Minimum Wage Inequalities in Europe

Image

There is a large disparity between the rates of minimum incomes across the EU27 as show by new figures released by Eurostat, but that’s only part of the picture. 

Most countries across the EU 27 (21) have a set national minimum wage, while just 6 do not - Denmark, Sweden, Finland, Italy, Cyprus and Austria. The range across Europe is between €332 per month in Bulgaria to €2,202 per month in Luxembourg.  

As of January 2021, ten countries had rates under €700 per month:  Bulgaria (€332), Hungary (€442), Romania (€458), Latvia (€500), Croatia (€563), Czechia (€579), Estonia (€584), Poland (€614), Slovakia (€623) and Lithuania (€642). 

Five countries ranged between €700 and €1,100 per month: Greece (€758), Portugal (€776), Malta (€785), Slovenia (€1,024) and Spain (€1,108). 

And six provided minimum wages of a least €1,500 per month: France (€1,555), Germany (€1,614), Belgium (€1,626), the Netherlands (€1,685), Ireland (€1,724) and Luxembourg (€2,202) (Chart 1). For comparison purposes, Eurostat also provides the federal minimum wage in the United States, which was the equivalent of €1,024 per month in January 2021.  

Chart 1: Minimum wages across the EU27 and Federal USA 

Source: Eurostat - Disparities in minimum wages across the EU (2021) 

The gap between the highest and lowest minimum wage rates is considerable. In fact, minimum wage earners in Luxembourg earn 6.6 times that of their Bulgarian counterparts (Irish minimum wage earners make 5.2 times that of their Bulgarian counterparts). However, incomes alone only provide part of the picture. To understand the real value of incomes, we need to look at its purchasing power. When Eurostat removed the price differences the ratio fell from 6.6 to just 2.7.  

Ireland: How far will the minimum wage go? 

As can be seen in Chart 1, Ireland has the second highest minimum wage in the survey. However, the value of income is in its purchasing power. A minimum wage income should provide a sufficient floor to purchase necessities (such as food, heating, accommodation, clothes and so on). The purchasing power of a minimum wage income is also impacted by the level and cost of services provided by the State. To what extent does the State provide affordable access to housing, healthcare, education, childcare and transport?  

Affording a basic floor of services that everyone in the State should expect is a move towards what is termed “Universal Basic Services”, a concept developed by the Institute for Global Prosperity in 2017 and expanded on by Professor Ian Gough of the London School of Economics.(1) He writes that Universal Basic Services are those which are “collectively generated activities that serve the public interest”, that are basic and available to everyone who needs them – the NHS in the UK and the education system being two examples. It is important to note that Gough presents the concept of Universal Basic Services as an alternative to Universal Basic Income. Social Justice Ireland does not. We view them rather as complementary concepts based on the principles of social justice and equity. Universal Basic Services provide basic healthcare, education, childcare, transport and so on. The “universality” refers not only to the availability but to the need as the vast majority will require these services at some point, allowing for a common basket of services to be agreed on with some degree of consensus.  

Living Wage 

Over the past seven years, Social Justice Ireland and other organisations have come together to form a technical group which researched and developed a Living Wage for Ireland. The latest update was published in September 2020 . It put the figure for a Living Wage at €12.30 per hour – no change on the previous year. 

The increase of 10 cent per hour to the statutory National Minimum Wage (NMW) fell far below what is necessary to provide a decent wage. The new hourly minimum wage rate of €10.20 remains at approximately 83 per cent of the Living Wage of €12.30 per hour. 

Addressing low pay remains a key challenge for Irish society. As we have continuously highlighted, the 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.  

What is a Living Wage? 

In principle, a Living Wage is intended to establish an hourly wage rate that should provide employees with enough income to achieve an agreed acceptable minimum standard of living. In that sense it is an income floor, representing a figure which allows employees to afford the essentials of life.  

Paying low-paid employees a Living Wage offers the prospect of significantly improving the living standards of these employees. Social Justice Ireland has supported the emergence of this concept over the past few years and we hope to see this new benchmark adopted across many sectors of society in the years to come. 

The call for the introduction of a Living Wage for Ireland reflects a belief that individuals working full-time should be able to earn enough income to enjoy a decent standard of living. The Living Wage is a wage which makes possible a minimum acceptable standard of living. Its calculation is evidence-based and built on budget standards research which is grounded in social consensus. The new figure is:  

• based on the concept that work should provide an adequate income to enable individuals to afford a socially acceptable standard of living;  

• the average gross salary which will enable full time employed adults (without dependents) across Ireland to afford a socially acceptable standard of living;  

• a rate that provides for needs, not wants; 

• an evidence-based rate of pay which is grounded in social consensus and is derived from Consensual Budget Standards research which establishes the cost of a Minimum Essential Standard of Living in Ireland;  

• based on the cost of living, unlike the National Minimum Wage, which is not – and never has been – set or benchmarked relative to any measure of the cost of living.  

In principle, the Living Wage is intended to establish an hourly wage rate that should provide employees with enough income to achieve an agreed acceptable minimum standard of living. Earnings below the Living Wage suggest employees are forced to do without certain essentials so they can make ends meet. 

How is the Living Wage Calculated? 

The Living Wage for Ireland is calculated based on the Minimum Essential Standard of Living (MESL) research conducted by the Vincentian Partnership for Social Justice. This research establishes a consensus on what members of the public believe is a minimum standard that no individual or household should live below.  

Working with focus groups, the minimum goods and services that everyone needs for a MESL are identified. With a focus on needs, rather than wants, the concern is with more than survival as a MESL is a standard of living which meets physical, psychological and social needs, at a minimum but acceptable level. Where necessary the core MESL data has been complemented by other expenditure costs for housing, insurance and transport. 

The Living Wage Technical Group decided to focus the calculation of a Living Wage for the Republic of Ireland on a single-adult household. In its examination of the methodological options for calculating a robust annual measure, the group concluded that a focus on a single-adult household was the most practical approach. However, in recognition of the fact that households with children experience additional costs which are relevant to any consideration of such households’ standards of living, the group has also published estimates of a Family Living Income each year. 

The calculations established a Living Wage for the whole country, with cost examined in four regions: Dublin, other Cities, Towns with a population above 5,000, and the rest of Ireland.  

The expenditure required varied across these regions and reflecting this so too did the annual gross income required to meet this expenditure. To produce a single national rate, the results of the gross income calculation for the four regions were averaged; with each regional rate being weighted in proportion to the population in the labour force in that region. The weighted annual gross income is then divided by the number of weeks in the year (52.14) and the number of working hours in the week (39) to give an hourly wage. Where necessary, this figure is rounded up or down to the nearest five cents.  The number is updated on an annual basis. 

The Merits of a Living Wage 

Social Justice Ireland believes that concepts such as the Living Wage have an important role to play in addressing Ireland’s persistent income inequality and poverty levels. 

There are many adults living in poverty despite having a job – the ‘working poor’. 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. 

The Low Pay Commission

The Low Pay Commission consults annually on the National Minimum Wage. This year's consultation, in respect of the National Minimum Wage for 2022, is open until Sunday, 7th March 2021. In our submission, Social Justice Ireland calls for the elimination of precarious employment and a move towards the Living Wage. 

(1) https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-923X.12706