Oireachtas Joint and Select Committees
Wednesday, 18 September 2024
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Sub-Minimum Rates of the National Minimum Wage: Discussion (Resumed)
9:30 am
Maurice Quinlivan (Limerick City, Sinn Fein)
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I remind people attending remotely that they must do so from within the Leinster House complex. Apologies have been received from Deputy Shanahan and Senators Gavan and Sherlock. Today we will look at detailed scrutiny of the National Minimum Wage (Equal Pay for Young Workers) Bill 2022.
On 17 June 2024 the Joint Committee on Enterprise, Trade and Employment received notification that the National Minimum Wage (Equal Pay for Young Workers) Bill 2022 had been read a Second Time. On 19 June 2024 the committee agreed to commence detailed scrutiny of the Bill. On 10 July the committee heard from representatives from the Mandate trade union, the Irish Small and Medium Enterprise Association, ISME, and the Economic and Social Research Institute, ESRI. The Bill provides for the amendment of the National Minimum Wage Act 2000 to remove the lower minimum wage rates imposed on those employed between the ages of 16 and 20. The committee is pleased to have the opportunity to consider these matters further with the following representatives from the Department of Enterprise, Trade and Employment: Mr. Diarmaid Smyth, principal officer, labour market and skills unit; Dr. Dermot Coates, principal officer, economic and tax policy unit; Ms Claire Pyke, assistant principal officer, labour market and skills unit; Ms Karen Hogan, administrative officer, labour market and skills unit; and Mr. Hugh Creaton, administrative officer, labour market and skills unit.
Before we start, I wish to explain some limitations to parliamentary privilege and the practices of the Houses as regards references witnesses may make to persons in their evidence. The evidence of witnesses who are physically present or who give evidence from within the parliamentary precincts is protected under the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of that person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed by me to discontinue their remarks and it is important that they comply with any such direction.
The opening statements have been circulated to members. I now invite Mr. Smyth to make his opening remarks on behalf of the Department.
Mr. Diarmaid Smyth:
Good morning Chairman and members of the committee. I will begin by introducing myself and my colleagues. My name is Diarmaid Smyth and I am a principal officer in the labour market and skills unit in the Department of Enterprise, Trade and Employment. I am joined by my colleagues Dr. Dermot Coates, the Department’s chief economist and head of its economic and tax policy unit and by Ms Claire Pyke, assistant principal officer in the labour market and skills unit as well as by Ms Karen Hogan and Mr. Hugh Creaton who are also from the labour market and skills unit. We are very pleased to be here this morning to discuss the Private Members' Bill, the National Minimum Wage (Equal Pay for Young Workers) Bill 2022.
As members are aware, this Bill seeks to abolish the age based sub-minimum rates currently provided for in sections 14 and 15 of the National Minimum Wage Act 2000. The Department of Enterprise, Trade and Employment has responsibility for minimum wage policy and for the operation of the National Minimum Wage Act. Currently, the legislation allows for workers aged 19 and below to be paid a rate which is lower than the national minimum wage. Those aged 19 years can be paid 90% of the prevailing national minimum wage. Those aged 18 can be paid 80% of the national minimum wage, while those aged 17 and below can be paid 70% of the national minimum wage. As things stand, the minimum wage is €12.70 per hour which means that the current sub-minimum wage rate for workers aged 19 is €11.43, for workers aged 18 is €10.16 and for those aged under 18 is €8.89.
It would be useful here to set out how the current regime of sub-minimum youth rates came about. The 70% rate for those aged under 18 has been in place since the introduction of the National Minimum Wage Act 2000. The current rates for those aged 18 and 19 came into effect on 4 March 2019, via the Employment (Miscellaneous Provisions) Act 2018. Prior to the current regime, alongside this 70% rate for those aged under 18, sub-minimum rates on a sliding scale were applicable to both those entering employment for the first time and employees undergoing a prescribed course of study or training authorised by an employer.
In 2017, following a request from the Minister for Enterprise, Trade and Employment, the Low Pay Commission undertook a review of the prevailing sub-minimum rates. The commission reported concerns that, due to a lack of clear guidelines and definitions, the trainee rates were open to potential unfair use by employers. Furthermore, the rules relating to new entrants to the labour market were seen as being complicated, as they required employers to monitor the labour market history of employees. In light of these concerns and in the interest of simplifying the rules, the Low Pay Commission recommended abolishing the training rates and simplifying the other sub-minimum rates by moving to an exclusively age-related system as opposed to an experience and training-based system.
Following Government consideration of the Low Pay Commission’s report and recommendations, trainee rates and new entrant rates were abolished and the current age-based regime came into effect in 2019.
Under these new age-based rates, the 70% rate for those under 18 was kept in place, with an 80% rate and a 90% rate for those aged 18 and 19, respectively. These sub-minimum rates were introduced via Part 5 of the Employment (Miscellaneous Provisions) Act 2018.
In 2022, following increased debate on the issue of sub-minimum rates, and following the publication of Deputy Paul Murphy’s Private Members’ Bill, the then Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Varadkar, asked the Low Pay Commission to again examine the issue of sub-minimum pay and to make recommendations to him on whether these rates should be abolished, amended or retained. The Low Pay Commission strives at all times to make evidence-based recommendations, and it asked the Economic and Social Research Institute, ESRI, to produce a background research report on sub-minimum rates of the national minimum wage to inform it in its deliberations. The report was commissioned under the terms of the commission’s research partnership agreement with the ESRI. The ESRI research report was published in November 2023. The main findings in the report include that the incidence of youth rates in Ireland is quite low, with an estimated 15,000 individuals in receipt of sub-minimum pay, corresponding to 0.7%, or 1 in 140, of total employees, and of those aged 15 to 19 who could be paid sub-minimum rates, less than one quarter of these employees were in receipt of sub-minimum rates, with the remainder earning the national minimum wage or above.
