs of being in the middle of the Atlantic and we’ll be the best place in the world to do what, exactly?

    Dropping the minimum wage now is not nice. It isn’t. In a time of mass unemployment it may not have much immediate effect either. Neither would it be nice to drop the public sector salary bill. Both would – to quote the protester – force life changing decisions on people. However, attempting to maintain the fantasy that most of our economy and most of our public sector should be paid more than almost anyone else in Europe – and using extreme borrowing tactics to do it – is already doing its bit to force life changing decisions on a lot more people.

    Should we go back and look at the speech by Ed Walsh from October and see whether what was called mad then is less mad now?

    Or my suggestion from 2009? It was tongue-in-cheek then. It isn’t funny now.

    http://www.irishexaminer.com/archives/2009/1007/ireland/debt-the-only-solution-for-siptu-members-102764.html

  4. Lowering the min wage is entirely consistent with a policy of deflation that the government and FG accepted long before the EU/IMF arrived in town. If Rehn insisted on cutting the min wage, it was probably only because the govt was going a little weak at the knees.

    I would prefer to ask Olli Rehn some other, more awkward questions like:

    – How does he expect Ireland’s debt to GDP ratio to stabilise when the commission’s own estimates for Irish growth are so low?

    – Does he believe the problems in Irish banking are caused by liquidity or solvency issues and if the latter, why aren’t the banks’ debts being restructured?

    – (as noted by Jagdip) Why is the EU commission only concerned with one pillar of the stability and growth pact (deficit as a % of GDP) and not another (debt as a % of GDP)?

  5. You usually can’t take anything a politician says at face value because they are pre-programmed to spin, misrepresent and mislead.

    It seems though that Green Party politicians are not like that. You can’t rely on what they say because they have little grasp of what actually happens.

    Sorry Trevor, why should I believe you?

  6. @KW
    Until the humiliating reparations document was signed, the Irish government decided the minimum wage.
    But whose ‘fingers inscribed’ the document that make poor people poorer, while protecting their own inflated salaries and pensions?
    The 12.5% corporation tax rate ‘had’ to be saved. The working poor did not.
    Why blame the EU/ECB or Olly Rehn for the fact that Irish have no empathy with their poorer citizens and no balls to fight for them even if they had empathy.

  7. Karl,

    So you’re certain that Sargent is stating fact?

    Rehn may well have presented a menu of choices to get to the desired result and other proposals to improve competitiveness. However, it’s inevitable that the politicains would have an excuse for an unpalatable cut.

    Besides, possibly all public staff hires are paid above the minimum wage and to get to the €15bn target, there were many other options.

  8. And again and again the minimum wage is small factor for a small section of the workforce. Lowering the minimum wage is a political and philosophical requirement for the right rather than a significant factor in competitiveness.

    It remains notable that changes in the law as regards commercial rents, a more important factor in business costs, job losses and competitiveness, were not addressed by the EU as the austerity budget is primarily intended to protect rentiers and bank’s balance sheets. The minimum wage is just an additional slap in the face to remind us who is in charge.

  9. @kevin Denny.

    The degree of job churn in the private sector is such that the minumun wage will kick in rapidly to a lot of sectors, particularly seasonal businesses. I am not sure what papers commented on this but the media industry is unlikely to affected.

    It would be interesting to get the views and data from economists who study the Irish Labour market with particular emphasis on lower wage employees.

  10. @Hugh Sheehy

    Is that the same Ed Walsh who advocated increased public investment in R&D and the expansion of the Third Level sector?

  11. @ Hugh Sheehy

    Whatever about who’s calling the shots, are you advocating that we try to maintain our position as one of the most expensive places in Europe to do business and see how that works?

    Don’t forget Ireland’s highly skilled workforce who deserve whatever wage they ask for because they’re so much smarter than workers in the rest of the EU.

    I wonder where this myth came from, because I have never found much evidence for it, at least when comparing Ireland with other EU countries.

    Here are the Google Search results:

    Ireland’s highly skilled workforce…….. 1720 hits
    Germany’s highly skilled workforce…. 64 hits
    The Netherland’s’s highly skilled workforce……. 0 hits
    France’s highly skilled workforce……. 0 hits
    Denmark’s highly skilled workforce…… 0 hits
    France’s highly skilled workforce …… 0 hits
    Sweden’s highly skilled workforce ….. 0 hits
    Italy’s highly skilled workforce ….. 0 hits

    etc.

    Shome cumfuzhen perhaps between ‘skills’ and ‘rock bottom corporation tax’?

  12. @ zhou_enlai

    +1

    Restrictive JLCs are far more relevant to cost competitiveness than the NMW.

    It’s hardly a coincidence that labour costs in hotels, licenced “on” trade, hairdressing and other services in JLC-sheltered sectors are furthest out of line with EZ partners.

    Now who’ll be brave enough to tackle that one?

  13. Carolus

    Don’t forget Ireland’s mortgaged up beyond the oxters workforce who may be overpaid but only got those payrises in the first place to enable them to get a foot on the property ladder in the great neoliberal experiment since it was easier to give them mortgages than deal with price gouging of land all around the Dublin area by “developers” who are all now bankrupt but were once the kingmakers under the ancien régime.

    This failure has many fathers.

