Slashing the Minimum Wage: Olli made us do it (or: never let facts get in the way)

Tom McDonnell14/12/2010

Tom McDonnell: Over the weekend, a Government TD insisted on RTE's Week in Politics programme that we should ask Olli Rehn why the minimum wage was cut. I leave it to the reader to decide what that implies for our national sovereignty.

Much of the justification given for the cut was that we had the second highest minimum wage in Europe and that it needed to be cut to provide more employment opportunities. More on this in a second.

The latest annual report of the United Kingdom’s highly respected Low Pay Commission (LPC) is here. The British government uses the recommendations of the Commission when passing legislation related to the minimum wage (including the setting of rates). You will find a wealth of information on issues such as gender composition, sectoral breakdown and other key issues.

Unfortunately, there is no equivalent Commission for Ireland and it is to our great detriment that we do not conduct the same level of research into these areas in Ireland. Irish policymakers seem to have only a passing acquaintance with the strange notions of theory and evidence.

Fortunately for us the LPC report has international data on the rates set for national minimum wages.

I refer you to Appendix 3 of the Low Pay Commission’s report and in particular column 3 (PPs) of Table 3A.1 on page 233. The table has data for eight different EU countries. Ireland has the fifth highest minimum wage rate of the eight EU countries shown. Most importantly, we find that the rate for our nearest neighbour - the UK - was 5.80 (sterling) and the equivalent rate for Ireland, before the 12 per cent cut imposed last week, was 5.43 (sterling) in terms of purchasing power parity. Note as well that only one country in the sample has reacted to the crisis by cutting the minimum wage.

So it seems that those spouting off that we have the second or third highest national minimum wage in Europe either haven’t bothered to check the facts or have decided to ignore the facts.

I’ll leave it to you to decide which is worse.

Posted in: Welfare

Tagged with: minimum wage

Dr Tom McDonnell

McDonnell, Tom

Tom McDonnell is senior economist at the NERI and is responsible for among other things, NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth theory, the economics of innovation, the Irish and European economies, and fiscal policy. He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University.

Tom obtained his PhD in economics from NUI Galway.



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