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High Wealth, Low Pay & the Social Wage

Posted on June 14, 2016 at 03:08 PM

Jimmy Kelly, Unite
Jimmy Kelly, Unite

Unite Regional Secretary Jimmy Kelly on the key role of the Social Wage in raising living standards

Employer groups and right-wing politicians repeatedly insist that the economy cannot afford wage increases and that the recovery is still fragile.

But a recent report from Unite has revealed these claims have little foundation in fact.

The Truth About Irish Wages includes a detailed comparative survey of wages in the EU-15 and found that ours is a low-waged economy, compared to the EU-15. 

The report also revealed that we have high levels of wage inequality, low living standards and ultra-low pay for workers in sectors such as hospitality, retail and wholesale, compared to their European counter-parts. 

Yet, the Irish economy is one of the wealthiest in Europe.  We are in fact the fourth richest economy – when measured in GNP per capita (this measurement excludes multinational activity such as profit-repatriation).  Only Denmark, Sweden and the Netherlands generate more income.

 But  despite this wealth, wages in the economy remain low.

In fact, Irish wages are 18% below average, when compared to our peer group of Northern and Central European economies (this excludes the poorer Mediterranean countries in the EU-15).

However our GNP per capita is higher.

Why is the Irish economy not capable of translating economic wealth into good wages and decent living standards?  There are a number of factors but a key explanation is the low level of the Social Wage that obtains in this jurisdiction.

A workers’ total pay packet is divided into two parts.  The largest is the wage that employers directly pay to employees. The second part is the Social Wage – essentially, employers’ social insurance.  In Ireland, we have little appreciation of the key role that the Social Wage plays in the provision of public services and income supports in most other EU countries. 

We assume these are paid out of general taxation, but most other countries operate a different system.

Why do workers in many other EU countries receive free healthcare – including free GP care and subsidised prescription medicines? 

Because it is funded through the Social Wage and not through general taxation. 

In other countries, all workers are covered by pay-related sick pay.  In Ireland, many workers can’t afford to take sick leave as they will receives a flat-rate payment that is below the poverty line and which they won’ t get for the first six days of illness. 

The same goes for pay-related unemployment benefit – which can provide workers with 60% to 70% percent of their previous pay for up to a year or more.

But in many other EU countries, workers can receive up to 100 percent of their pay for maternity benefit and generous childcare allowances after birth.

In Austria, for example, women receive their full salary during maternity leave and also receive €1,000 per month for their child’s first year. This is in addition to Child Benefit.

All of this is paid for by employers through a special insurance payment.

In a recent letter to the Irish Times, Fergus Whelan of Congress highlighted the poor pension coverage that exists for Irish workers and called for the establishment of a universal pension scheme that would be funded by all workers and employers

This is the system that already exists in most other EU countries – universal pay-related pensions paid for through social insurance. 

Workers in many firms bargain for non-pay benefits such as pension, health and sick pay. 

The Social Wage spreads those benefits throughout the entire workforce: it is universal and applicable to all workers, regardless of the sector or firm they work in. 

The Irish Social Wage is one of the lowest in the EU.

In the Eurozone it makes up 35 percent of the direct wage paid to the employee; in Ireland it is just half that figure. 

This helps explain our low level of income supports and public service provision (namely, health).

It also helps explain why we have lower living standards than many of our EU counterparts. 

The EU Commission tracks living standards through a measurement called ‘actual individual consumption’.  This combines all goods and services consumed by households - whether they are purchased through direct wages, through public income supports or provided as public services. 

On that measure Ireland ranks well below the EU-15 average and well behind our peer group countries.

The trade union movement faces many challenges.  We need to pursue strategies that will raise the wage floor – through minimum wage increases, payment of the Living Wage and better pay in the traditional low-paid sectors.  

We need to pursue solidaristic wage strategies to reduce inequality.  And we need to vigorously pursue substantial increases in the Social Wage. 

Quite simply, the social wage is the key to promoting social prosperity and equality – providing decent working conditions for all and strong social support in times of need.

 

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