While these headline figures suggest a low use of sub-minimum rates, the report shows that the position is more nuanced, as the likelihood of a youth worker being paid a sub-minimum rate decreases the closer the individual is to the age of 19. The study found that 45% of those aged 15 to 16 are paid sub-minimum youth rates compared with just 4% of those aged 19. The ESRI report also found that 80% of employees in receipt of sub-minimum youth rates were students, just over half were women and almost 80% worked in either the accommodation and food or retail sectors.
We know that these sectors, which employ a larger proportion of minimum-wage workers, have recently been found to be particularly impacted by the increased costs of doing business. As part of its consideration of this issue, the Low Pay Commission also invited stakeholders, including representatives of employees, employers and young people, to make submissions on this issue. The Low Pay Commission’s report on sub-minimum youth rates was published in March of this year. In the report, the commission recommended the abolition of youth rates in Ireland for those aged 18 and 19 and for those aged below 18. The report also made two other recommendations, including that if youth rates were abolished, studies should be conducted after two years and four years post-abolition to determine whether adverse consequences occur as a result of the removal of sub-minimum youth rates. The report also recommended that consideration be given to how employers with a high portion of sub-minimum wage youth workers can be supported if sub-minimum youth rates are abolished.
The Low Pay Commission highlighted the complexity of this issue and recognised that further analysis and legal advice may be required. The commission laid out in detail the range of relevant considerations and the possible unintended consequences that might follow the abolition of the sub-minimum youth rates. There are clear arguments in favour and against the abolition of sub-minimum youth rates in Ireland. These arguments have been set out in submissions to the Low Pay Commission, in public discourse on the issue and at a previous meeting of this committee, at which sub-minimum rates and the Private Members’ Bill were discussed. Those who advocate for the retention of youth rates do so because they believe these rates are necessary to reflect different levels of work performance and experience, to avoid increasing youth unemployment where employers may choose to employ those with more experience if paying the same wage, to avoid incentivising early school leaving and to avoid increasing business costs. They also point to the use of sub-minimum youth rates in other EU and OECD countries and note that, for example, the Netherlands and the UK have similar sub-minimum youth rate regimes to that which is currently in operation in Ireland.
The Low Pay Commission’s remark that the incidence of sub-minimum youth rates may increase during recessionary periods, or if we see significant increases in the national minimum wage as we progress to a living wage, is often referenced by those who support the retention of sub-minimum youth rates. On the other hand, the argument put forward for removing sub-minimum youth rates is that they are discriminatory on the basis of age and do not treat all workers equally and that all workers should receive equal pay for equal work. It is the job of the Department of Enterprise, Trade and Employment to consider these arguments while recognising the Low Pay Commission’s comments that this is a complex issue that will require the full deliberation and consideration of the Government.
The Minister for Enterprise, Trade and Employment has acknowledged and thanked the Low Pay Commission for its report on sub-minimum youth rates in Ireland. The Minster has requested that an economic impact assessment be undertaken on the commission’s recommendations to abolish sub-minimum youth rates. The purpose of the economic impact assessment is to evaluate the economic impact of potential changes to the sub-minimum youth rates in Ireland. Specifically, this assessment will focus on potential consequences for firms of different sizes and in various sectors. Additionally, it will aim to examine the potential consequences for those who are affected by these wage rates, such as the increased unemployment of younger workers, the potential impact on young people choosing to exit formal education in favour of entering the workforce and, of course, changes to working hours.
In addition to this economic impact assessment, the Department is also considering the requirements of the EU directive on adequate minimum wages, which is due to be transposed into Irish legislation before the end of the year. The directive aims to ensure that workers across the EU are protected by adequate minimum wages. The directive does not prohibit the use of sub-minimum rates but requires member states to ensure the objective justification of these rates.
I ask the committee to allow the Department to conclude these reviews before any recommendations are made on the progression of the Private Members’ Bill. I thank the committee for taking the time to listen to these opening remarks and I look forward to addressing any questions members may have.
Maurice Quinlivan (Limerick City, Sinn Fein)
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I thank Mr. Smyth. I now invite members to discuss the issue with the representatives here. We have a rota in place, as members know. We will go by that, and the first person who has indicated is Deputy O'Reilly, who has 14 minutes.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I thank the witnesses for the information they have brought with them. In the final paragraph of his written submission, Mr. Smyth asked for time to conduct the review. What kind of time is he looking at?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Is that work under way at the moment?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Okay, that is interesting. Let us imagine that tomorrow morning the Minister picks up the phone and says he is minded to abolish sub-minimum rates of pay, that all of them should be gone and he wants to do it. Would the Department do that via this legislation or would Mr. Smyth feel it necessary to draft the Department's own legislation? If there is a difference, the witnesses might elaborate on why that is the case.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I appreciate that but sometimes we discuss legislation here and we are mindful of potential knock-on consequences. Are there no stumbling blocks other than it being subject to legal advice? I am not asking for a specific legal opinion. Ms Pyke's instinct is that it would be-----
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Exactly, and that is my view as well. I sometimes think that, with legislation, less is very often more. The more you put in, the more likely it is you could be tripped up.
The opening statement states, "the incidence of sub-minimum youth rates may increase during recessionary periods". That happens because things are tight during recessionary periods and employers will, by necessity some might say, retreat to the cheapest form of labour. Is that not an argument in favour of abolishing the sub-minimum rate, since it exists and the witnesses have acknowledged that its incidence may increase? I would say its incidence is likely to increase. That is in the Department's submission. Do the witnesses have evidence to back that up other than what we know ourselves? When times are tight and costs are cut, labour costs are generally the first thing employers of workers on low pay in particular will look to.
