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Would a Living Wage decrease poverty? ESRI seems to think not

On Tuesday, Tánaiste Leo Varadkar announced that the Government intended to replace the current minimum wage with a so-called “Living Wage.” This would see the minimum rate of €10.50 an hour upped to a new rate of €12.17.  That corresponds to 60% of the current median hourly wage.

The announcement was broadly welcomed by the opposition although Sinn Féin want it to be introduced in the October Budget rather than waiting until 2026 for its full implementation. The Irish Congress of Trade Unions (ICTU) also welcomed the decision although noted that the Low Pay Commission favours an increase to two-thirds of the median wage.

What all may have missed is that the state’s own think tank, the Economic and Social Research Institute, is of the opinion that such a measure would have little impact on the level of poverty. In a report on ways to tackle poverty published on Monday, the ESRI has this to say:

ERSI Report, p72

Varadkar did refer to the fact that minimum wage earners are often not the main household earner, but it is something that is mostly lost in the debate as it fails to take into account the nature of such employment and the types of people who often work in minimum wage jobs on a short term, part-time or transitional basis.

A better focus would be to ensure that certain sectors are not allowed to become dominated by low wage, part-time agency, and “zero-hours” contracts where this reflects a conscious effort by employers in those sectors to lower costs. Said reduced costs then often become an overall social cost as the state is required to compensate for this through social welfare payments.

The Working Family Payment might therefore argued to be a state subsidy for low-wage employers. Just as the Housing Assistance Payment is a subsidy for landlords who let high rent accommodation.

The ESRI report simulated a higher mandatory living wage of €12.90 per hour, so the impact of the Government proposal will be even less. The report somewhat obviously points to bringing more people from jobless households into the workforce as the most effective measure to reduce the numbers of people at risk of poverty (AROP) or in consistent poverty.

The actual statistics on the measures of poverty – and indeed the future projections up to 2029 – illustrate that the groups most vulnerable are also pretty predictable. The most prominent of these are lone parents, the children of lone parents, and people living in jobless households.

The reasons for this are again pretty straightforward as are the reasons why lone parent households (they account for 6.7% of all adults but 30% of those experiencing consistent poverty in 2019) are at risk even where many of the parents are in some form of employment.

The report considers a variety of increases in social transfers but notes that research does not tell us much about their impact on material deprivation (p26.) Indeed, they later state that while increased social transfers “are likely to reduce material deprivation as well as income poverty, that the size of the impact is not great overall.” (p56.)

That is due to the difficulty of accounting for factors such as debt and childcare costs, but also “access to non-financial resources.” The authors note that “The experience of material deprivation is the product of the cumulative effect of many factors interacting.”

The experience of all welfare states is that while social transfers undoubtedly alleviate the impact of unemployment and other factors that reduce people’s ability to earn a living income, that a significant section of the population becomes not only welfare dependent, but generationally welfare dependent.

It is also clearly the case that such state dependency, as indeed was noted by Sinn Féin in its prelapsarian non-leftist phase in the early 1960s, robs people of their sense of self-reliance as individuals and within a community of individuals. The consequences of that are the endemic problems and social anomie that plague large parts of cities and towns.

What is also apparent is that more of the same welfarist life support devoid of any imaginative attempts to revive a sense of individual and community desire to develop individually and collectively will also fail.  It is unlikely that the proposed Living Wage will alter that unless it is accompanied by a more radical rethink of where Ireland is going.

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