BUDGET PERSPECTIVES 2017, PAPER 3. Low Pay, Minimum Wages and Household Incomes: Evidence for Ireland. June 2016

This paper examines the relationship between low hourly wages and household incomes, and the potential impact of increases in the national minimum wage on household poverty. Results based on up-to-date Irish data confirm the proportion of employees falling below the commonest low pay threshold (two-thirds of median hourly earnings) has increased from approximately 20 per cent in 2005 to 23 per cent in 2013. Results confirm, however, that very few low paid individuals are found in households with incomes below the most commonly used poverty line income cut-off i.e., 60 per cent of median equivalised income. This is a feature which is now well established across countries and over time. A corollary, illustrated using SWITCH, the ESRI microsimulation model, is that increases in the minimum wage result in increases in disposable income which are mainly in the upper half of the household income distribution. Policy may, of course, be concerned with low individual incomes as well as with low household incomes; but it is important to be clear about what minimum wage policy can, and cannot, achieve. It is also important, as recent UK experience illustrates, that the design of tax and welfare policy changes should take such factors into account from the outset