Low pay, Minimum Wages and Household Incomes: Evidence for Ireland Caitríona Logue and Tim Callan Economic and Social Research Institute

Overview Broad picture of wage inequality developments Extent of low hourly pay in Ireland Low pay and household income Limits on the potential impact of minimum wage increases on household poverty

Existing literature EU Little overlap between poverty and low wages (Marx and Nolan, 2012; Marx and Verbist, 1998). Ireland ‘Most employees are not in poor households, most poor households do not contain an employee’ (Nolan, 1993).

Existing literature U.S. Weak evidence that minimum wage policies solve issue of poverty (Neumark et al., 2005). UK Poverty is not a question of low pay but of joblessness (Nickell, 2004).

Boom, bust, recovery

Wage inequality Impact of recession on income inequality is difficult to predict (Jenkins et al., 2013). Separate analyses necessary to understand the Irish context. Voitchovsky et al. (2012) examine wage inequality during Ireland’s Celtic Tiger. Holton and O’Neill (2015) extend this by examining the period of economic downturn and early recovery.

Wage Inequality (90 th percentile/10 th percentile=P90/P10) P90/P10

Wage Inequality (90 th percentile/10 th percentile) P90/P10

Defining low pay EUROSTAT definition of low pay: an hourly wage less than two-thirds of the gross median wage (median=middle- ranked) €11.40 per hour in 2013 Wage proposed as a “living wage” by the Living Wage Technical Group (2014) is at a very similar level

Low Hourly Pay: % of employees who are low paid Low pay cut-off = ⅔ median wage € € € €11.4

Defining household poverty EU definition (SILC) of “at risk of poverty” Household equivalised disposable income isless than 60 per cent of the median value (median=middle ranking: 50% of households have higher incomes, 50% have lower)

Measures of low pay and poverty Low pay is calculated at the individual level. Based on gross income Poverty is calculated at the household level. Based on disposable income Adjusted for family size (equivalised)

Low wage earners at risk of poverty 2010 and 2013 Between 7 and 8 per cent of the low paid were in households “at risk of poverty” i.e., 11 out of 12 low paid individuals were in households with incomes above the poverty cut-off

Share of low paid who are “at risk of poverty”,

Where are the low paid in the household income distribution?

2016 Minimum Wage Increase: Shares of gain in disposable income classified by household disposable income quintile

Conclusion Incidence of low hourly pay has increased recently Overlap between low individual pay and household poverty remains very limited in line with past Irish and international experience Increases in National Minimum Wage may be desirable for other reasons, but would have very limited impact on household poverty