Mr. Diarmaid Smyth:
That is a very good question. It is something the Low Pay Commission has looked at in detail. I am conscious of where we are at the moment with the Irish economy. Employment has never been higher. We have had a really successful time in the past five years in adding jobs at multiple times the rates of other European countries. Inevitably, there will have to be some kind of slowdown in employment growth and the labour market. The concern is those with least experience or lower skills may be the first to be let go. I am speculating, but if an employer has an option between a 22-year-old person with three or four years' experience versus someone who is 16 or 17 with less experience, the youth rates, if they are still in existence, may create a better chance for some of the younger people to be kept in employment. If they are all paid the same wage rates but their experience levels differ, younger people may be the first to be let go. That is one of the arguments.
In fairness, the work that is being done on this in academic research has found that some of the employment arguments are a little weak. They are not particularly strong. To agree with one of the Deputy's points, the employment effects do not look huge at the moment but I am conscious of where we are in the cycle and where employment is. That may change in a downturn.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I understand that. I do not want to put words in the mouths of the sponsors of the Bill but I think what they want to do is take away from an employer the option of having the facility there to access cheaper and cheaper labour.
The Department's submission refers to those who advocate for the retention of these rates doing so because they believe they are necessary to reflect different levels of work, performance and experience. Has anyone advanced anything on this? I have spoken to employers about this and they will tell me this but that it is instinct and something they feel might be happening at the level of their workplace. I have not seen any evidence to support the claim that somebody who is 17 years and 360 days old is doing a job that is substantially different from that of a person who is 18 years and one day old. I am using extreme examples. Experience is important but somebody could be out of the workforce for ten or 20 years for a range of reasons and have no experience but a 16-year-old or an 18-year-old with a year's experience under their belt is on a lower rate than a person coming back after 20 years with no experience in the role. If there is any evidence - having spoken to employers, I can tell the Department that they have not advanced any evidence but have told me what they think - has the Department considered it? Is it undertaking its own research in this regard?
Ms Claire Pyke:
Deputy O'Reilly has made some very good points. To go back to the regime before this, because these rates are relatively new, it sought to recognise experience rather than age. It was not found to be workable for employers or employees. We can say these ages are arbitrary. I know Deputy O'Reilly gave extreme examples but we have to have an arbitrary age. The previous experience-based system was not seen as workable, which is why we brought in these age-based rates.
We speak to employers and the evidence is anecdotal. I am not aware of academic evidence but there is anecdotal evidence of experience in the first job. It is a valid point. We have heard from employers about the value of people coming with skills in customer relations and other areas. I agree with Deputy O'Reilly that it is arbitrary to go between age and experience but this is what was seen to be workable here.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Ms Pyke is making my point for me. There is no academic evidence; there is only a feeling. If we speak to someone working on a shop floor they will often say that what a person might lack in experience they will make up for in other ways and it will even out. That there are training rates, and that making a link to experience could not be done, points to the fact that experience is not really necessarily a determinant. In the case of people who are aged 16 and 17, there are clear restrictions on the work they can do in terms of hours worked and serving alcohol. They are a separate group. I am speaking about people who are aged 18 and 19. No employer has ever told me they pay them the lower rate but they do not expect the same level of work from them. It is very much that they are paid the lower rate, they sign the same contract, they turn up at the same time and they are expected to do the same work.
Ms Claire Pyke:
It is interesting that Deputy O'Reilly is making the distinction between those aged under 18 and over 18. The Low Pay Commission also did this and considered them as separate groups in the report because of the statutory restrictions on their jobs. We are largely speaking about people in retail so these restrictions are incredibly relevant. It considered them a separate group for this reason. There was also an emerging consensus among stakeholders that these groups should be treated differently. I accept Deputy O'Reilly's points on treating them differently.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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There is no evidence to support not eliminating this. When I look around for evidence, employers cannot provide it but they say they feel it. It is little bit like when the minimum wage was introduced and we heard terrible tales of woe about all of the businesses that were going to close but it did not happen. Perhaps there is a little bit of that with the people who are arguing against this.
The submission referred to the potential need for supports for employers who are heavily reliant on workers in this category or who have a higher incidence of workers in this category. The work on the review started in the last few days, which is fair enough, and the Department expects it to take six to nine months. Has any work been done on what kinds of supports employers might be looking for or what they feel is necessary? Is there any dialogue or work under way in that space?
Dr. Dermot Coates:
Quite a lot of work has been done in the past six months on support packages for firms, especially in retail and hospitality, but not specifically on the 15,000 people on the sub-minimum rates. The Deputy will be aware from previous meetings that the SME support package came on-stream in May. The key takeaway from that was to look again at the link between the higher threshold for employer PRSI and how that links to the transition to the living wage. Commitments have been made and we expect see those changes introduced next month. In addition, there has been a roll-out of a variety of other measures, including the national enterprise hub, upgrading the level of supports available for decarbonisation-----
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Sorry to interrupt but I am well aware of all those non-specific schemes. I am talking specifically about the submission that was made about the elimination of sub-minimum rates of pay and the reference in it to the potential need for supports for those employers who could be affected were this legislation to be enacted. I am aware of the generality and catch-all, although some would say it has not caught anyone. Perhaps that is just my opinion. Was work done specifically on those workers? It is referred to in the submission.