    Irish Times, 22 June 2006

    Taoiseach Bertie Ahern described Socialist Party TD Joe Higgins as a “failed person” and told him to “go away” during heated exchanges on the cost of housing. In March 1996, the average price of a home in Dublin was €82,000. This year, 10 years later, it is €384,000, an increase of €300,000. That represents a shocking €30,000 increase per year, the equivalent of the current average industrial wage each year for 10 years. Prices outside Dublin have increased pro rata. ” Mr Higgins said that speculators were buying houses in working class communities left, right and centre. “A frightening percentage of homes in hitherto stable communities are now rented. Stable communities are being replaced by transient communities, by people who are forced into the laps of landlords, such as migrant workers and those on rent supplement.” Mr Ahern said that house price increases were primarily driven by the increase in demand for housing. “Now that we have stopped mass emigration by working class people, unemployed trade unionists and those who lived in working class communities but had to seek refuge in Australia, Canada, the United States and Britain, people are again living in the working-class areas which the deputy and I represent.”

  14. @kevin denny

    It is not that the legislation does not change the minimum wage for existing workers.

    Rather, it is the fact that those people have a contract of employment which entitles them to be paid a certain wage and this is not affected by the legislation.

    Of course, employers can ask people to accept pay reductions, and can make people redundant if they will not accept lower wages but the employer can get somebody who will do the work for less pay.

    Employers may not bother with the redundancy stuff given that many of the jobs which pay minimum wage have a high turnover of staff. Indeed it is probably more efficient to act with total disregard for most of our employment laws and then pay up if you lose a case.

  15. Carolus

    You should have done thise searches in the respective languages of each country. En France on parle pas anglais quoi .

  16. @Joseph Ryan – “I am not sure what papers commented on this but the media industry is unlikely to affected.”

    The media industry have cut out the middle man (the paid employee) and gone straight for unpaid interns when someone leaves or a vacancy comes up – it’s been happening for the past year or two. There are so many media graduates out there with no job, they will happily work for free in the vain hope there might be a job at the end of the internship. After the 3 or 6 month stint, they are then told there’s no job and as they are walking out the door, the next unpaid intern walks in to take over from them. Employers are laughing all the way to the bank.

  17. Sorry guys, lowering the minimum wage does not make it look like Ireland is taking any pain. The reason why?

    Irelands members of parliament is still among the highest (if not the highest) paid MPs.

    However, it does make Irelands leaders appear as they are leading from behind & showing similar courage as a WWI general sending people out of the trenches while sitting safely in a castle several miles away from harms way.

  18. That the EU was calling the shots is consistent with the result regarding bondholders. The IMF position clearly was that there should be burden sharing and lost that argument. Not clear if they had a position on the wage.

    @Zhou

    Aren’t the JLC’s linked to the minimum wage? e.g. barman gets 3 x mw on Sundays etc?

  19. @KW

    Zero Accountablity around here: Rehn_ing today: IMF_ing tomorrow. Death rattles of the Vichy-Bank Regime …….. final futility in attempting to project their own abject failures …. and protect their own class.

    TIME TO DO THE DECENCY, which they themselves are proven to be incapable of comprehending, and PUT THEM OUT OF “OUR” MISERY. Who wants this lot around in 2011? OUT NOW … 1789 the place if necessary ….

    Breaking newz:

    Blind Biddy will be practicing with her Bozooka later tonight – 7_of_9 is taking her up for a little tutorial on a short trip between the Moon and Jupiter …. detail here:

    http://www.irishtimes.com/newspaper/breaking/2010/1213/breaking8.html?via=mr

  20. Joseph Ryan:I don’t think there are too many economists in Ireland actively working on low skill workers etc. The ESRI is probably the best place to start. If there is churning then yes it will have an effect and in an arbitrary way. It gives firms an incentive to churn as some people are slowly realizing. A cut for all on the NMW would have avoided this.
    Sarah: I think the idea in De Plan was that the JLC’s would also be changed but it was somewhat vague from what I remember.

  21. The saving the bondholders act is pointless at this stage. If that line is held there is going to be a Lehmans mark 2 that will sweep everything away given that Governments have nothing more in the cupboard other than INFLATION.

  22. Ernie,
    would you not add those notorious bankers Sean Fitz, Fingers and Dave (Banker) Begg to your list of villans. Why has the fraud squad not interviewed the third person on the list?

  23. I think we need to face up to the fact that Europe aren’t impressed with us.
    Did we think there would be no payback for sending Dustin the Turkey to the Eurovision?
    In a shopping trolley…..

  24. @Ernie
    Again, I don’t know. And what is your point even if it is? So far all we’ve got from the Alchemist and you is the beginnings of a new Ed Walsh themed non-sequitur meme.

    Here’s my offering. “Is that the same Ed Walsh who said that the two people most responsible for Ireland’s low international football ranking were Brian Cody and Henry Shefflin?”

    Ireland is in big trouble, in case anyone hadn’t noticed. So far most of what we are hearing is still essentially protectionism (of protected sectors, of high PS pay, of one of Europe’s highest minimum wages, of JLCs, pay in the semi-states, etc). Looking after people you care about is admirable, but compassion can’t justify ongoing injustice.

    seafoid wants to make sure that someone else continues to pay for the big mortgages people took out during the boom – but apparently without worrying about where the money might come from. Ernie wants to protect PS workers from pay cuts, again without any apparent recognition that the money has to come from somewhere.

    Protectionism is a tempting philosophy, but it’s not got a good track record of promoting high living standards on small offshore islands.

