Housing crisis drives Living Wage to €12.30 per hour

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The Living Wage for the Republic of Ireland has risen to €12.30 per hour. This represents an increase of 40c over the 2018 rate of €11.90 per hour. The increase is driven by changes in the cost of living and changes in the taxation system. As has been the case in previous years, the cost of accommodation continues to be the main driver of increases in the Living Wage.

The Living Wage establishes the average gross salary which will enable adults in full time employment (39hrs per week) and without dependents across Ireland to afford a socially acceptable standard of living. It provides for needs, not wants, and differs from the National Minimum Wage (NMW) in that the calculation is evidence-based and built on budget standards research, while the NMW is not (and never has been) based on the cost of living, or ever been linked to changes in the cost of living over time. The Living Wage reflects a belief across societies that individuals working full-time should be able to earn enough to enjoy a decent standard of living.

In principle, the Living Wage is an income floor; representing a figure which allows employees to afford the essentials of life. Earnings below the living wage suggest employees are forced to do without certain essentials so they can make ends meet.

The new Living Wage of €12.30 represents a 40c per hour increase over the 2018 figure. Modest changes in the cost of household goods (furnishings, kitchen utensils etc), food costs and the cost of communications (phone, internet etc) decreased the cost of the weekly minimum expenditure. A reduction in the Universal Social Charge (USC) paid by an employee on the Living Wage also impacted on the calculations as the amount of USC collected from these employees decreased.

However, the effects of these decreases in living costs and increases in post-tax income were outweighed by increases in some areas of expenditure. Most notable were increases in housing (rent) costs driven by the current housing crisis. For example, in Dublin, weekly housing costs for a living wage worker increased by €21.80 while they increased by an average of €9.27 per week across the rest of the country. There were also increases in the expenditure costs associated with energy (+€1.85 per week). However, for 2019 it is the large increase in housing costs that has dominated the calculation and driven the 40c increase.

It is interesting to note that were it not for persistent increases in accommodation costs in the last few years, the level of the Living Wage would actually have fallen in three of the last five years, and would have fallen overall for that period. There are several good reasons for Government to effectively address Ireland's accommodation crisis, and from an economic perspective this is certainly one of the best.

How is the Living Wage calculated?

The Living Wage is set by the Living Wage Technical Group, based on research identifying the Minimum Essential Standard of Living (MESL) in Ireland. This research establishes a consensus on what members of the public believe is a minimum standard that no individual or household should live below. Social Justice Ireland has been part of the Living Wage Technical Group since the group's foundation.

The calculation of the Republic of Ireland Living Wage is focused on a single-adult household. However, in recognition of the fact that households with children experience additional costs which are relevant to any consideration of such household’s standards of living, the group simultaneously publishes estimates of a Family Living Income each year. More information on this, and a more detailed account of the methodology used to set the Living Wage, has been published in an accompanying Technical Document and is available on the Living Wage website.

Implications for policymakers

Earlier in 2019, Social Justice Ireland made a submission to the the Low Pay Commission's consultation process on the level of the National Minimum Wage (NMW). In our submission to the Commission, we argued that the NMW should, over the next few years, be moved closer to the level of the Living Wage.

The confirmation in Budget 2019 of the previously announced increase of 25 cent per hour to the NMW was a welcome development. This increase ensures that a full-time worker on the minimum wage will receive an additional €507 per annum in gross pay in 2019. However, the hourly minimum wage rate of €9.80 was still approximately 18% below the contemporary Living Wage of €11.90 per hour and without a substanital increase in Budget 2020 will fall even further behind given the latest increase.

Addressing low pay remains a key challenge for Irish society. As Social Justice Ireland has continuously highlighted, annual poverty figures show that more than 100,000 people in employment are living in poverty (the working poor). Improvements in the low pay rates received by many employees offer an important method by which these levels of poverty and exclusion can be reduced. Social Justice Ireland believes that concepts such as the Living Wage have an important role to play in addressing the persistent income inequality and poverty levels outlined earlier in our submission. Improvements in the low pay rates received by many employees offer an important method by which levels of poverty and exclusion can be reduced. Paying low paid employees a Living Wage offers the prospect of significantly improving the living standards of these employees and we hope to see this new benchmark adopted across many sectors of society in the years to come.

Social Justice Ireland would like to see government commit to a timeframe over which the National Minimum Wage would move towards the rate of the Living Wage.

Cap on Annual Increase

The calculation methodology for the annual Living Wage includes a limit to the annual increase, in recognition of the fact that employers require some degree of certainty of the direction of labour costs when committing to paying their employees a living wage. The ceiling equals the percentage increase in private sector hourly earnings for the calendar year prior to each annual update.

Between the end of 2018 and 2019 private sector earnings grew 3.4%. This limits the 2019 increase in the Living Wage a maximum of €12.30 per hour. Without this cap the rate would rise to €12.40 per hour.

Family Living Incomes

While the calculation of the Living Wage is based on a single-adult household, the Living Wage Technical Group recognises that households with children experience additional costs which are relevant to any consideration of such household’s standards of living.

To put the Living Wage rate in context, and demonstrate the additional income and social support needs of households with children, a range of Family Living Income needs have also been calculated, following a complimentary method to that used for the Living Wage. Details of these Family Living Incomes are published each year to accompany the annual Living Wage update and are available on the Living Wage Technical Group website.