Mr. Diarmaid Smyth:
It will be part of the economic impact assessment. The ESRI did great work looking at the data and the numbers of people on the sub-minimum rates. The Minister is keen to have the economic impact assessment to try to model the impact of any changes on specific firms and sectors so we get more information on the likely impacts of the change.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Okay. Has the ESRI been asked to do that work? Is it doing it at the moment or is it part of a bigger body of work it is doing?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Is there any timeline on that?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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It is all part of the economic impact assessment.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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That is fine. Those are all my questions.
I thank the Chair and the witnesses.
Maurice Quinlivan (Limerick City, Sinn Fein)
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The Fine Gael slot is 15 minutes.
David Stanton (Cork East, Fine Gael)
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I will probably not take all the time as Deputy O'Reilly already asked many of the questions I was going to ask.
When did the Minister request the economic impact assessment?
David Stanton (Cork East, Fine Gael)
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When was that? What was the approximate date?
David Stanton (Cork East, Fine Gael)
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Can Ms Pyke give the committee an approximate date?
David Stanton (Cork East, Fine Gael)
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Six months later the Department is starting the work.
David Stanton (Cork East, Fine Gael)
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Will Ms Pyke give the committee an outline of the terms of reference of the economic impact assessment?
Ms Claire Pyke:
Yes, we can share the terms of reference with the committee after the meeting. As my colleague mentioned, they are largely to take the excellent baseline data on the incidence and model, if we were to follow the commission's recommendations in the morning, how they would affect businesses with workers on the sub-minimum rates and how it would affect the sub-minimum workers' hours or chances of employment.
David Stanton (Cork East, Fine Gael)
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The Department stated that an outside agency is doing this work.
David Stanton (Cork East, Fine Gael)
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The Department hopes to have a report within six months.
David Stanton (Cork East, Fine Gael)
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It seems like a long time, does it not?
David Stanton (Cork East, Fine Gael)
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The upcoming EU directive on minimum wages was mentioned.
It is interesting how the Department actually referred to it in its submission for this morning: "The Directive does not prohibit the use of sub-minimum rates but requires Member States to ensure the objective justification of these rates." Would I be correct in saying there is implied support for prohibiting sub-minimum rates in the directive?
Ms Claire Pyke:
I would not agree with that. The directive recognises the complexity across member states. Some member states do have a minimum wage and others do not. The directive recognises the national competency of member states in setting these things. There are very clear rules. If a state has such provisions, it must have legitimate reasons for them, but I do not agree with the Deputy on their prohibition.
David Stanton (Cork East, Fine Gael)
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It was put to us at one stage that since a certain amount of training is involved when a young person joins a company or becomes employed, that person will not be as productive as somebody who is fully trained or who has more experience and therefore should not be paid the same wage. We were asked whether, if such young people are being trained, we should consider using the National Training Fund to supplement their wages in the event of the changes proposed in the Bill coming about. Employers are saying they are paying into the fund and it is sitting there. It is about €2 billion at this stage. Could consideration be given to using the National Training Fund, which is being imposed on employers for training purposes? Insofar as I know, it is not being used at all. Maybe our guests can tell me whether it is being used somewhere. Is the funding being drawn down by anybody? Could it be considered?
Dr. Dermot Coates:
I thank Deputy Stanton. When I referred to the support package in May, one of the key issues that arose as part of the considerations was, as the Deputy rightly pointed out, that the National Training Fund had accumulated a surplus of €2 billion and quite a number of firms, particularly in the SME sector, were making contributions and did not believe their value was flowing back to them. The commitment given at the time was that a new mechanism for enabling the distribution of the funds and being more proactive in running down the surplus would be introduced. That work is being led by the Minister for further and higher education and we expect an announcement in this space in the next couple of weeks. It is something that is being tackled with a view to its being resolved to ensure we draw down the surplus and make the funds available so they are felt through supports for employers, further education and training systems and such measures.
David Stanton (Cork East, Fine Gael)
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Particularly if there is a training element involved in employing young people, as discussed earlier, maybe the fund could be considered. Is that something the Department would favour, or must it wait six months for the Indecon report to come about?
Dr. Dermot Coates:
No, that is not a measure for which we must wait for six months. There is quite a lot of engagement at interdepartmental level, including our own Department, feeding into the work of the Department of higher education on how best we believe the funds could be expended. Ultimately, it entails a decision at the discretion of the Minister for further and higher education and the Minister for public expenditure; however, as the Deputy has articulated, we are of the view that since firms have paid into the fund, there is a need to see it activated and used as best we can rather than accumulating a surplus, such as exists.
David Stanton (Cork East, Fine Gael)
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I agree with Mr. Coates. I have met representatives of many firms that are peeved that the money is accumulating in the fund they are paying into and not being used to their benefit or that of trainees or anybody else.
I have a final question. To the best of the Department's knowledge, is the fund being used for anything at the moment?
Dr. Dermot Coates:
Yes, it is used at the moment to support a variety of mechanisms for job training and job-release-type exercises. I will not profess to be an expert on the National Training Fund and all its complexities. The National Competitiveness and Productivity Council published a report only a few weeks ago and once again articulated the same point the Deputy has made, which is that while there is a need to charge employers and accumulate the fund, there is a need to access and activate it in the best way to support employers paying into it and the employees on whose behalf they are paying.
David Stanton (Cork East, Fine Gael)
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It has also been said to me by employers that apprentices who go on block release are paid but not actually producing anything. That is another element.
Richard Bruton (Dublin Bay North, Fine Gael)
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The witnesses have said that, overall, the number on sub-minimum rates corresponds to 0.7% of employees.
