[Ireland] Majority of recent minimum wage rises had no inflationary impact

In Ireland, a new study has found that the majority of the minimum wage increases adopted since 2016 have had no impact on inflation, The Irish Times reports.

However, the research, conducted by the Economic and Social Research Institute (ESRI), did detect an impact on prices from the 2024 change.

In 2024, Ireland’s minimum wage rose by 12.4 per cent, from €11.30 to €12.70 per hour. This was the largest increase to date in the Republic and was reportedly associated with a 2.5 per cent increase in prices “in certain categories” such as hairdressing, takeaway coffee, takeaway meals and restaurant meals.

But, according to the ESRI, the price categories affected accounted for just 11 per cent of total consumer spending. It noted that minimum wage employees only account for an estimated 2.7 per cent of the total wage bill in the Republic.

“As a result, the overall impact of small to moderate minimum wage increases on inflation in Ireland is likely to be negligible,” its report said.

The institute stated that although the evidence indicates that larger minimum wage increases can lead to price increases among certain categories of goods and services, other policy measures “had a far greater impact on prices”.

It reportedly found that the two VAT adjustments in 2019 and 2023 - in each case, the VAT rate for hospitality increased from 9 per cent to 13.5 per cent - led to price increases that were up to three to four times larger than the 2024 minimum wage effect. The VAT increases were passed on to consumers almost immediately.

In addition, the first reopening of the economy in mid-2020 following the onset of the pandemic saw a significant price jump.

Paul Redmond - the report’s co-author - said the rise in prices seen in mid-2020 was mainly driven by a jump in prices in the hairdressing sector predicated on “pent-up demand” and the increased costs associated with the use of PPE (personal protective equipment) and with businesses having to restrict the personnel they could allow on the premises.

SMEs have complained that recent minimum wage rises, together with higher energy prices, pension auto-enrolment and statutory sick pay, have accelerated costs.

Since 2015, there have been 10 increases in the minimum wage, hiking the rate by 60 per cent from €8.65 per hour to €14.15.

According to the ESRI report, seven of the eight minimum wage increases examined since 2016 had no significant impact on prices.

“Our research shows that most minimum wage increases in Ireland in recent years were not associated with higher prices,” Mr Redmond said.

“The 2024 increase - the largest to date - was associated with modest price increases across a small number of goods and services.

“By comparison, VAT adjustments and the Covid-19 pandemic had a far greater impact on prices.”

Source: The Irish Times

(Link and quotes via original reporting)

In Ireland, a new study has found that the majority of the minimum wage increases adopted since 2016 have had no impact on inflation, The Irish Times reports.

However, the research, conducted by the Economic and Social Research Institute (ESRI), did detect an impact on prices from the 2024 change.

In 2024, Ireland’s minimum wage rose by 12.4 per cent, from €11.30 to €12.70 per hour. This was the largest increase to date in the Republic and was reportedly associated with a 2.5 per cent increase in prices “in certain categories” such as hairdressing, takeaway coffee, takeaway meals and restaurant meals.

But, according to the ESRI, the price categories affected accounted for just 11 per cent of total consumer spending. It noted that minimum wage employees only account for an estimated 2.7 per cent of the total wage bill in the Republic.

“As a result, the overall impact of small to moderate minimum wage increases on inflation in Ireland is likely to be negligible,” its report said.

The institute stated that although the evidence indicates that larger minimum wage increases can lead to price increases among certain categories of goods and services, other policy measures “had a far greater impact on prices”.

It reportedly found that the two VAT adjustments in 2019 and 2023 - in each case, the VAT rate for hospitality increased from 9 per cent to 13.5 per cent - led to price increases that were up to three to four times larger than the 2024 minimum wage effect. The VAT increases were passed on to consumers almost immediately.

In addition, the first reopening of the economy in mid-2020 following the onset of the pandemic saw a significant price jump.

Paul Redmond - the report’s co-author - said the rise in prices seen in mid-2020 was mainly driven by a jump in prices in the hairdressing sector predicated on “pent-up demand” and the increased costs associated with the use of PPE (personal protective equipment) and with businesses having to restrict the personnel they could allow on the premises.

SMEs have complained that recent minimum wage rises, together with higher energy prices, pension auto-enrolment and statutory sick pay, have accelerated costs.

Since 2015, there have been 10 increases in the minimum wage, hiking the rate by 60 per cent from €8.65 per hour to €14.15.

According to the ESRI report, seven of the eight minimum wage increases examined since 2016 had no significant impact on prices.

“Our research shows that most minimum wage increases in Ireland in recent years were not associated with higher prices,” Mr Redmond said.

“The 2024 increase - the largest to date - was associated with modest price increases across a small number of goods and services.

“By comparison, VAT adjustments and the Covid-19 pandemic had a far greater impact on prices.”

Source: The Irish Times

(Link and quotes via original reporting)