Killeen highlights ‘disincentive’ to work

THE Minister for Finance recently announced a decrease in the National Minimum Wage and Minister for Defence and Clare TD Tony Killeen acknowledged that in some cases, this will lead to “disincentive” to work.
The new National Minimum Wage of €7.65 is set to be introduced in the next year. This represents a drop of €40 per week or 11.5% in the minimum wage, something that many believe will be passed on to employees on the existing minimum wage. Jobseekers’ Allowance is going down by €8 per week or 4% and for some on the social welfare payments, it is accompanied by a range of other benefits including Rent Supplement and the Medical Card.
So why would a person with children go from a situation where they receive Jobseekers’ Allowance, have a Medical Card and receive Rent Supplement to a situation where they would work 40 hours per week, potentially lose their additional benefits and have to get childcare, in return for just over €100 extra per week?
“There is a genuine problem in relation to the disincentive to work because of what are considered by every external commentator to be extremely high levels of social welfare payment,” the minister responded.
“They are very high relative to the UK, very high relative to most of the EU, very high. Not withstanding that, there is a huge outcry in relation to a 4% cut in the working-age payments. You have that outcry. You have to try to balance that against the minimum wage.
“Only 3% of the workforce are on the minimum wage and quite a large proportion of them are working in part-time employment and if they are women, which some of them are, they are frequently the second income, working at hours when childcare issues don’t arise. Some of them have childcare issues but the reality is that the minimum wage of itself is largely a problem in the context of its connection to other rates.
“The evidence suggests really strongly that the reduction in the minimum wage will facilitate the employment of a lot of people, perhaps not the people in the category that you mention but in a lot of other categories, for whom employment prospects are diminished by the minimum wage and it would be grossly irresponsible of a Government not to address that,” he added.
For those entering the workforce at the minimum wage, Minister Killeen insists “They wouldn’t necessarily lose the medical card, a lot of them would retain it.” He adds that the minimum wage had to come down.
“I raised the minimum wage the last few times, in 2005 and 2006 when I was Minister for Labour Affairs and on the occasion of the last raising, there were a lot of concerns expressed even in the strong economy of that time. So I got the Economic and Social Research Institute to examine it and the report okayed it but just about.
“We have moved to a situation now where one of the difficulties in the economy is that employment or pay rates are very uncompetitive so over the last two years, we have seen fairly substantial drops [in pay rates overall]. In fact, Ireland is the most improved OECD country in terms of competitiveness but employers and employer groups were pointing to the minimum wage as a major disincentive to creating jobs. Partly in itself and partly as a result of its impact on a whole range of other rates connected to it.
“It is not a budgetary measure because it doesn’t have any impact on the State per se but it is a big part of the national recovery plan, which is predicated on growth and a big part of that is predicated on jobs,” he explained.
With more than 10,000 people on the Live Register in Clare last month, the cuts in social welfare payments will hit many homes. However, the minister claims it had to be done.
“There is a very clear choice for the country. It is not a choice between €3 billion and €6bn, it is a choice between €6bn and €18bn. We have this huge gap between our income and our expenditure. We have a choice of going this route and gradually addressing it or taking no measures and being forced to take the full €18bn cut but we couldn’t postpone that longer than mid-summer 2011 and at that point, the stack of money would run out and every payment of every kind would be halved,” he outlined, adding that finding the cuts has been a difficult process.
“There isn’t an easy way to do this. It has to impact on people. Everyone has got used to having the level of disposable income that they have and the capacity of the State to earn it isn’t there,” he concluded.