The key issue seems to be the current pressure on the hospitality sector, which says that the move towards the living wage has created big pressure in that sector and complains of very high rates of closure. Do the witnesses have evidence of what share of employees in the hospitality or retail sector is made up of people on sub-minimum rates? What sort of an impact might this have on that sector, which seems to be going through a series of structural challenges?
To what extent are there relationships between payment of sub-minimum wage and the number of apprenticeships being provided in a sector? It seems that, in some sectors, apprenticeships are not up to the level we would expect them to be. Are there issues around failure to develop apprenticeships and a more structured entry into sectors?
In the hospitality sector, reliance on students has sort of been a traditional thing, and I see that 80% of these are students. Are there any initial indications of the sort of impact we might see from the hospitality sector?
Mr. Diarmaid Smyth:
The Deputy asked a couple questions. I will probably annoy everyone by saying this will be in the economic impact assessment, but it is one of the reasons we need this study, to do a deep dive into what effects these youth rates might have on specific sectors. We are aware, and I think it is in the Low Pay Commission’s reports, that the instance of low pay or workers on the minimum wage is higher in the very sectors the Deputy mentioned: accommodation and food, wholesale and retail. We hear there are pressures on the cost space in those sectors. I will point out, though, that employment in those sectors is up since before Covid and 2019, although over the past year, we have seen signs, perhaps, of a slowdown in those sectors. We are certainly aware that these are typically labour-intensive sectors where students and low-paid workers tend to get their first experience. We are cognisant of the pressures in those sectors. It is something we will be looking to see more of in the economic assessment report.
On the level of apprenticeships, does Ms Pyke have anything from the-----
Ms Claire Pyke:
I do not, to be perfectly honest. When the Low Pay Commission made a recommendation to move to these rates, there was an acknowledgement that if training rates were being used, employers should use a formal apprenticeship route. We did not consider or look at that. We have 80% of the sub-minimum employees in the accommodation and food or the retail sectors, where we would not see apprenticeships. Let us think about it and follow up. Apprenticeships are excluded from the national minimum wage, so they were not considered as part of this study.
Dr. Dermot Coates:
The Deputy referred to cost pressures, particularly in hospitality, and the extent to which firms are closing, something that is open to ongoing speculation. It is worth bearing in mind that, if we look at the data for the first five months of this year, we have seen 155 hospitality firms closed down, either by way of liquidation or voluntary wind-up. However, at the same time, 630 hospitality firms were established. If we stretch that out to the end of August, a total of 1,000 hospitality firms have been established in the first eight months of the year. There is an ongoing underlying churn, and that has been a function of the data over decades.
I note as well that when we talk about some of the pressures firms come under, whether it is in hospitality or retail, it is not simply a function of input costs and broader inflation but also changing patterns of consumer behaviour and the rise of the online economy particularly impacting on retail. There is a broader picture we need to try keep in balance while making sure that, where supports are provided, they are provided for firms that are ultimately viable.
Mick Barry (Cork North Central, Solidarity)
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I am a supporter of this legislation. At the outset I will say - this might be a controversial point to make - that a company which cannot survive unless it pays people 30%, 20% or 10% below the minimum wage should not be in business. If it can only survive on the basis of that level of exploitation, it should not be in business. That is my view.
I have three points to make. I will try to make them in time to allow a bit of feedback on them. First, is it the case that the number of people who are affected by the sub-minimum rates is low? It is argued that it is low on the basis that just 15,000 people are directly affected. However, I would argue that when those who are indirectly affected are considered, the number is a hell of a lot more than 15,000. For example, it is reported that 80% of people on sub-minimum rates are students, whose costs of going to college are considerable. If they cannot make enough money in their jobs in order to cover those costs, what tends to happen is that they have to be subsidised by their mothers and fathers. So there are hard-working parents in this society who are, in effect, subsidising the sub-minimum low-pay rates that their children are being paid. That is a lot more than 15,000 people, when those indirectly affected are considered.
Is it the case that 80% of those affected by sub-minimum wages are working in hospitality, broadly speaking? I see a report this morning from Anthony Foley of the Dublin City University Business School, commissioned by a coalition of tourism and hospitality employers. Once again we have a report linked to this sector which pinpoints increases in the minimum wage and the introduction of the living wage as being a problem. I am not unsympathetic to some of the challenges that are faced by small and medium-sized restaurants and people in food service provision. However, the solutions cannot be at the expense of the lowest paid workers or at the expense of hard-working staff. I repeat my point of view, which is that if a business cannot survive without paying people 30%, 20% and 10% below the minimum wage, it should not be in business in the first place.
We heard that it would take six to nine months to complete the reports and that the committee is being urged to hold off on making a decision or a recommendation until those reports are completed in another six to nine months. That would mean that these changes recommended by the Low Pay Commission would not be implemented by this Government and would not be implemented by this Dáil. This would be a case of justice delayed being justice denied. I cannot support that. When the Minister rises to introduce the budget on 1 October, it should be clearly announced that some minimal rates in the minimum wage will be abolished from 1 January and no later than that. What is the witnesses' estimate of the number of people who might be indirectly affected by this, given that 80% of people in receipt of sub-minimum wages are actually students?
Mr. Diarmaid Smyth:
I thank the Deputy. There are three points there. I will try to take them. In regard to the argument on whether it is a low number, I am of the view that 15,000 persons is a low number. It is 0.8% of employees. In the context of having 2.7 million people in employment in Ireland, which is up 335,000 over five years, it is a low number. That is not to say it is not an important number. The Deputy is right that the majority of those are students. Of those 15,000 people, the incidence is as follows.
The incidence is much higher among 15- to 16-year-olds, and the questions of what type of students they are and where they are pursuing their education are important. The indirect effects tracing through from those on sub-minimum wage are something we need to look at more. The Deputy makes a valid point there. We will certainly take it on board and feed it into our considerations over the next couple of months.
