According to the latest research from the Economic and Social Research Institute, increases in the minimum wage have a very limited effect on household income.

The purpose of the statutory minimum wage, since the establishment of the Low Pay Commission in 2015, has been to narrow the gap — by increasing the hourly wage of the lowest paid workers, a minimum wage increase would the gap between the lowest paid and highest paid workers, thereby reducing wage inequality.

Good in theory, but not so much in practice, it turns out. The ESRI research covers specifically the increase in the minimum wage from €8.65 per hour in January 2016 to €9.15 per hour, and finds its equality effect to be marginal at best.

“This is because minimum wage workers are often not in a low income household. They are also typically not the main earner in the household and tend to be a part-time worker,” says the ESRI.

It goes on: “Following that minimum wage increase, the wages of high earners were 3.7 times higher than the wages of low earners. However, our analysis shows that if the minimum wage had not increased, they would have been four times higher. Therefore, the 2016 minimum wage increase led to an 8% reduction in the hourly wage gap between high and low earners.

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“This indicates that the minimum wage increase was effective at reducing wage inequality in Ireland. The effect was stronger for young workers — the hourly wage gap between young high and low earners decreased by 24% after the minimum wage increase. 

“In addition to minimum wage employees, we find that workers earning slightly above the minimum wage also experienced a wage rise. Potential reasons for this include the need for employers to maintain a wage gap between minimum wage workers and others.

“However, while there is some evidence of a slight increase in household income among low income households following the minimum wage rise, our analysis indicates that overall the impact on household income was quite limited.

“This is because minimum wage workers are often not in low-income households. Instead, they are spread across households of all income levels, including high-income households. Moreover, they typically work fewer hours than higher paid employees. 

“An example would be a student working part-time and living with parents who have well-paid jobs. A minimum wage increase would lead to a significant increase to the part-time worker’s hourly wage, but the contribution to overall household income would be negligible.”

Ireland has one of the highest national minimum wage levels in Europe. According to Eurfound, monthly statutory minimum wages converted to 12 monthly payments are as follows:

1.Luxembourg: €2,202
2.UK: €1,765
3.Ireland: €1,724
4.Netherlands: €1,685
5.Belgium: €1,626
6.Germany: €1,610
7.France: €1,555
8.Slovenia: €1,110
9.Spain: €1,108
10.Malta: €785

The full ESRI report is available here, with just a summary on the ESRI’s own website here.

Anyone who wishes to read the research paper must either have a subscription to Oxford Academic Papers or pay €27 to buy access  — for 24 hours only — which seems a bit strange given that the ESRI is 25% funded by grants from taxpayers.