Minimum wage increases have little impact on household poverty

A new ESRI study finds that workers on low hourly pay are often found in households with incomes close to the average. More than 11 out of 12 low-paid workers live in households above the most commonly used poverty line. Analysis using SWITCH, the ESRI tax benefit model, finds that recent increases in the National Minimum Wage have mainly benefited individuals living in households in the middle of the household income distribution.

In a majority of cases, low paid employees are not the sole earners in the household. Even when low-paid workers are the sole earners, fewer than 1 in 5 of them fall below the EU’s “at risk of poverty” threshold. These findings reflect patterns which are common across countries and persistent over time.

Commenting on the report, Professor Tim Callan said “Minimum wage policies have several goals, but should not be expected to have a major impact on household poverty. Workers with low hourly pay are often found in households with incomes at or even above the average.”

Notes:

1. This paper is published in conjunction with the ESRI Budget Perspectives Conference, taking place in the ESRI from 08:30am to 12:45pm on Friday 17 June 2016. Members of the media are invited to attend this conference.
2. SWITCH, the ESRI tax-benefit model, has been developed and used for analysis of tax and welfare policy issues over the past 25 years.
3. The main data sources used in the paper are the CSO’s Survey on Income and Living Conditions, 2005 to 2013.
4. The EU defines as “at risk of poverty” those households which have incomes below 60 per cent of median (middle-ranking) income adjusted for household size.
5. The most common definition is that that workers are low paid if they have  hourly wages below two-thirds of the median (the middle ranked individual). In practice, this comes to €11.40 per hour in 2013, very close to the estimated value for a “living wage”.