The Deputy's point on the cost of living is well accepted. We are really aware of the tremendous surge in inflation in Ireland over the past number of years when it approached double digit levels. We have all seen the pressures on the rental sector. However, I make the point again that inflation has come back pretty markedly; I think it is down to 1% at present. We have seen the ECB engaging now on an interest rate cutting cycle, so the cost of living is certainly improving. Looking at the summer economic statement, we saw a return to real wage growth in Ireland again at the start of this year, which we welcome. In addition, we have had quite a big package of support from Government for people under pressure in terms of cost-of-living supports. There has been a great deal done there, but I go back again to how well the labour market has done in terms of generating employment. That is the best way to keep people out poverty and deprivation. If you are unemployed in Ireland, you are four times more likely to be at risk of poverty and three times more likely to suffer from deprivation. The motivation the whole time has to be attempting to increase numbers at work, and that is what we are doing very successfully in this country.
On the indirect effects and the time the economic impact assessment report is going to take, I take the Deputy's comments on board about the delay and the time it is taking. We will factor that into our considerations.
Garret Ahearn (Fine Gael)
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Will Dr. Coates repeat the numbers in terms of closures and reopenings in the hospitality sector? Will he also elaborate on what he means by the hospitality sector? Is it like for like in terms of opening and closures?
Dr. Dermot Coates:
This is something we looked at in the midpoint of the year to get an idea of where the trend stood. For hospitality, which we can take as being the accommodation and food services sector as classified by the CSO, there were 613 corporations. That could be a hotel or a coffee stand; it runs the entire gamut. In the same period when there were those 613 corporations, we had 100 voluntary strike-offs and we had 55 liquidations. Those liquidations can be a mixture of court-led, creditor-led or voluntary liquidations. The ratio was approximately 1:4 in the first five months of the year.
Dr. Dermot Coates:
It was January to May this year. We are comparing that with the same period last year. It is pretty much at a standstill. The volume of incorporations versus liquidations was not markedly different for the two periods. We had committed to an in-depth, granular project for producing a detailed time series on incorporations and liquidations by type and sector. That work is coming towards a conclusion very quickly. I anticipate that we will be coming forward with more detailed information at some point in October. It will be a long time series that will allow us to better understand what is happening.
Sometimes when we think about the volume of liquidations in a given period, whether it is one month or 12 months, and we look back to prior years, we forget the fact there are far more businesses in the country now than there were ten or 20 years ago. Even if the absolute number of liquidations is increasing as a proportion of the stock of firms, that may not be the case. This is the type of question we are trying to answer with that data exercise.
Garret Ahearn (Fine Gael)
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I am sure Dr. Coates appreciates that we get the opposite from groups representing the hospitality sector.
Garret Ahearn (Fine Gael)
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In his view, this would be very different from what they are saying. Are they exaggerating the situation that exists in the hospitality sector at the moment?
Dr. Dermot Coates:
No, certainly not. I do not want to be misconstrued on that point. I have the greatest sympathy for somebody who, for a variety of reasons, feels that they need to shutter their business. That must come at a great personal cost. My point is that liquidation of firms is a standard feature of the economic cycle, whether we look back five, ten or 20 years. There are also a variety of reasons - including retirement and emigration and not simply the cost of business - as to why a person might choose to close a firm.
Garret Ahearn (Fine Gael)
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Does the Department not see an increase in the incidence of firm closures compared with last year?
Garret Ahearn (Fine Gael)
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I appreciate that. If we compare it with January to May of last year, there is no significant increase in the number of closures.
Dr. Dermot Coates:
I can give the Senator the exact figures. We published them for the National Competitiveness and Productivity Council. We were asked to look at these figures in the summer and the information is already in the public domain. The figure for hospitality is 651 incorporations from January to May 2023. That has since eased back to 629, but it is still 629. In 2023, there were 70 liquidations. That figure has fallen to 55 in 2024. There were 109 voluntary strike-offs in 2023 but that figure fell back to 100 this year. Again, that is only from January to May.
Garret Ahearn (Fine Gael)
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I appreciate that. It is interesting because that is very different from what we are getting from other groups. We are in a budget period, however, so it is understandable. The Low Pay Commission is recommending the abolishment of the payments for under-19s. In 2017, it recommended introducing this measure. What has changed? The commission knew all about the issues we are discussing in respect of rates of pay being determined by the person's age. Those people are on a lower salary but have the same expenses as everyone else. What has made the commission drastically change its position from what it recommended only six years ago?
Mr. Diarmaid Smyth:
I will try to answer some of the Senator's questions but might ask Ms Pyke to contribute because she has been on the Low Pay Commission longer than I have. The Senator is correct in that the system prior to 2017 was based on factors like training and job experience. Ideally, a whole range of things would be factored into determining a person's wage. The previous system was somewhat unmanageable. It was difficult to enforce and to measure a person's experience. Blunt as it is, the easiest and simplest way to measure a person's experience, as we discussed earlier with Deputy O'Reilly, is that person's age. Typically, the older you are, the more experience you accumulate. This is my first time at this committee. If I am here in a year's time, with another year's experience, I hope I will be better. However, that is not always the case. The movement to the age-based system was a way of simplifying things. Obviously, this matter increased traction with the Private Member's Bill and with the request of the then Tánaiste, Deputy Varadkar, for the LPC to look at it. We have seen the ESRI study which showed how many people are being paid the sub-minimum youth rates. We have seen that the incidence is very low. The Low Pay Commission, on top of the ESRI report and stakeholder engagement, came to the conclusion that there was no need to maintain them. Ms Pyke might speak on what specifically has changed relative to 2017.
