"Rip off Ireland" and the minimum wage

“Rip off Ireland” and the minimum wage

Ireland is without a doubt an expensive place to stay. A survey by Eurostat as early as 2020 showed that it had the second highest prices for consumer goods and services in the entire European Union, after Denmark.

And this summer, it’s an issue that is likely to come to the fore again. Amidst stories of € 200 per night B&B and “rip-off Ireland” at home, people flying to sunnier skies will wonder how life can be so much cheaper in the sun.

But when you marvel at your € 12 “plat du jour” in France, or your € 5 tapas in Spain, it is worth bearing in mind that Ireland is a much more expensive economy than almost all of these EU countries.

And Ireland’s minimum wage is a good illustration of this. When a political agreement is reached on new minimum wage rules throughout the EU, we look at it in an Irish context.

Summer holidays

In fact, Ireland’s minimum wage is the second highest in the EU as a whole, with the latest figures from Eurostat showing a figure of € 1,744.50 per month (€ 10.50 per hour).

“The absolute monetary amount tells you that it is a minimum wage for an economy with high prices and relatively high incomes,” says Austin Hughes, chief economist at KBC Bank Ireland, adding that a “minimum wage” is just that.

“It’s something that prevents people from dramatically falling into poverty, but it does not provide a significant quality of lifestyle,” he says.

At such a level, Ireland’s minimum wage is only behind Luxembourg (EUR 2 256.95) but ahead of the Netherlands (EUR 1 725.00), Belgium (EUR 1 658.23), Germany (EUR 1 621.00) and France (1 603 , 12 euros).

When Ireland’s minimum wage was introduced in 2000, it was 5.58 euros (4.40 pounds), not one of Europe’s highest wages.

Traditionally, Ireland would have had a higher minimum wage than the United Kingdom. For example, in the first half of 2020, its minimum wage of € 1,583.31 was about 7 percent lower than Ireland; As in Ireland, however, the cost pressure means that, depending on exchange rates, it is now higher than in Ireland, as it has just been raised to £ 9.50 per hour (around € 11.17), which means that it exceeds Ireland’s € 10.50 per hour. .

Compare this with the experience elsewhere in Europe, where most of the countries that are most popular with Irish tourists (except France perhaps) are those with lower minimum wages.

Think of Spain (€ 1,125.83), where the price is 35 percent lower, or Portugal (€ 822.50), which is less than half the price in Ireland; or Malta (€ 792.26); or Greece (€ 773.50), where the exchange rate is 56 percent lower than Ireland.

Go further east, where prices fall as well as the minimum wage: in Poland it is 654.79 euros a month, but falls to as low as 332.34 euros in Bulgaria.

The path to the minimum wage

But it has not always been like this.

As every student in the 1980s who left Ireland for a factory in Germany will be aware, Ireland has not always had one of the highest minimum wages in Europe.

When Ireland’s minimum wage was introduced in 2000, it was 5.58 euros (4.40 pounds), not one of Europe’s highest wage levels, with the change taking place later that decade.

In 2004, for example, Ireland had the fifth lowest minimum wage in Europe, at € 1,073.15 a month, or around € 268 a week. This placed it behind Luxembourg, but also the Netherlands, France and Belgium. In 2007, the tax burden increased due to a thriving Celtic Tiger economy. Ireland jumped into second place, after Luxembourg, with the minimum wage increasing by 31%, or around 330 euros, between 2004 and 2007. This can be compared with a growth of only 3%. percent in France and the Netherlands and 6 percent in Belgium.

In 2008, the Irish minimum wage peaked at € 1,461.85, but then the financial crisis hit. Despite this, and the advent of austerity measures, the minimum wage was reduced only briefly in January 2011, down by EUR 1 per hour to EUR 7.65, but was restored in July of that year.

This is in contrast to the United Kingdom, where the minimum wage was reduced during these years, down by 32% from € 1,314.97 in 2007 to just € 995.28 in 2009.

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Elsewhere, however, the minimum wage continued to grow, which meant that at that time the wage level in Luxembourg (€ 1,992.96) was 36% higher than in Ireland. By 2015, Ireland had fallen back to fourth place in the table of the most generous minimum wage earners in the EU.

Since then, the exchange rate has steadily increased due to recommendations from the Low Wages Commission, up from € 9.80 in 2019 to € 10.50 since 1 January 2022, to once again place it in second place in the EU

How much it’s really worth

But just because it is high does not mean that it is even enough to compensate for the high Irish economy.

Figures from the EU show that while wages in Ireland may be the second highest in Europe, our purchasing power is lower than in other countries.

The purchasing power of people earning the minimum wage in Ireland has fallen sharply in recent years

So on the one hand, a high minimum wage contributes to higher costs in the economy; but on the other hand, it is not high enough to offset the effects of these costs either.

Expressed in Purchasing Power Standard (PPP), which takes into account the differences in the costs of goods and services between countries, Ireland ranks sixth, after Luxembourg (€ 1,707 PPP), Germany, the Netherlands, Belgium and France.

This means that Ireland’s € 1,775 a month is actually worth less – on a real basis – than the € 1,603 paid in France each month, or € 1,621 in Germany.

Not only that, but the purchasing power of people earning the minimum wage in Ireland has declined significantly in recent years.

Think of the PPS-adjusted figure of € 1,215.92 / month back in 2010. This was 17 percent lower than the minimum wage at the time; Since then, however, the difference between what people get paid and what it’s worth on a real basis in that economy has increased significantly.

In fact, the latest figures show that the PPS-adjusted minimum wage for Ireland of € 1,267.88 is almost 30% lower than the monetary figure of € 1,774.50.

Compare this with Spain, where the PPS-adjusted figure of € 1,154.51 is actually higher than the minimum wage of € 1,125.83.

Sight

Given such a challenge, the future direction of the minimum wage in Ireland probably looks only in one direction – upwards. Later this month, the government is expected to hear proposals from Tánaiste Leo Varadkar to introduce a living wage – rather than a minimum wage. A living wage seems to offer people a certain standard of living, as opposed to a guaranteed minimum income.

This transition to a living wage is already proven in the data; For example, in 2016, CSO figures show that approximately 161,000 people received the minimum wage. By the fourth quarter of 2018, this had decreased by 30 percent to 112,700. Although it has since increased again, back to 126,800, from the third quarter of 2020 (latest available figures), it is still down by 27 percent compared to 2016 .

Changes are also underway at EU level. Earlier this month, a political agreement was reached on a new framework to establish the appropriateness of statutory minimum wages to “guarantee decent living standards for workers”.

At present, 21 of the EU’s 27 member states have a minimum wage: Denmark, Italy, Cyprus, Austria, Finland and Sweden are the countries without one. The new rules will apply in the countries with a minimum wage – including Ireland – and will introduce clear criteria for setting minimum wages, including taking into account the cost of living and regular and rapid updates of minimum wages.

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