    Again, no matter who pushed the govt into doing something on the minimum wage, and accepting the fact that it’s very bad news for people earning low incomes, is it a better move than leaving it untouched? What other things should be done as well as the minimum wage, or instead of it?

  25. Olli Rehn can now be blamed for every tough decision made in the country.

    What drives me made about the minimum wage cut (dont agree with it but i get the economic argument) is the lack of political debate about it.

    Guess we have to get used to the Dail being merely a message centre for our new rulers.

  26. @ Hugh Sheehy

    Ireland can’t afford the bank guarantee. Simple as.

    And austerity alone won’t work. Another 15bn taken out and the deficit will barely reduce because the cost to the economy is too great. You’ll still be singing the wrong tune when all of the money in the country is gone and the default happens. It won’t just be Ireland that defaults either. The Euro financial system is on the edge of a cliff and the denouement will not be pretty.

    And moaning about the minimum wage is deckchair arranging. Growth needs time and time has almost run out. Olli and that nice Indian chap have sold Ireland a pig in a poke.

  27. @seafóid

    Wolfgang Schäuble: Dr Schäuble has dismissed talk of members leaving the euro zone, warning of “unforeseeable consequences with the departure of even one of the smaller countries”.

    “Looking at the consequences of the Lehman collapse, I’d say we shouldn’t make the same mistake twice,” he said.

    http://www.irishtimes.com/newspaper/finance/2010/1213/1224285403970.html

    But is he referring to peripherals or senior bond holders?

    @kevin denny

    “I don’t think there are too many economists in Ireland actively working on low skill workers etc. ”

    Why not?

  28. If “outside parties” in Europe are really “calling the shots” (as opposed to desperately trying to steer a rudderless ship without a compass) you may rest assured Mr Rehn is no longer a willing participant.

    After playing a “starring role” in an attempt to “stitch up” Ireland Mr Rehn`s body language last week (coinciding with Gordon Brown`s comments) was displaying all the signs of an individual for whom a terrible truth has finally dawned.

    Every Finn is painfully aware that their own thinly populated country was left to fend for itself (with consequences which made our wartime emergency appear like a Sunday afternoon stroll)) by Western Europe at the end of the last depression when the going “got rough”.

    The offer of bi-lateral loans to Ireland by Sweden and Denmark, who want the EZ to survive while remaining comfortably removed,was also a subtle reminder to Finland that this “bailout saga” is not the time to adopt opportunistic stances.

    All above ,IMHO, of course.

  29. @ DoD

    There would be no need for anything as drastic as leaving the Euro. Just wait for the collapse unless something fundamental changes. This is not just an Irish problem. And the minimum wage won’t help Spain’s €150bn refinancing.

    http://www.ft.com/cms/s/0/f9d781f6-0619-11e0-976b-00144feabdc0.html#axzz180vi2W13

    “Eurozone nations will have to refinance or repay €560bn ($740bn) in 2011, €45bn more than 2010 and the highest amount since the launch of the single currency in January 1999, says UniCredit, the Italian bank. Investors warn that the pressures of refinancing will force Portugal to seek emergency loans from the eurozone bail-out fund as it follows Ireland and Greece into the casualty room. It could also spark further contagion with worries that Spain, the fourth-biggest economy in the eurozone, could be sucked into the crisis, putting pressure on the single currency and increasing concerns that the currency club could break up. Strategists warn that the eurozone crisis could intensify this week as low volumes before Christmas could exaggerate any selling, forcing the European Central Bank to intervene further to support the market. The ECB has bought almost €70bn of eurozone government bonds in an effort to stabilise the market. It is expected to reveal on Monday that it bought more bonds last week than at any time since May.”

    The EU has a small toy hose and the fire is now bigger than the capacity of the hose.

  30. @seafoid
    I can’t sing any tune. You don’t want me singing. In any case, the issue of default or no default and the issue of the minimum wage are largely separate questions. If we could get out from under the costs of the bank guarantee and thereby not be in any need to default on other sovereign debt, I’d be happy. I’ve said so before. I’m not sure we can do that easily or legally or at all. That’s not something pleasing to me and not something I’m likely to sing about.

    @All
    So, let’s stick to the immediate point, which was the minimum wage. It may be deckchair arranging on the Titanic or it might be the feather that tips the scales. Metaphor choices are an easy brush to paint people’s opinions with. Either way, Ireland’s is one of Europe’s highest minimum wages.

    So, longer term, even if we do default, will a high minimum wage help or hinder growth and prosperity? Longer term, even if we don’t default, will a high minimum wage help or hinder growth and prosperity?

    What should Ireland do on minimum wage, whatever Olli Rehn says?

  31. There seem to three primary arguments for dropping the minimum wage:

    It decreases unemployment which has significant social and state finance benefits.
    It exerts downward pressure on Irish wage levels overall and therefore make businesses more viable.
    In low skilled industries it allows Ireland to compete internationally.

    Potential drawbacks of lowering the minimum wage:

    Low earners have to spend more of their income and a lowered minimum wage may decrease consumption, tax takings and employment overall.
    Making society more unequal has social costs both in terms of crime and health and these have actual costs attached to them.

    This is moderately complex equation and I think the drawbacks are not well costed.

    I would argue that that there is a psychological element to the equation as well – the high minimum wage was always something I was proud of and damage to the national sense of well being affects consumption and investment as well.