Ms Claire Pyke:
It is important to say that the Low Pay Commission continuously reviews everything to do with minimum wage issues. It has a statutory obligation to make annual reports. It constantly looks at this. It is good practice to review whether a new regime is working, for example. The specific impetus for this change was the request from Deputy Varadkar to look at it. which followed the publication of this Private Member's Bill.
The commission has recommended in this report that if the measures are changed again, we will review them again. It is best practice to keep-----
Garret Ahearn (Fine Gael)
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I understand the then Minister asked for a review of it. It just seems like a total shift in opinion from the commission's previous recommendation. I cannot see anything that would not have been foreseen beforehand in the context of equal pay for everyone or people being paid less, the challenges that brings and the possibility of exploitation. I do not understand why the commission has almost an opposite view now.
Maurice Quinlivan (Limerick City, Sinn Fein)
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The Senator's time is up.
Garret Ahearn (Fine Gael)
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I have one more question. It is hard to agree with 18- and 19-year-olds being paid a lower wage. I know education is a factor, but the majority of 18- or 19-year-olds are finished secondary school. As only 4% of 19-year-olds are being paid that wage, surely it would not be a big cost for the sector to give them full minimum wage.
Garret Ahearn (Fine Gael)
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And considering that employers are paying almost all of them full wages.
Paul Murphy (Dublin South West, RISE)
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I thank the witnesses for the statements and the discussion so far. I want to go back over the timeline of the Bill. It was introduced in 2022 and was debated on Second Stage in June 2023. At that stage, the Government moved a timed amendment to, in effect, kick the can down the road for a year. The argument for that was, and I quote the Minister of State, Deputy Neale Richmond:
To cut to the chase, the Government is proposing a timed amendment of 12 months' delay on this Bill. The timed amendment quite simply is to allow the current examination of the sub-minima rates of the minimum wage by the Low Pay Commission to continue. Following this examination, recommendations will be made to Government for the retention or abolition of these rates. It is important we give the Low Pay Commission the time and space to carry out this review.
The same argument was made multiple times by Government speakers in that debate. This year's delay was to give time to the Low Pay Commission and the Government amendment was passed. We were then delayed by a year.
There was then the publication of the Low Pay Commission report in March 2024, which unanimously recommended the abolition of the sub-minima wage rates. Now, six months on, we are hearing that the ESRI and Low Pay Commission reports are not good enough and we need a new economic impact assessment. Would young people who are being exploited on very low wages not be forgiven for thinking that this is the Government continuing to kick the can down the road and moving goalposts? There was no mention of the need for an economic impact assessment when this was first discussed in June 2023, but we are now hearing that things have to be delayed even further.
Mr. Diarmaid Smyth:
I thank the Deputy. I appreciate his concerns. The Low Pay Commission took a very detailed look at this and there is a very extensive ESRI report with fantastic data on the incidence of youth minimum wage rates, which is being considered. The LPC also engaged heavily with stakeholders. The report from March is very clear. It is only from March 2024 but, as the Deputy said, the commission argued to abolish the youth rates. At the same time, however, the LPC acknowledged that this is a complex issue – I think that is the word it used - and talked about the need for more consideration and analysis.
Going back to the economic impact assessment, we have data from a number of years ago, but it is to try to assess the sectoral, regional and firm level effects of any change. This work has been agreed and will take place. We hope to be in a position within six to nine months where we will have an economic impact assessment to make an informed view. Ultimately, it is a matter for the Minister and it is a ministerial decision. Our job is to help provide the evidence and data.
Paul Murphy (Dublin South West, RISE)
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I thank Mr. Smyth. I am not blaming him personally. In terms of his Department, it is a decision for the Minister. There is a Bill before this committee which has passed Second Stage in the Dáil. It is a matter for the Dáil in terms of this Bill. The Government could get rid of the sub-minimum wage rates tomorrow. It should do that in the budget, but we can proceed with this Bill. Will the officials outline for me, in broad brush strokes, what the economic impact assessment will look at?
Ms Claire Pyke:
I thank the Deputy. I have said that we will share the terms of reference. The Department and Minister for Enterprise, Trade and Employment think that the Low Pay Commission and ESRI reports are excellent. There is no issue with them. The Minister has acknowledged the unanimous decision of the Low Pay Commission.
The report, however, stopped short of modelling how this would look in real life. We know the numbers affected, but we do not know the costs or the knock-on effects. We are trying to find a delicate balance between an adequate and respectful wage for workers and making sure we do not have an incentive for early school leaving or provide a disincentive for employers to employ these younger people. I point out that the rates are provided for legally in statute. I will not argue with the Deputy over the word "exploit", but I want to make the point that these are the legally permissible rates.
The terms of reference will require the consultants to take the Low Pay Commission's recommendations and model them. How will this affect individual sectors and individual regions? It will also look further into the issues of school leaving and employment. Will there be an increase in youth unemployment or even a loss in hours worked? The expert reports refer to data from 2022, and the Low Pay Commission has expressed caution in its report that its use of the incidence could increase in different economic climates. As we progress to higher national minimum wages, we will look at whether there is an increase in the use.
Paul Murphy (Dublin South West, RISE)
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Ms Pyke will accept that the Low Pay Commission looked at previous evidence of early school leaving, hours and all the things she is saying. The Low Pay Commission looked at those things and considered them. She can respond to that. The second question is whether this economic impact assessment will look at the impact of sub-minimum wage rates in exerting downward pressure on the wages of other workers or a downward pressure on hours for other workers in different sectors.
Paul Murphy (Dublin South West, RISE)
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Will it look at wage rates?
