THE IMPACT OF A CHANGE IN THE NATIONAL MINIMUM WAGE ON THE DISTRIBUTION OF HOURLY WAGES AND HOUSEHOLD INCOME IN IRELAND. ESRI RESEARCH SERIES NUMBER 86 MARCH 2019

Redmond, Paul and Doorley, Karina and McGuinness, Seamus (2019) THE IMPACT OF A CHANGE IN THE NATIONAL MINIMUM WAGE ON THE DISTRIBUTION OF HOURLY WAGES AND HOUSEHOLD INCOME IN IRELAND. ESRI RESEARCH SERIES NUMBER 86 MARCH 2019. UNSPECIFIED.

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Abstract

 In January 2016, the national minimum wage in Ireland increased from €8.65 to €9.15 per hour, an increase of approximately 6%. In this study, we investigate the effect of this minimum wage increase on the distribution of hourly wages and gross household income.  This study uses novel techniques to estimate the impact of the 2016 minimum wage increase on the distribution of earnings in Ireland. Our results show clear impacts on the hourly wage distribution that are centred around the new minimum wage level. These effects are observed for all workers and separately for males, females and young people.  Our evidence suggests that without the minimum wage change, approximately 10% of workers in 2016 would have earned €9.15 per hour or below. However, following the increase in the minimum wage, just over 6% of workers had an hourly wage in this range. Therefore, the evidence suggests that the minimum wage change was associated with a 4 percentage point (or 40%) reduction in the number of workers earning €9.15 per hour or below.  The results point towards potential wage spillover effects to workers earning above the minimum wage, with statistically significant wage effects detected up as far as €11.50 per hour.  We estimate that the increase in the minimum wage resulted in a 2% increase in the average hourly wage of workers earning between €6.50 and €11.50 per hour. The impacted wage range, i.e. those earning between €6.50 and €11.50, accounts for approximately the bottom 25% of the wage distribution.  With respect to wage inequality, our analysis indicates that the increased minimum wage led to a reduction of 8% in the P90/P10 ratio and 4% in the P75/P25 ratio. This supports the view that increases in the minimum wage decrease levels of wage inequality in the labour market.  There is no strong evidence to indicate that the increase in the minimum wage impacted the distribution of gross household incomes. This is consistent with other literature which shows that the minimum wage may be a blunt tool for reducing poverty, as minimum wage workers are often located in households at the higher end of the income distribution.

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