Increase in minimum wage reduced inequality - ESRI

That's because most minimum wage earners are the second or even third earner in a household.

Minimum wages do lots of things but they are not effective anti-poverty tools.
 
Minimum wage is a blunt instrument for reducing inequality. I do support having a minimum wage but it by itself is inadequate tool.
The minimum wage should be set as band e.g. €7.84ph - €15.68ph.

With €7.84ph being a starting point at 18yrs of age. The minimum wage should increases by a sustainable 2.5% for each year a person remains employed, with the appropriate rate applicable if a person changes jobs.
This will offer some incentive and reward for those who turn up every morning, doing the tasks that most people do not want to remain in long-term.
 
There was a big study of the minimum wage introduced in Seattle a few years ago.

It found that it did indeed increase hourly earnings for those at or slightly above the minimum wage. Unfortunately employers cut back total hours.

It also led to much more automation. Firms were less likely to hire completely unskilled people, usually at the start of their careers.
 
What happens when the person gets to €15.68 an hour but the job they do is worth less than that? Either they lose their job or the business closes because it runs out of money.
People should get paid what they are worth. If you want to be paid more then make yourself more valuable by becoming more skilled (There is no direct link between skills and education but they often go hand in hand).
The rate of social welfare for people over 26 years old is €5.08 an hour. That will put a floor on wages even without a minimum wage; nobody is going to work for a differential rate of €2 or €3 an hour.

I'd rather see resources put into making people more skilled so that they can command a higher wage rate than putting in a high minimum wage that prices unskilled people out of the job market. We have enough poverty traps as it is.
 
Purple said:
What happens when the person gets to €15.68 an hour but the job they do is worth less than that? Either they lose their job or the business closes because it runs out of money.
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You could say that about the minimum wage of €9.80ph?
If a business cannot afford €9.80ph then it goes out of business, causing unemployment.
 
Folsom said:
You could say that about the minimum wage of €9.80ph?
If a business cannot afford €9.80ph then it goes out of business, causing unemployment.
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Not really, for low levels of the minimum wage firms do a variety of things: reduce profit margins, change business model, give workers less hours, increase automation, hire less unskilled workers.

A €15 minimum wage would indeed put companies out of business but we are a long way from that.
 
Folsom said:
You could say that about the minimum wage of €9.80ph?
If a business cannot afford €9.80ph then it goes out of business, causing unemployment.
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Yep, it does. In effect what happens is that only people who can earn €9.80 an hour get hired so unskilled people stay unemployed and stay unskilled.
 
If they are a labour intensive, tight margin business then most of those aren't an option and it is businesses in those sectors who generally hire low skilled and low wage people.

Where I work we hire people at the minimum wage but they stay on it for less than a year. After that they are getting paid more because they have the right attitude, aptitude and ability or they are gone.
 
Purple said:
Yep, it does. In effect what happens is that only people who can earn €9.80 an hour get hired so unskilled people stay unemployed and stay unskilled.
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I dont get that, sorry. €9.80ph is the minimum a person can be paid under the law. That means unskilled workers are entitled to this from the get go.
Skilled workers should be able to command a premium over and above the minimum to begin with, or at least very soon after hiring.
 
Purple said:
Yep, it does. In effect what happens is that only people who can earn €9.80 an hour get hired so unskilled people stay unemployed and stay unskilled.
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This is the huge problem that minimum wage advocates don't understand.

Many people in low-skilled jobs are there to accumulate skills. They take low pay today in return for on-the-job training, and get higher pay in future.

High minimum wages mean that these people can't accumulate skills.

It's not so much of a problem given that the labour market is so hot in Ireland right now. But once you have a downturn the minimum wage could be really effective at keeping young people out of employment.
 
Purple said:
After that they are getting paid more because they have the right attitude, aptitude and ability or they are gone.
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It would appear that aside from any skills, or none, that a worker holds, that your company places monetary value on right attitude, aptitude and ability?
 
Yes, but if a person's labour is not worth €9.80 then they never get a job in the first place and so never acquire the skills to command a higher wage.
 
Folsom said:
It would appear that aside from any skills, or none, that a worker holds, that your company places monetary value on right attitude, aptitude and ability?
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Yes, of course it does. Who doesn't (outside of the Unionised sector)?

When you hire an unskilled person you invest in them in two ways; you pay them for their time and you train them.
Some people, idiots is a good description, say that lower wages for apprentices are exploitation of young people. The fact is that if an apprentice was being paid nothing they would still be costing us money because the cost of training them far exceeds the value of their labour.
 
I should point out that the €15.68ph is only attainable for people who are working all their lives and are in effect near retirement.
Starting with €7.84ph from age 18, increasing by 2.5% per year (or €0.24c ph), the €15.68ph would only apply to someone working 40yrs - such people, in general I figure, have a good attitude at least.
 
Purple said:
Yes, but if a person's labour is not worth €9.80 then they never get a job in the first place and so never acquire the skills to command a higher wage.
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??? then its not a cost to business then?
 
Folsom said:
??? then its not a cost to business then?
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No, it's a poverty trap. We are shifting the social cost of providing citizens with an income from the State to the employer.
Oh, and the lowest hourly rate we pay is €10.
Average shop floor earnings are more than twice that.
 
Folsom said:
But if they are not employed, due to lack of skills, then the cost is not on the employer.
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Yes. What's your point?
In trying to shift the financial burden of a social policy from the State to the Employer the State is creating and sustaining a poverty trap. That's the point I am making.
 
Purple said:
Yes. What's your point?
In trying to shift the financial burden of a social policy from the State to the Employer the State is creating and sustaining a poverty trap. That's the point I am making.
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Ok, you are talking about something else. I don't disagree that if the minimum wage is pitched higher than what employers value the labour then that is a cause for a poverty trap.
So im not arguing that €9.80ph is too high or too low, im saying a single figure rate is inadequate in itself for reducing inequality.

Im suggesting that minimum wage be placed in a band ranging from one starting point to an end point. As an example I am using the current minimum wage of €9.80ph.
Minimum wage for an 18yr old is set at €7.84 (or thereabouts).
Im suggesting an incremental increase of 2.5% pa as a sustainable increase in wages for workers in unskilled or low skilled employment on condition that they continue in employment.
People who remain in continuous employment would suggest they have at least the right attitude, which I think you agreed does has a monetary value.

While the immediate focus appears to be on the €15.68ph figure, that is only applicable if a person continues working over 40yrs.

It should be noted that at a starting point of €7.84ph at 18, rising at 2.5% pa, it would take someone until they are 27yrs old before they reach the current €9.80ph.
Unless of course they acquire new skills for themselves, and/or have the right attitude, aptitude and ability to negotiate a premium higher than that rate.
 
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