SFA Submission on Low Pay to Joint Oireachtas Committee

Tuesday, 3 March 2015

SFA calls for 3-year freeze to National Minimum Wage (NMW) rate

Competitive labour market critical to small business growth and job creation

“Small businesses truly are the engines of our economic recovery. We have a vital role to play in terms of employment generation, especially in regional towns and villages and rural Ireland. Increasing business labour costs without productivity gains, will not only dampen this recovery, but will ultimately lead to both the prevention of job growth and to job losses across the sector.” Patricia Callan, Director, Small Firms Association.


The Small Firms Association (SFA) in its Presentation to the Joint Oireachtas Committee on Jobs, Enterprise & Innovation at 2.45pm in Leinster House today will make the case for the National Minimum Wage (NMW) rate to be frozen at its current rate for 3 years.

Patricia Callan, Director of the Small Firms Association said that “Small businesses truly are the engines of our economic recovery. We have a vital role to play in terms of employment generation, especially in regional towns and villages and rural Ireland. Increasing business labour costs without productivity gains, will not only dampen this recovery, but will ultimately lead to both the prevention of job growth and to job losses across the sector.”

Callan commented: “Under the National Minimum Wage Act, 2000, there is a clear review methodology set down, namely inflation; movement in the earnings of employees; level of unemployment and employment; national competitiveness and relevant exchange rate movements. On the basis of the assessment of all these factors, there is no rationale for increasing the NMW at present.”

“In addition to these considerations, we believe that at a very pragmatic level it is necessary to also examine the profitability of small businesses to see if they are capable of absorbing labour cost increases without productivity gain. From an examination of the 2012 average gross (pre-tax) profits in small businesses in the sectors with the majority of NMW workers, it is clear that they would not be able to offset NMW increases against profits, as in micro firms (1-10 employees) which are 84% of all businesses in Ireland, average pre-tax profits in Accommodation and Food Businesses were €14,549; in Retail were €21,470 and Other Services were €16,582. This means that they would have no choice but to offset NMW increases against reductions in hours or jobs, job growth or capital or skills investment”, argued Callan.

Furthermore, the SFA in its submission made the case for maintaining the NMW rate for a 3-year period “in order to give small businesses who are just starting on the recovery path, certainty over their labour costs, which is essential in particular to businesses operating in the sectors and regions most affected by the NMW. This would also insure that job creation efforts are realisable for the low-skilled workers and young people still on the live register who need an entry point into work and upskilling from where they can develop their skills and increase their wages relative to their productivity levels.”

Callan stated “It is the SFA’s firm conviction that it is imperative for the competitive position of Ireland that wage levels are decided in a competitive labour market and are not constrained by an artificial legal instrument such as the minimum wage. Indeed, in practice, if employees do not feel it is worth their while to go to work on the NMW, then they won’t and the labour market itself will move to a rate that is realistic for both employer and employee.

The SFA believes that the formula of allowing business to operate in a competitive environment, thereby increasing returns to the Exchequer, and consequently allowing the Government to adapt taxation and welfare systems to match perceived social needs, is to be recommended over simply increasing the cost of production, which has a negative economic impact. “It is not the job of business to redistribute wealth, but to create wealth, which can be redistributed by Government”, stated Callan.

Callan concluded: “An ill-considered review of the National Minimum Wage will cost jobs. Small businesses are taking tentative steps to recovery and in many cases growth. The job of Government is to make sure these steps can be taken with confidence and with the necessary supports in place.”

Ends.

For further information, please contact:
Patricia Callan, Director, Small Firms Association at Tel: 01 605 1602 or 087 6999 345 or e-mail: patricia.callan@sfa.ie or Tweet: @SFA_Irl

EDITOR’S NOTE:
Detailed economic analysis supporting our case for a NMW rate freeze for 3 years is contained in our submission to the JOC, which is attached for your information.
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