Low Pay in the Time of Covid-19

Critical workers deserve adequate pay

Robert Sweeney06/04/2020

If there are any silver linings to the Corona Virus, one of them is that it has brought into focus how reliant we are on low-paid workers. As 23% of the workforce earns less than two thirds the median gross income, Ireland has one of the highest rates of low pay in the EU. Were it not for the many retail workers who continue to go out to work in supermarkets across the country, the distribution of food would be upended. Were it not for the carers who continue to wash, bathe and care for society's most vulnerable, nobody else would, or be able to now. There are many preconceptions people have about low-paid work, which are often half-truths or are based on shoddy reasoning. Here we consider two.

 

Claim 1: Low pay work is less demanding

Technically speaking, low pay work tends to be low-skilled. Many jobs in the hospitality and retail sectors require little in the way of formal training. That is not to say that differences in ability do not exist or that workers do not get better over time, but the time it takes to train people up is generally much lower.

Low pay workers thus also have less responsibility. For instance, nobody dies if somebody working in a checkout counter makes a mistake. Low levels of pay in certain occupations are therefore justified on the basis that these jobs are easier and less demanding.

However, while it is true that low paid workers are less costly for firms to replace, it is not the case that low paid work is less demanding. A 2017 pan-European study by Eurofound, for instance, shows that the relationship between wages and working conditions is mostly inverse (S-shaped in fact) – the worse your pay, the poorer your working conditions. Lower paid workers have less autonomy, contractual stability, and so on than higher paid workers. In fact, when you stop to think about it the most rewarding part of high-skilled labour is not only, or even primarily the higher pay, but the fulfilling nature of the work. Just ask a few consultants whether they'd give up practicing medicine (and the prestige that goes with it) to clean the floors for the same pay.

 

Claim 2: We have to live with low pay

The fact that low pay work tends to be less skilled and more easily replaced means that workers in low pay occupations inevitably have less bargaining power and so cannot command higher wages in the workplace. Moreover, certain sectors such as hospitality lack economies of scale (the tendency for costs to fall when output is increased), which limits their ability to pay higher wages. In an Irish context, given our dependence on tourism and our pub culture, our high rates of low pay are a consequence of this.

The first two points are largely correct, but they omit an important part of the story. Yes, the lower skill content and low profits in areas such as hospitality limit their ability to pay high wages, but there is also large variation in the extent of low pay across countries. The missing piece of the pay puzzle is bargaining power. In other countries workers have higher bargaining, evidenced for instance in the prominence of trade unions in setting pay. As a consequence, low pay is less prevalent.

As to the point about Ireland's high levels of low pay being driven by having large hospitality and retail sectors, this is simply not true. Yes it is the case that the hospitality sector in particular is large here, but this does not drive Ireland's high levels of low pay. As TASC's latest inequality report shows, low pay in Ireland is driven by workers not getting paid enough, and is not a result of a sectorally unbalanced economy.  

The Corona Virus has highlighted the crucial contribution made by those who typically get very little recognition and status. Ireland has policy options if it wants to reduce its high levels of low pay. The best way to show those workers some love would be to improve pay and conditions as we come out of this crisis. A round of applause would be nice, but not nice enough.

 

 

Posted in: EconomicsInequality

Tagged with: coronaviruslivingwage

Robert Sweeney     @sweeneyr82

Sweeney, Robert

Robert Sweeney is a policy analyst at TASC and focuses on issues surrounding Irish political economy and distribution. He has a PhD in economics from University of Leeds, which concentrated on financial markets and investors, banking, international macroeconomics, and housing. He is also interested in debates on alternative schools and methodology in economics, and ownership.


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