    A world wide race to the bottom for pay, conditions and corporate taxation has a pretty bleak finishing line.

  32. David: academic economists work on whatever interests them so you would have to ask them. The micro-economic data, on labour markets, education and cognate areas that is openly available to researchers in Ireland is lousy. I generally work on non-Irish data because it is higher quality and easier to get one’s hands on.

  33. @Seafoid
    ‘The EU has a small toy hose and the fire is now bigger than the capacity of the hose’

    It Sure is. David Murphy reported on a story from Reuters about the ECB raising capital. They only have 5.8b in capital and a balance sheet of 130b.
    They must be getting near the limits of their capacity to buy up bonds.

    In contrast to the Fed the ECB is a mickey mouse operation.

  34. @Shay Begorra: My replies are not directed at you personally. You just raise some vexing questions.

    “It decreases unemployment which has significant social and state finance benefits.” Any self-respecting Econ would pounce on this – “show me the evidence!” Ask Kevin D!

    “It exerts downward pressure on Irish wage levels overall and therefore make businesses more viable.” Correct, but only if 90% of our workforce are resident in East Asian. Otherwise this is ideological claptrap.

    “In low skilled industries it allows Ireland to compete internationally.” Total rubbish! East Asia has no Health and Safety legislation, no water charges, no disposal charges, etc. etc. etc. We do not compete in many internationally traded sectors anyway. Compare like-with-like.

    “A world wide race to the bottom for pay, conditions and corporate taxation has a pretty bleak finishing line.”

    Lowering incomes is a marvellous idea. Now few of us will take on debt and the banks won’t earn all that compound interest and the Global Financial System will no longer be required. We’re saved! Lower away!

    BpW

  35. @ Shay Begorrah

    Thanks for bringing the debate back on track.

    Ultimately there is no objective answer to the minimum wage question, since all depends on one’s ultimate ends, which are necessarily subjective — e.g. the ‘mix’ of social equality, standard of living and contractual freedom an individual finds ideal in a ‘good society’. Economists can at best determine the means which are suited to achieve these ends, not whether these ends are ‘good’ or ‘bad’ as such. Morality lies outside the domain of science. Certainly, if Ireland’s aim is to increase its competitiveness in order to postpone the day of reckoning, the minimum wage should in principle be scrapped altogether. Whether it would postpone that day by a week, a month or a year is hard to guess.

    Another point is that its abolition would create social unrest, chiefly because the general public is deeply ignorant of the unintended side-effects of ‘good intentions’. So the net effects of abolishing the minimum wage, after factoring in the ‘cluelessness’ variable (weeping and wailing, industrial action, moral grandstanding of Rabbitte, Adams and co) might, after all, outweigh its positive impact.

    Oh, shucks, I dunno.

    But I’m for abolishing the minimum wage in principle. As philosopher-king, that is. I dream on …

  36. @Shay
    My understanding is that minimum wage literature often comes up with the answer “It depends”. However, we’re pretty far off into an economic corner, so I suspect that many of the parameters on which it depends are at extreme values for Ireland.

    My main concern is that – as a country – we’ve got some very skilled areas of activity that might continue to thrive (pharma, medical devices, etc) but also lots of low (or non-needed, like construction) skills that are unlikely to thrive any time soon. I can think of a bunch of high labour content industries that could survive either high labour costs, or remote location, but not both. Compared to many European countries we’re pricey and remote. If we don’t go low on the cost then we need to go high on the skills…and for LOTS of people. That’s tough to do.

  37. @ Kevin Denny

    The micro-economic data, on labour markets, education and cognate areas that is openly available to researchers in Ireland is lousy.

    I suppose you’re referring to formalised statistical data — the results of ESRI studies or whatever.

    On the other hand, there is plenty of information available for anyone who has the opportunity to talk to businessmen, jobseekers, workers or teachers whose experience of reality is more immediate than that of the research community. I’m not denigrating academic work — just pointing out that it has its limitations. A finding based on a small sample of ‘real life’ may be more informative than conclusions based on the ‘statistically significant’ data of a wide-ranging but costly research project.

    Academic micro-economic data on Ireland may indeed be ‘lousy’.

    But the real micro-economy is out there, for all to see. Go out into the streets …

  38. @ceteris.

    re ECB “They only have 5.8b in capital and a balance sheet of 130b.”
    With a 4.4% capital (or is it Tier 1) ratio like that, there is a bank in real trouble!!.

  39. @ALL.
    How come Olly didn’t look across the table and ask how much per hour his ‘adverseries’ were earning.
    He could then have insisted in including a paragraph saying that their rate would be reduced to his rate per hour?
    But of course, it is always the wages of the little guy that make the economy uncompetitive.
    Lets face it, we all know that in Ireland it is the wages, the pensions and the decisions of the upper echelons that are sinking the ship.

  40. @Shay Begorrah

    Sorry I am not convinced that reducing the minimum wage decreases unemployment by increasing demand for labour.(If that is what you were implying)

    Unemployment will decline in 2011 as many non Irish EU nationals take advantage of the relaxed movement of labour rules (most EU states imposed a seven year immigration rule after the “great accession” in 2004) and seek opportunities closer to home.

    Media outlets throughout central and eastern Europe comment regularly on the “exodus” of non nationals from Ireland and seem to be more aware than we are that this is happening at a time of decreasing unemployment figures.

