Falling prices do not justify a lower minimum wage

Figures published today showing a decrease in the cost of living have prompted employer groups to renew calls for a decrease in the minimum wage. However, on closer examination, the CPI reveals several increased costs which, combined with welfare cuts, push many people further into poverty. By Eoin Ó Broin.

The cost of living has decreased by 3.9% from January 2009 according to the latest Consumer Price Index (CPI) figures released today by the Central Statistics Office.

When mortgage interest rates are excluded the CPI fell by 2.2% on January 2009.

The most notable decreases were in Housing, Water, Electricity, Gas and Other Fuels (-15.2%), Clothing and Footwear (- 10%), Food and Non-Alcoholic Beverages (- 8.2%) and Furnishings, Household Equipment and Routine Household Maintenance (-4.6%).

However there were significant increases in Education (+11.3%), Energy (+8.8%), Transport (+3.5%), Health (+1.9%).

In response to the latest figures the Irish Small and Medium Enterprises Association (ISME) called on the Government to do more to reduce ‘state influenced costs’ including commercial rates, water, waste charges, energy costs and wages.

Since the start of 2010 ISME and the Irish Business and Employers Confederation (IBEC) have been calling to Government to assist in lowering private sector wage costs by reducing the Minimum Wage and pay rates agreed through Registered Employment Agreements in sectors such as hospitality, retail and other services to be lowered or abandoned outright.

Any such moves would effect up to 600,000 workers, many of whom live below, on or close to the Government's own definition of income poverty. 

Figures recently published by the Central Statistics Office show that of the 615,000 people living in income poverty, 116,000 were in employment. These are predominantly women working in low paid, casualised service sector employment.

According to the CSO households experiencing income poverty would have an annual income of €11,719 for a single person, €15,585 for a lone parent with one child, and €23,321 for a two parent family with two children.

This would amount to a weekly income of €224 for the single person; €298 for the lone parent with one child; and €521 for two parents with two children

The numbers of people at risk of falling below the income poverty line is even greater. One quarter of households in the state live on an income of €20,000 or less a year while half of all households live on an income of €40,000 or less a year, according to a 2009 report by the social policy think-tank, TASC. 

Last December Anti-poverty campaign group The Poor Can’t Pay produced a detailed analysis of the impact of the Budget 2010. Their report shows that as a consequence of changes to social welfare and taxation many low income households will experience significant reductions in the income this year, irrespective of whether their income source is social welfare, low paid work or a combination of both.

According to the report:

  • The household income of an unemployed couple with two children will drop by 13.6% from its 2009 level, giving them a weekly income of €477 per week. This is €44 per week or 8% below the poverty line.
  • The household income of working lone parent with one child will drop by 17.7% from its 2009 level, giving them a weekly income of €441 before childcare costs are taken into account and €291 after childcare. This is €7 per week or 2% below the poverty line.
  • The household income of a two parent family with two children managing on unemployment and part-time work will drop by 13.6% from its 2009 levels, giving them a weekly income of €597, just €75 over the poverty line.
  • The weekly income of a newly unemployed single person will be €150 per week which is €75 or 33% below the poverty line. While this would increase to €196 is she or he participates in an approved training programme, assuming the training is appropriate and available, it would still be €28 or 12.5% below the poverty line.

Price deflation for low income families will be experienced at the lower rate of 2.2% and will do little to compensate for the real drop in incomes produced by Budget 2010. Indeed for many families household income will reduce further as a consequence of the increased costs of education, energy, health and transport.

In this context any change to either the Minimum Wage or pay rates agreed through Registered Employment Agreements will have the effect increasing hardship for those individuals and families currently living on or below the Governments income poverty line.