Ireland is certainly an expensive place to live. A Eurostat survey in 2020 found that it had the second highest prices for consumer goods and services in the entire European Union, behind Denmark.
And this summer, it’s a problem that’s likely to come to a head once again. Amid tales of €200-a-night B&Bs and “scam Ireland” at home, people flying to sunnier climes may wonder how life can be so much cheaper in the sun.
But while you marvel at your €12 plat du jour in France, or your €5 tapas in Spain, it’s worth bearing in mind that Ireland is a considerably higher cost economy than almost all those EU countries. .
And the Irish minimum wage is a good example of this. As political agreement is reached on new minimum wage rules across the EU, we look at it in an Irish context.
In fact, the minimum wage rate in Ireland is the second highest in the European Union, with the latest figures from Eurostat showing a figure of €1,744.50 per month (€10.50 per hour).
“The absolute monetary amount tells you that it is a minimum wage for an economy with high prices and relatively high profits,” says Austin Hughes, chief economist at KBC Bank Ireland, adding that a “minimum wage” is just that.
“It’s something that prevents people from falling dramatically into poverty, but it doesn’t provide a meaningful quality of life,” he says.
At that level, Ireland’s minimum wage is only behind Luxembourg (€2,256.95) but ahead of the Netherlands (€1,725.00), Belgium (€1,658.23), Germany (€1,621.00) and France (€1,603.12).
When it was introduced in 2000, Ireland’s minimum wage was €5.58 (£4.40), not one of the highest pay rates in Europe.
Traditionally, Ireland would have had a higher minimum wage rate than the UK. In the first half of 2020, for example, its minimum wage of €1,583.31 was about 7% lower than Ireland’s; However, as in Ireland, cost pressures mean that, depending on exchange rates, it is now higher than in Ireland, having just been increased to £9.50 per hour (around €11,000). 17), which puts it above Ireland’s €10.50 per hour. .
Contrast this with the experience in other parts of Europe, where most of the countries most popular with Irish tourists (apart from France, perhaps) are those with the lowest minimum wages.
Think of Spain (€1,125.83), where the rate is 35% less, or Portugal (€822.50), which is less than half the rate in Ireland; or Malta (€792.26); or Greece (€773.50), where the rate is 56% lower than that of Ireland.
Go further east, where prices plummet as does the minimum wage: in Poland, it stands at €654.79 a month, but drops to €332.34 in Bulgaria.
Minimum wage trajectory
But it hasn’t always been that way.
As any student in the 1980s who left Ireland for a factory in Germany will know, Ireland hasn’t always had one of the highest minimum wage rates in Europe.
When it was introduced in 2000, Ireland’s minimum wage was €5.58 (£4.40), not one of the highest pay rates in Europe, with the change coming later that decade.
In 2004, for example, Ireland had the fifth lowest minimum wage in Europe, €1,073.15 a month, or about €268 a week. This placed it behind Luxembourg, but also the Netherlands, France and Belgium. In 2007, rising tax collections due to the booming Celtic Tiger economy saw Ireland jump to second place, behind Luxembourg, with a minimum wage increase of 31 percent, or about €330, between 2004 and 2007 This compares with growth of just 3 percent. in France and the Netherlands and 6% in Belgium.
In 2008, the Irish minimum wage peaked at €1,461.85, but then came the financial crisis. However, despite this and the advent of austerity measures, the minimum wage was only briefly lowered in January 2011, from €1 an hour to €7.65, but was reinstated in July of that year.
This is in contrast to the UK, where the minimum wage rate fell dramatically during these years, by 32 per cent, from €1,314.97 in 2007 to just €995.28 in 2009.
Elsewhere, however, the minimum wage continued to grow, which meant that, at the time, the pay rate in Luxembourg (€1,992.96) was 36 per cent higher than in Ireland. So by 2015, Ireland had slipped back to fourth place in the table of the most generous minimum wage payers in the EU.
Since then, the rate has increased steadily thanks to the recommendations of the Low Pay Commission, from €9.80 in 2019 to €10.50 from January 1, 2022, to return it to the second position in the entire the European Union.
how much is it really worth
But just because it’s high doesn’t mean it’s enough to offset the high costs of the Irish economy.
EU figures show that while the salary in Ireland may be the second highest in Europe, our purchasing power is lower than in other countries.
The purchasing power of people earning the minimum wage in Ireland has dropped significantly in recent years.
So, on the one hand, a high minimum wage is contributing to higher costs in the economy; but on the other hand, it is also not high enough to offset the impact of these costs.
When expressed in purchasing power standards (PPP), which takes into account differences in the costs of goods and services between countries, Ireland ranks sixth, behind Luxembourg (€1,707 PPP), Germany, the Netherlands, Belgium and France.
This then means that the €1,775 a month in Ireland is worth less, in real terms, than the €1,603 paid in France each month or the €1,621 in Germany.
Not only that, but the purchasing power of people earning the minimum wage in Ireland has dropped significantly in recent years.
Consider the PPS-adjusted figure of €1,215.92/month in 2010. This was 17 percent less than the minimum wage at the time; since then, however, the gap between what people are paid and what it is worth on a real basis in that economy has widened significantly.
In fact, the latest figures show that Ireland’s PPS-adjusted minimum wage of €1,267.88 is almost 30 per cent lower than the monetary figure of €1,774.50.
Contrast this with Spain, where the PPS-adjusted figure of €1,154.51 is actually higher than the minimum wage of €1,125.83.
So, in the face of such a challenge, the future direction of the minimum wage in Ireland seems to be in only one direction: up. At the end of this month, the Cabinet is expected to hear proposals from Tánaiste Leo Varadkar on the introduction of a living wage, instead of the minimum wage. A living wage seeks to offer people a fixed standard of living, rather than a guaranteed minimum income.
This move towards a living wage is already evident in the data; in 2016, for example, CSO figures show that some 161,000 people received the minimum wage. By the fourth quarter of 2018, this had dropped by 30 percent to 112,700. While it has since increased again, back to 126,800, as of the third quarter of 2020 (most recent figures available), it is still 27 percent below 2016.
Change is also underway at the EU level. Earlier this month, a political agreement was reached on a new framework to establish the adequacy of legal minimum wages to “guarantee a decent standard of living for workers.”
Currently, of the 27 EU member states, 21 have a minimum wage: Denmark, Italy, Cyprus, Austria, Finland and Sweden are the countries that do not. The new rules will apply in those countries that have a minimum wage, including Ireland, and will impose clear criteria for setting the minimum wage, including taking into account the cost of living and regular and timely updates of minimum wages.