    Interestingly media articles (in Eastern Europe) have also referred to the fact that many non-nationals cannot leave because they are also burdened with negative equity mortgages.

    FF may think they had a “cunning plan”but instead may have created a “brain drain” of unemcumbered mortgage-free Irish graduates instead.

  41. @Livonian
    re FF may think they had a “cunning plan”but instead may have created a “brain drain” of unemcumbered mortgage-free Irish graduates instead.

    You are absolutely right about who is leaving and who will leave. These people will not work for min wage. They will move on. The unpayable debt will be left to the people who created it. They deserve it.

  42. @ Joseph Ryan @ Livonian

    My guess is that it will be a ‘brawn drain’ as well as a ‘brain drain’ unless labour costs are reduced to Eastern European levels.

  43. @ceteris paribus

    “They only have 5.8b in capital and a balance sheet of 130b.”

    Is that the sound of a printing machine I hear starting up at the ECB?

  44. About that minimum wage:

    Mr Choppra stated on an RTE interview that there was no pressure from the EU/IMF to reduce the minimum wage.

    Previously Mr Gormley said the reduction was forced on government as part of the bail out package.

    Who should we believe?

    Note

    Mr Lenihan argues that we have one of the hghest minimum wage arrangements in Europe.

    No Irish minister argues that we have the highest paid ministers in the EU.

    As representation per capita/voter we have the highest paid ministers in the World?

    Mr Lenihan and co being supremely intelligent must argue for the ministerial pay and perks to be reduced to at least the European average.

    Bench marking is such a strong concept for all ministers and higher civil servants , how can they resist benchmarking all public service pay to their European counterparts.

    The government has destroyed the fiscal policy of spending only what the country can afford.

    Like the banks ,the politicians continue to reward themselves with money which they have no right to hoover up from taxing people in the lowest income brackets, carers, pensioners, disabled , unemployed, children etc etc

    Any future commission of investigation will have to enforce the criminal law for these corrupt inadequates.

  45. @carolus

    Many of the “brawn” may have already “gawn”.

    Perhaps we should first try reducing salaries (and living costs) in the public sector to West European levels.

  46. @ shay

    “It decreases unemployment which has significant social and state finance benefits.”

    Decreasing the minimum wage by €40 pw while decreasing unemployment payments by €8 pw will as likely lead to increased unemployment expenditures as those who have payments reduced return to welfare; or, as it’s less attractive, don’t leave in the first place.

    There’s also the possibility of increased expenditure on Family Income Supplement which automatically adjusts to falls in income and implies additonal welfare expenditure. A transfer from the State to employers of borrowed money.

    “It exerts downward pressure on Irish wage levels overall and therefore make businesses more viable”

    Rates, utilities, rents, professional fees etc are as, if not more, pressing in areas where minimum wage is clustered. Reducing minimum wage will not ameliorate the collapse in demand which has impacted on these areas.

    “In low skilled industries it allows Ireland to compete internationally.”

    Minimum wage is virtually absent in our traded sector – where we’re doing quite well apparently. We keep out of others for good reasons.

    On the general issue it’s about 10 years since I done some work in this area – on the participation/welfare matrix in particular. Data was never great and a lot of survey work was involved. At that time most low paid work was done by women and most behaviour was rational – if not always in the way abstract models predict. Participation generally tended to maximise a combination of wages/welfare for household income – this held true for lone parents in particular in the cleaning sector. Many married women had sub-optimal participation levels and a primary reason for this was an unwillingness/inability/fear to earn above a certain amount lest the husband’s dole be reduced – even though an increase in household income would arise.

  47. Liam Griffin, hotelier and Wexford hurling manger once upon a time, made the point a few weeks back that reducing the minimum wage will have minimum impact. So many sectors have side agreements of wages and conditions, from the bar trades to the construction trades, that applying a minimum wage will be very difficult.

    People can’t have their cake and eat it without enduring upset. Those calling for increased expenditure in X, Y or Z parts of the public sector should be prepared to offer up even greater portions of their wages. So if R&D is wanted, if ‘world class’ universities, hospitals, roads, etc are wanted, the public sector wage bill will have to fall even more significantly. And who pays the mortgages then? BTW: it was gas, gut distending type, to listen to Joan Burton promise a 48% rate for couples earning over €200,000. Labour afraid of frightening away the academic highflyers and legal eagles?

    Alternatively, someone could bust open the Sacred Cow called corporation tax and raise it by a few percent. I made this point before. It is in the mncs own self-interest to preserve the Irish tax regime from radical change. If the EU/IMF have to intervene with even more money in the next couple of years, CT will be knackered. The ‘double Irish’ will end if there is a double bailout.

  48. @ Livonian

    Perhaps we should first try reducing salaries (and living costs) in the public sector to West European levels.

    That’s even more verboten than the near-sacrocanct minimum wage.

    And that despite Article 28 of the Croke Park deal:

    The implementation of this Agreement is subject to no currently unforeseen budgetary deterioration.

    (boldface mine)

  49. @Carolus:
    “… no currently unforeseen budgetary deterioration.”

    But surely, given the omniscience of our leaders, there will be nothing unforeseen?

    bjg

  50. @Livonian

    No they won’t start the printing press (this is verboten) instead they are asking national central banks to double the capital. Trouble is a bunch of countries don’t have the cash.
    They are also worried about taking a hit on the bonds they have purchased currently 72b worth from Greece, Ireland and Portugal. I wonder how much they are down – probably enough to wipe out the capital of the ECB (5.8b).