Paul Murphy (Dublin South West, RISE)
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I will say again, and this is not a personal criticism, that I find that the main thing the witnesses are telling us today is to hold off on this because an economic impact assessment is coming. However, they did not bring the terms of reference with them. They are not able to detail them. That is not all that satisfactory for us because they are asking us to hold off on proceeding with the Bill we have before us based on an economic impact assessment, but they are not able to tell us precisely what the economic impact assessment will look at.
Ms Claire Pyke:
It will precisely look at the sectors that are affected and model and build upon previous work undertaken by the Department on the impact on business of measures to improve working conditions. It will follow that modelling process. Again, I reiterate that we are following exactly what the Low Pay Commission said. This is complex and Government will need to give it further consideration and analysis.
Paul Murphy (Dublin South West, RISE)
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Did the Low Pay Commission call for a further economic impact assessment?
Paul Murphy (Dublin South West, RISE)
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I will ask the question again. Did the Low Pay Commission call for an economic impact assessment?
Paul Murphy (Dublin South West, RISE)
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So it did not. I will finish on this question. This is an urgent issue, not just because of the workers but because of the issue of the adequate minimum wages directive. What further follow-up work is being done on that in the context of assessing whether this can legally stand up and count as proportionate? I accept that, in principle, one can have exceptions and carve-outs, but the Low Pay Commission said explicitly, first, that it was unable to identify the specific legitimate aim based on age alone and, second, when justifications were considered, that none were identified that had a sufficient evidentiary base to justify retaining sub-minimum wage rates. Is there any more work happening on that?
Paul Murphy (Dublin South West, RISE)
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I am talking in terms of this.
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I turn to previous recommendations of the Low Pay Commission. It obviously recommended the introduction of the sub-minimum rates. How quickly was that done and how much assessment was done? How much of a delay was there? Deputy Murphy has pointed out that there is a bit of a time lag between the recommendation and any potential action. How fast does it usually happen?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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That is what I am saying. In the intervening time, how many reports - by Indecon or the ESRI, or whoever - were done and how much stakeholder consultation was done?
Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Okay. That would be important because it seems like a lot of questions have to be asked when the balance is shifting in the other direction. The committee would benefit from having that.
David Stanton (Cork East, Fine Gael)
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How do we compare with other European countries in the context of this issue? I understand that a number of countries have done what is proposed in the Bill, namely abolished the distinction. How has it fared in those countries?
Mr. Diarmaid Smyth:
That is a very good question. It is something we have looked at. Approximately 22 countries in Europe have a minimum wage and about seven have deductions on the basis of age. Germany has a type of exemption, which brings the number of the latter countries to eight. From memory, it is Ireland, the Netherlands, Belgium, Luxembourg, Malta, France and Cyprus. The United Kingdom also has age-related restrictions, but is coming back quite a bit; it had deductions for those aged under 24 and is coming back to 19 or 18. Within the EU, Ireland and the Netherlands are the only two countries with deductions for those aged 18 and 19. Other countries typically have deductions based on age, whether for seasonal, casual or new-entrant workers.
David Stanton (Cork East, Fine Gael)
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Of the countries which have moved towards where we are looking to go with this Bill, has there been any major negative impact on employment or on the concerns we spoke of, such as youth workers not being employed or let go or people leaving school early? It is happening in other countries, so I am interested to know the impact.
Mr. Diarmaid Smyth:
In the United Kingdom, from something we were at a couple of weeks ago, I gather that the impact of removing restrictions has been quite low on employment, hours worked and education. The Low Pay Commission report and its academic research show that the impacts on employment and education are on the low side.
David Stanton (Cork East, Fine Gael)
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It was stated earlier that sectors such as hospitality and maybe retail would be impacted to a higher degree because they employ many students and others on these wages. Where such changes have been made in Europe, have those sectors been impacted? Did any European states put in place supports for the sectors most likely to be impacted by the changes?
Mr. Diarmaid Smyth:
The macro or economy-wide effects of the changes appear to be low, certainly from the United Kingdom experience. On the sectoral effects in the United Kingdom or the supports, we would have to look into that and get back to the Deputy. Likewise for the other countries who have moved in the direction of removing the rates. We would have to look into the data and get back to the Deputy.
David Stanton (Cork East, Fine Gael)
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It would be interesting to see the impact of this, especially in the United Kingdom and in those sectors. We could get that almost in real time. How soon could the witnesses come back with that information?
David Stanton (Cork East, Fine Gael)
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I thank Ms Pyke. That is good.
Garret Ahearn (Fine Gael)
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It was stated that one of the arguments against changing the sub-minimal rates is that young people might be the first to go, which is an obvious possibility when an employer is making a decision. Do the witnesses have statistics on the increase in youth employment when this was introduced? Obviously an employer would have seen it as an incentive at the time to take on someone young at a lower rate. Was the annual rate of increase in youth employment greater than that in normal employment?
Mr. Diarmaid Smyth:
Again, I will defer to Ms Pyke. However, it is difficult to tease out whether there was a specific effect on youth employment or particular age cohorts. What we have seen in Ireland is a massive rise in employment across the board, so it is difficult to see any particular effect from it. We have also seen a broad increase in employment across regions and sectors. I do not know whether Ms Pyke is aware of any micro-level data on that.
Maurice Quinlivan (Limerick City, Sinn Fein)
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That concludes our deliberations for today. I thank the representatives from the Department of Enterprise, Trade and Employment for assisting the committee in its consideration of these important matters. A number of questions were posed. We look forward to receiving responses to them. That concludes our business in public session. I propose that the committee go into private session to consider other business. Is that agreed? Agreed.