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Economy Watch: The view from Dublin

By Brendan Keenan

Published 26/05/2015

Minimum wage can differ from country to country
Minimum wage can differ from country to country

If I’d known the bus was coming, I’d have waited. Just a couple of weeks after trekking through the undergrowth of low wages and living wages, along comes a shiny new vehicle from the OECD with ‘Minimum Wages’ on its destination blind.

As it says, minimum wages — let’s call them MWs for short — are common, with 26 of the 34 members countries setting legal minima for pay, and the USA having one of the first.

That is just one of many surprises in the report. A bigger one is that the Nordic countries are among the eight without statutory minimum wages; and the most recent OECD country to impose one is Germany.

The reason for this apparent anomaly is that the elaborate system of sectoral wage bargaining in these countries — much of it underpinned by law — is seen as making legal MWs unnecessary. This is perhaps the central lesson of this report — that comparisons are tricky. Such arrangements can be viewed only in the wider context of the country to which they apply.

The report singles out the total cost of employing MW workers (which would vary widely between countries even if they had the same actual figure), take-home pay, and how MW schemes affect different groups.

It is not always the poor. Research in Ireland and elsewhere has found that large numbers of MW workers live in households with income above the poverty line. Sometimes well above it, as in the case of middle-class students doing part-time work. Each system produces different results, whether in poverty reduction, employment and the impacts on those of different skills, different ages, different household incomes and, as the OECD naturally points out, different genders; and the Irish system is quite different from most.

This is well worth remembering, as the new Low Pay Commission prepares to set about its work; the “living wage” enters the bargaining lexicon; and wages generally start to rise — led, despite all promises to the contrary, by public sector rather than private.

The Irish minimum wage system derived from just such political crudity. Both its levels and its interaction with the tax and welfare system owe little or nothing to rational analysis. Yet, according to the report, it seems to work rather well.

Belfast Telegraph

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