  51. @Alchemist.
    re: to listen to Joan Burton promise a 48% rate for couples earning over €200,000.

    Not a lot of money from that cupboard. Joan may as well try to hold those because in the past week she has lost at least another 5% to SF. The Dept of Social Welfare have sent out tens of thousands of letters requiring people to state chapter and verse on their efforts in looking for non-existant work.
    I met one of those people today. He has been looking hard for work since last February. Guess who he is voting for.
    This is like watching a slow train wreck.

  52. @Carolus.
    Here’s an idea.
    Reduce the minimum wage to €5.00 per hour.
    Reduce all PS pensioners to the same €5.00 per hour.

    The first will have effect of reducing demand for social welfare.
    The second will have the effect of reducing general wage levels as the retirees will be forced to go out pick up some of those cushy minimum wage jobs. Result exchequer happiness. Boomtime again.

  53. @ Joseph Ryan

    Reduce the minimum wage to €5.00 per hour.
    Reduce all PS pensioners to the same €5.00 per hour.

    By Bulgarian standards that’s still luxury. Let’s settle at €3.00 per hour.

    @ Brian J. Goggin
    Our leaders are certainly omnibenevolent. It’s with omniscience and omnipotence that they have problems..

  54. @all

    Firstly thanks for your responses, it seems that for a change my ignorance has had a calming effect.

    I am on the left of the political spectrum but I would be open to persuasion that given the dangers of our current situation a decrease in the minimum wage would have a net positive effect on those in the less well off half of the population and benefit our collective well being in the medium term.

    It seems however that there no good figures for the benefits and that the models (if they even exist) are not sophisticated enough to allow for the downside risks, even purely in economic and financial terms.

    Devotees of Hayek have their faith in the emergent properties of free markets but I was hoping that in this case, and in this forum, economics might provide me with some numbers on which to base a decision. The numbers however are not there and without them I can not accept that the problem we have is that the low waged are not low waged enough.

  55. Carolus Galviensis (oul’ Charlie Galvin, I assume): yes I mean the data that is amenable to scientific study. By all means talk to taxi drivers, the man on the 46A bus or whoever but subjective impressions of unrepresentative individuals does not tell you anything of substance.

  56. From the gov’ts perspective the most troublesome group in society are males 18 to 25 years old. The larger the percentage of them that are unemployed the more troublesome they become. A low or no minimum wage takes more of them off the street than an average or higher than average (EU wide) minimum wage. The one Euro reduction will have little to no effect on unemployment in that cohort since it leaves the Irish minimum above the average EU minimum. Ireland has a lot more adjusting to do before we pull ourselves out of these doldrums. We must stop blaming the Ollis’, Wolfgangs’, Giuseppis’ and sundry other foreigners and focus on the Paddies, Seanies, Brendans, Kevins. It is shameful that we do not have the guts or wit to deal with our problems which we created.

  57. @ Kevin Denny

    By all means talk to taxi drivers, the man on the 46A bus or whoever but subjective impressions of unrepresentative individuals does not tell you anything of substance.

    I may be attacking a straw man here, but sometimes there is no alternative but to rely on ‘subjective impressions’ — Ireland would be a case in point, if the microeconomic data are as ‘lousy’ as you say they are. For a relatively small country the conduct of research that meets the formal requirements of statistical significance etc. may be prohibitively costly. Ensuring a certain degree of ‘lousiness’ may be the most cost-effective policy.

    Extensive data assembly is expensive and if a country can’t afford it then one has to fall back on small samples. The risk of error may be greater but one can still learn something of ‘substance’ even by talking to one’s mother in law.

    A random oral questionnaire involving ten taxidrivers may not be as satisfactory (i.e. may not meet the requirements of statistical significance) as a detailed written questionnaire involving 1000, but it is certainly far better than nothing. And a lot cheaper.

  58. I think it would be a very worthwhile exercise if someone were to take the PS pay and welfare rates of a similar sized EZ country, Belgium Holland Portugal spring to mind, apply them to Ireland and then see what our annual expenditure and budget deficit was.
    We are constantly talking about our welfare rates being more than double those in britain, and how our PS wages are so out of line with the rest of the EZ, why doesnt someone take those figures from one of these countries and apply them to ours, just so we can see then the effect it would have. I’m talking across the board, Politicians, semi state bodies, judges, Lecturers, Librarians, Teachers etc etc.

  59. @ Mickey Hickey
    Sound thinking. Thanks.

    To get an idea of just how way out Ireland is, readers should take a look at Eurostat’s haronised data:

    http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Minimum_wage_statistics

    To hammer it home for the umpteenth time: Ireland is right at the top of the scale (just after Luxembourg). At 1462 euros monthly the minimum wage is more than an order of magnitude greater than that of Bulgaria (123 euros monthly).

    When will our “highly skilled workforce” ever learn?

