Wage control: Only for the pixieheads

Wage control, it seems, lke much in Ireland, is for the little people. The pixieheads get patted on the head and told how good we are to bear down and buckle up, while the protected elites roll on.

For many many years the closed shops in Irish professional life have been the subject of scrutiny form Europe. Time and again we have been told that these must be opened up. In particular the legal services situation has been pointed to as an example of a professional service which is in dire need of reform. And very little has happened.

A legal services bill has been prepared which would begin to prise open the legal services sector, and to provide for better oversight. But this has yet to reach the dail. If it is not passed before the next election it lapses and will have to be reintroduced. That it has taken since 2011 for this draft bill to (not) come to the floor of the dail smacks less now of incompetence and more of stalling. One can only assume that the powerful legal lobby have made strenuous official and unofficial representations to their colleagues in the parliament. One can only imagine the threats, to funding, golf club committee membership, future legal work, and of course murmings about legal challenges. The best efforts of the troika failed to dent the legal system which rolls on implacable.

Meanwhile, in another world, the department of finance is worried about wages. Not the wages of lawyers, but the minimum wage. A representation from the department to the Low Pay commission makes for interesting reading.

Before we jump into this, lets theorise. Many economists on theoretical grounds dislike minimum wages. The argument runs that there will be persons who would wish to take up posts, and firms who wish to offer posts but who find themselves unable to do so due to this floor. Some persons would work for less and some firms would not find it economic to offer the wage. So, the introduction, or worse the rising of minimum wages would displace workers, making unemployment worse.

Theory is fine but reality and evidence should trump this every time. There have been hundreds of studies on the effect of minimum wages on various groups. And as is the case with social science, there are hundreds of results, not all in the same direction. A technique called meta-analysis allows for some sense to be made of conflicting social science results. Good science, good evidence based policy, uses the strongest techniques and doesn’t pick and choose from evidence. Meta-analysis allows us to take an overview.

The department of finance state, bluntly, and without evidence, that “An increase in the minimum wage above the market clearing wage is likely to reduce employment.” Does it? The paper they cite concludes that there is some evidence that it does. But that is one paper. I checked with Scopus, the largest database on social scientific academic papers, and found over 2000 papers on minimum wages.

Looking at some recent meta-analyses we find quite a different conclusion. We find for example in one study [1]which uses advanced meta-analytical techniques to synthesise over 700 findings – they find “no overall practically significant adverse employment effect” for the UK. A study for the USA in 2009[2] states “ little or no evidence of a negative association between minimum wages and employment remains” . A comprehensive study by the Center for Economic Policy Research in 2013 states “The weight of that evidence points to little or no employment response to modest increases in the minimum wage.”

I could go on. There is, to be blunt, no evidence for the assertion of the department. None. It is an ideological, theoretical assertion unsupported by evidence. Why the department should feel that this statement needs to be made is worth investigating. By comparison, look at the “minimum wage mythbusters” page of the US Department of Labour, hardly the last bastion of egalitarian socialism. The submission waxes long on how (relatively) high is our minimum wage, how we have to compete in a world where many have low wages, how exports are a good thing etc. There is a sweatshop mentality at work here which is frankly worrying. The submission is aimed at scaring the horses and nothing else. It is apparently too much to expect the civil service to provide balanced, researched analysis. That is shameful. The department has been accused over the years of being politicised and this does it no credit and helps not at all in countering it.

Did the department seek any outside advice from labour economists in the preparation of this? Or does the “not invented here’ mentality persist? Was the new government economic service consulted? Was anyone? The proposal to have differential minimum wages for different counties suggests that not only were economists not consulted, neither were geographers. Ireland is not the USA ; people regularly cross county bounds to go to work . If I live in Kildare and work in the city center do I get a Dublin weighting or a Kildare weighting?

If we are to have wage compression, lets start at the top. Lets have the very top ranks of the civil service, who let us not forget exempted themselves (but not others) from the cuts in the early part of the crisis, lets have them cut. Lets have state supported bankers and sheltered legal eagles subject to the same. Or, we could blame it on the poor.

[1] De Linde Leonard, M., Stanley, T.D. & Doucouliagos, H. 2013, “Does the uk minimum wage reduce employment? A meta-regression analysis”, British Journal of Industrial Relations, .

[2] Doucouliagos, H. & Stanley, T.D. 2009, “Publication selection bias in minimum-wage research? A meta-regression analysis”, British Journal of Industrial Relations, vol. 47, no. 2, pp. 406-428.

Published in The Irish Examiner 16 May 2015

1 thought on “Wage control: Only for the pixieheads

  1. greenandmusty

    That’s what happens when you think recruiting a bunch of people with an MA in economics to the Dept. of Finance will solve all the nation’s problems. All you get is a slightly more sophistication in the expression of the Dept’s knee-jerk reactions.

    Such a pity Alan Shatter was shafted. He might not have been the most clubbable of politicians, but he was the only hope we had that the Bar vested interests might just be taken on any way seriously.

    What’s often overlooked is that high legal costs also feed into the extravagantly high cost of medical care in this country, because litigation is now such a part of day-to-day medicine, and insurance premiums reflect this. Anyone looking at this?


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