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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM

Small Firms Association calls for cut in Irish Minimum Wage
By Finfacts Team
Jul 15, 2008 - 7:56:03 AM

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The Small Firms Association says today that Ireland has the second highest National Minimum Wage (NMW) within the EU. The rate of €8.65 per hour is more than twice that of the United States, the largest economy in the world and 19% higher than the UK, our nearest competitor. It is thirteen times that of Bulgaria. The SFA is calling for a cut in the rate.

Patricia Callan, Director of the Small Firms Associationhas called on the Government to decrease the statutory minimum wage by €1 per hour to €7.65 per hour with immediate effect, in order to regain lost competitiveness of Irish small businesses vis-à-vis their international competitors and to boost job prospects amongst younger people.

According to Callan,“a comparison of international minimum wage rates shows that Ireland has “lost the plot” in terms of having a competitive labour market. Establishing a minimum level of pay by dictat rather than market forces is proving to be a negative employment strategy. Unemployment is increasing and new job creation is low. It is imperative for the competitive position of Ireland that wage levels are decided in a competitive labour market. These minimum wage comparisons across the EU show Ireland for what we have become - a high cost uncompetitive economy.”

“In the first six months of the year, Irish companies have made 16,519 people redundant (30% of job losses were in the services sector and 29% in manufacturing). When you compare the Irish minimum wage with other international economies it becomes clear why Ireland is facing increased competitive pressures; why we are constantly hearing that Irish prices are higher than those of other Eurozone countries and why we are losing jobs to lower cost economies within the EU.”

Last week we heard the Minister for Social & Family Affairs, Mary Hanafin, TD express concern at the 42% surge in young people (under 25) signing on the dole in the past year, with some 48,000 young people now looking for full-time work. “This is a clear symptom of the fact that the national minimum wage is too high and that employers are deciding that they cannot recruit raw candidates into jobs and pay them such a high starting salary, as they will not reap the benefits in productive terms. There needs to be a broadening of the definition around sub-minimum wage training rates to include “on-the-job” training rather than formal training courses”, stated Callan.

Luxembourg €1,570 a month
Ireland €1,462 a month
Netherlands €1,335 a month
Belgium €1,310 a month
France €1280 a month
United Kingdom €1223 a month
United States €696 a month
Slovakia €243 a month
Lithuania €231 a month
Latvia €229 a month
Romania €141 a month
Bulgaria €113 a month

Source: Eurostat

Currently the monthly minimum wage in Ireland based on a 39-hour week is €1,462 behind only one other EU country, Luxembourg at €1,570. Bulgaria (€112) and Romania (€141) currently have the lowest minimum monthly wage rates in the EU. The UK rate is Stg£5.52 per hour which is subject to currency fluctuations (today it is €6.92 per hour or €1169 per month). In Japan, the minimum wage is €774 per month and in the United States, it is just €696 per month.

Callan stated, “are we really telling ourselves that we are so different from the rest of the competitive world that we can afford to spend wealth before we create it! We have tried that particular method in the past and the result was a continuous growth in taxation, borrowing, unemployment and emigration. It appears we still have lessons to learn.”

In a recent survey of member companies conducted by the Small Firms Association, 19% of companies said that the minimum wage was a major problem for their business. Small firms are vulnerable to payroll costs which make up a significant element of overall costs (on average about 30% to 40%) and increases in such costs impacts on staffing levels.

Ireland is now into an era of rapid and increasingly unpredictable change. High inflation, increasing interest rates, increased competition from lower cost economies and the need to attract investment, all combine to highlight the need to regain competitiveness.

In conclusion, Callan stated
“it is not the job of business to redistribute wealth, but to create wealth which can be redistributed by Government. A minimum wage that is higher than the strongest economies in the world simply allows the Government to renege on its responsibility for social equity, which should be achieved by prudent management of expenditure and tax reform; not by making people unemployed.”

Finfacts Comment: Ireland is one of the world's most expensive economies according to the World Bank. A case certainly can be made for reducing the level given that rents for example will fall in the next two years. However, what credibility would such a move have, while ignoring many other cost areas from land for road building to the multiplicity of public disbursements where better-off people than workers on the minimum wage, are getting paid over the odds?

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