  60. Wage levels in sectors such as hotels/restaurants/pubs etc ( speaking as someone involved in this industry) , are the biggest cost , and as a substantial number of businesses in these sectors are losing money , this will be of benefit .
    Minimum wage cut is a good thing but JLC abolition would be better, and is essential . Min wage sets a floor, and JLC adds another level, and these act as reference points for all wages in labour intensive sectors. JLC rates add c10% on to min wage, so without a cut in JLC which applies to the above sectors , its not that relevant
    More hires ie more jobs in these and other labour intensive and service oriented sectors will be possible among companies that can afford to do so now,and for others over time. Whilst the jobs may be part time/unsocial hours in a lot of cases, its work and an industry in which young people can reach management level relatively quickly.
    This could despite its unpopularity be a very good tool for improving competitiveness, facilitating job creation , via lowering business costs.

  61. Reducing minimum wage is a no brainer. We are already starting to appear ridiculous in the eyes of the rest of the world, our conduct since we happened upon some serious wealth a decade or so ago has been embarrassing and our subsequent fall from grace pretty spectacular. Trying now to maintain the trappings of this lost wealth would only make us appear even more pathetic. An example of how ridiculous we now are would be:
    Our Prime Minister is paid more than the British Prime Minister; Our welfare payments are double what they pay in Britain; Our minimum wage is higher than Britains….
    And we are now getting an emergency loan from Britain to pay for all of this. Ludicrous.

  62. @ CG
    “To hammer it home for the umpteenth time: Ireland is right at the top of the scale (just after Luxembourg). At 1462 euros monthly the minimum wage is more than an order of magnitude greater than that of Bulgaria (123 euros monthly).”

    I have two big problems with your ultra free market Ideology.

    1. Its just not civilised
    2. It has just recently had a spectacular collapse and it’s inherent weaknesses been shown very badly. A little humility would’nt go a stray.

  63. @Mickey Hickey – “From the gov’ts perspective the most troublesome group in society are males 18 to 25 years old.”

    The strategy (and under-quantified in the 4 year plan) appears to be get them to leave the country rather than create low paid jobs to keep them busy?

  64. The most important question the Irish negotiators needed to ask Ollie Renn was why are you pursuing a policy that is counter to the interests of the people of Europe in order to protect the bank bond holders of Europe. Why are you expecting Irish and possibly ultimately German Taxpayers to take on their losses?

  65. @ Eamonn Moran

    I do not subscribe to an ‘ultra free market ideology’, although I admit it sounds as though I do.

    Abolition of the minimum wage may also be considered as a ‘necessary evil’ in order to boost employment, regardless of one’s ideological preferences.

  66. @ Eamonn Moran

    You write that “Its just not civilised [to reduce the minimum wage]

    Why not double the minimum wage?

    Why not treble it?

    Why not add zero to it and bring it up to 14620 euros per month?

    Then Ireland might become ultracivilised (with 99% unemployment, but shucks it’s the principle of the thing that counts).

  67. Linking Ollie Rehn and Ed Walsh.

    I had to laugh a few weeks ago when Ollie was leaving here after reviewing our 4 year plan (yes, before the bail out, seems so long ago) and an RTE journalist commented that ‘having seen how the Irish people are suffering, he must feel protective towards us.”

    Indeed.

    He must surely have known our politicians are paid vastly more than their Finnish counterparts, and had he listened to the RTE lunchtime news that week he would have learned (from Ed Walsh I think, but I may be wrong) that an Irish ambulance driver earns more than a Finnish hospital consultant.

    Thankfully they didn’t highlight what an Irish consultant is paid relative to his Finnish, or German/French/Slovenian etc counterpart, as Ollie may have felt, eh, less protective.

    Loved Hugh Sheehy’s leeter from last year.

  68. So, just to reiterate, no one has any numbers showing an improved economic outcome from jurisdictions that modified their minimum wage and the economists among us (if any) have found it either too difficult or too boring to produce models or even likely relationships between consumption, employment and the minimum wage.

    @mickey hickey

    “The one Euro reduction will have little to no effect on unemployment in that cohort since it leaves the Irish minimum above the average EU minimum.”

    Are you suggesting reducing the minimum wage (and implicitly social welfare) so as to encourage young unemployed males to leave Ireland?

    Also when you say:

    “We must stop blaming the Ollis’, Wolfgangs’, Giuseppis’ and sundry other foreigners and focus on the Paddies, Seanies, Brendans, Kevins. It is shameful that we do not have the guts or wit to deal with our problems which we created.”

    What is this “we” business? I did not buy into the property boom, I did not benefit from it, I did not vote for parties that encouraged it. The “we” who did the damage and the “we” expected to pay the price are not the same sets of people.

    The foreigners getting the blame are the ones inflicting collective punishment on behalf of a badly dysfunctional international financial system, we can not blame them individually for getting us into trouble but we can certainly blame them for stopping us getting out of it.

  69. Leading from behind……

    Does anyone here actually believe that lowering the wage of the low paid will somehow climb the system to reach the higher paid and drag their salaries down?

    If the intent was to also lower the salaries of the high paid, (as has been claimed), then why this roundabout way? Why not lower the higher paid (MPs) wages directly instead of taking the long way around?

    It is interesting on how the conflicting interests will drive this forward:

    Most of the export industry does not employ minimum wage people. The exception is the hospitality industry. The hospitality industry in itself suffers from oversupply or is there no more a glut of hotels in Ireland?

    The hotel industry would benefit of lower property prices but I think Ireland is trying to have a price-floor (NAMA) for property as well. Not quite sure how a cost floor is improving Irish cost-competitiveness but…..

