New report examines the prevalence and impact of sub-minimum wage rates for young people

January 18, 2017

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Labour Markets and Skills
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Today the ESRI and the Low Pay Commission jointly published “A Study of Sub-Minimum Wage Rates for Young People”, a new report that examines international practice on the extent to which sub-minimum wage rates are paid within National Minimum Wage (NMW) frameworks and how such wage rates are generally designed.

The report also uses historical data from 2009 to examine the extent to which the estimated incidence of the NMW in Ireland varies according to the measurement approach adopted, and to identify broad characteristics of minimum wage employees and employers of minimum wage workers.

The first component of the research is based on a review of the relevant international literature, while data from the Central Statistics Office’s October 2009 National Employment Survey (NES) was used for the second component.

Sub-minimum rates

  • The research found that over two-thirds of OECD countries have statutory minimum wages and, of these, just under two-thirds have special rates for young people (15-24).
  • In terms of their construction and design, in those countries that have youth minimum wage rates, the rates are predominately calculated as some proportion of the adult minimum wage rate.
  • Most countries’ sub-minimum wage rates for young people are age-based, but there are a few exceptions, such as France where a young person’s work experience level is taken into consideration.
  • In those OECD countries where apprenticeship/trainee pay rates exist, the rates tend to be separate from their sub-minimum wage rates for young people. In addition, the apprenticeship/trainee pay rates are not restricted to youths.
  • Regarding the economic effects of sub-minimum wage rates, as with the international literature on minimum wages generally, the effects of the policy on young peoples’ employment or continued education decisions, whether positive or negative, have been found to be small and weak, and sometimes statistically insignificant.

The incidence and determinants of minimum wage employment in Ireland

  • The authors of this report found that the incidence of the adult minimum wage in Ireland ranged between 5.3 and 6.8 per cent in 2009, with this variation due to whether it was the employer or employee information that was used to calculate the rate.
  • A very small percentage, usually less than 0.5 per cent, of employees were in receipt of either the training or youth rates of the NMW.
  • Furthermore, less than 6 per cent of employees aged below 18 were in receipt of the youth rates in 2009 in Ireland.
  • Being female, younger, having low levels of education, not being on a permanent contract, or being employed in the Transport and Storage sector (relative to the Construction sector) all increase an individual’s likelihood of being in receipt of the NMW. However, such factors only raise an individual’s chances of being a minimum wage worker by very small amounts.
  • Employing workers with no formal education qualification raises the likelihood that a firm will pay the NMW by around 10 percentage points.
  • However, sectoral effects are much more important for firms than individual characteristics in determining minimum wage employing companies. Specifically, firms operating in the Wholesale and retail, Information and communication, and Education sectors are approximately 15 per cent less likely to pay the NMW relative to firms in the Construction sector.

Commenting on the research, Dr. Elish Kelly, Senior Research Officer at the ESRI, stated “One debate around sub-minimum rates is the extent to which variations in the sub-minimum wage rates will impact the extent of early school leaving. Given the low incidence of young people in receipt of the youth rate in Ireland, this would suggest that such direct impacts, at least in 2009, are likely to have been small.”

Minister Breen, Minister for Employment and Small Business said, “I asked the Low Pay Commission to  report  on prevalence and impact of sub-minimum wage rates for young people,  to give a better understanding of the impact of  sub-minimum wage rates and the extent to which they are applied. The joint report published today by ESRI and the Low Pay Commission will assist the Government to understand the impact of sub-minimum wage rates for young people. I would like to thank the Low Pay Commission and ESRI for completing this valuable work.”

Dr Donal de Buitléir, Chairman of the Low Pay Commission, welcomed the publication of the research paper, which was produced under a Research Partnership agreement between the Low Pay Commission and the ESRI.  He commented that the Commission had relied on the research findings in its Report to the Minister in October last on the sub-minima rates of the National Minimum Wage.  “There is comparatively little research available in Ireland in this area, so it is important that the Commission supports research to enable it to make evidence-based findings in relation to minimum wages issues."