    Lowering the price might increase the demand for the Irish experience in combination with some investment in Discover Ireland (or whatever the agency might be called). But does anyone know the cost of the wages for a hotel room/night?

    & the airport tax….. How exactly is it helping the hospitality industry?

    As for the ones who are mobile (people on minimum wage ususally don’t have mortgages so they rent). Lower their salary, maintain a cost-floor for them (NAMA). Mobile people in a bad situation tend to leave…. What will that do to the all important property prices?

    The free marketeer would say that sure, let the market set wages & rents. The Irish says, artifcially inflate rents but let market set wages…. Capitalism for the poor, socialised losses for the rich.

  70. @Jarlath
    Prof Ed Walsh claims he already made the comparison with the UK (link above) and the savings he projected were more than €20 billion a year.

    @jesper
    I don’t think anyone is expecting the reduction in the minimum wage to drag down wages of the higher paid on a really widespread basis, or not in most industries anyway. However, in your comment you seem to be talking mostly about cutting pay in the public sector (MPs, etc), where pay is at the command of the govt.

    One point I often wonder about is whether we really think that pay for TDs is too high, or just that we’re paying the current set of TDs too much? How about if we elected a different set of TDs? Is it beyond Ireland’s capability to elect TD that would deserve such pay?

  71. @Hugh,

    I’ve read comments claiming that one reason why minimum wage is lowered is that it will reduce other wages as well as the minimum wage would be some sort of benchmark wage. I don’t see any logic in this reasoning & I hoped the people using this argument might have jumped at the chance to explain how they came to this conclusion.

    As there were no replies it does seem that this reason has no support 🙂

    I’ve also asked what kind of jobs would be created & gotten no reply so I’m thinking that the job creation argument might not have that much relevance either 🙂

    Whether or not a management accountant could calculate how much cheaper an Irish export would be after the reduction in minimum wage is something I am more interested in. 40 € per week & worker….. I really don’t see how this saving will make any noticable difference in the total cost…. I suppose it depends on the product being produced: Hotel room nights sold, coffees sold or?

  72. @Mickey Hickey:
    “From the gov’ts perspective the most troublesome group in society are males 18 to 25 years old. The larger the percentage of them that are unemployed the more troublesome they become.”

    In that context, may I draw the attention of the noble and learned members of this symposium to Seamus Coffey’s troubling post of this morning on his Economic Incentives blog?

    http://economic-incentives.blogspot.com/2010/12/back-to-school.html

    I suggest that it is not just from “the gov’t’s perspective” that young men are troublesome: citizens too, going about their lawful business, may find these chaps troublesome.

    I have a Subaru outside and don’t want to find a horse instead.

    bjg

  73. @jesper
    Sorry, to be clear I meant that I don’t see how reducing the minimum wage will influence those on higher salaries, e.g. higher public servants, skilled labour, IT skills, etc. like the example of TDs which you gave yourself on any widespread basis. I find it perfectly plausible that it’ll reduce wage demands – or put pressure on wage demands – in low skills areas that operate a little above minimum.

    As for jobs that could be facilitated by a lower minimum wage, pick any low or lowish skilled labour intensive activity.

  74. @Shay
    I am not in favour of emigration the country suffered enough when emigration was high. Every Irish mother is entitled to have her children within easy reach until she passes on to her reward. There are long term benefits to having low or no minimum wages. Germany is a very good example, learn a trade or profession or lead a life of poverty. It does lead to lower incomes higher up the scale since those at the bottom are highly motivated to move up the income ladder. As for the “we”, you are indeed an adult in full control of your faculties and a fully functioning member of the tribe. Your future is closely bound with how our society functions or does not function. It is your decision whether you are part of the solution or the problem.

    @Brian J G
    I knew it was bad but this surprises me.

    There is something that everybody should be aware of and that is that every person that leaves the country leaves behind a vacant room, apartment or house which further depresses the housing market. Turning the economy around is something that has to be done very quickly or we are headed for over a decade of what we thought we had left behind us in the seventies.

  75. I’d like to ask those above who mention how reducing the minimum wage will increase competitiveness – how many decent jobs in companies Ireland seeks to attract pay minimum wage? If the answer is “most of them” then we should look for different ones. To me it says “we’ll please the bond vigilantes if the cleaners take 1 Euro an hour less while the traders keep their bonuses”.

    In sectors such as agriculture, light manufacturing and food service, pressure to reduce minimum wages should be resisted and instead the government should seek to ameliorate other tax burdens on those enterprises in exchange for holding the line on wages.

    Many skilled and semi-skilled businesses went to the wall not because of wages but because of insurance and the refusal to rein in compo culture, and even if that was solved tomorrow there would be the credit supply problem. Ireland could abolish the minimum wage in the morning and there would be significant limits to the employment impact and not just because of welfare alternatives.

    More likely however is that the real competitiveness issue is that above the minimum wage level there is a sense of entitlement not to increments over the minimum but multiples or even orders of magnitude thereof – “cut somewhere else, tax someone else”.

  76. In most businesses margins are thin and the difference between a thriving business and one on the edge of bankruptcy is only 5 or 6% of turnover. The cost of business premises is being propped up by NAMA, wages cannot be lowered because our workers are a party to the “social contract”, professions cannot be forced to cease restrictive practices because they are “entitled”. The quangos will continue for a myriad reasons. It appears to me that things will get a lot worse before we do anything constructive. Everything matters and everything will have to be rethought.

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