Living Wage €12.30 per hour

Posted on Wednesday, 23 September 2020
lw 20 21 rate

The Living Wage remains unchanged at €12.30 per hour for 2020/2021.

Changes to the annual Living Wage rate are determined by changes in living costs and income taxes.  According to the Living Wage Technical Group, which calculates the rate, while average minimum essential costs (e.g. food, energy, and insurance costs) are down by 4.5 per cent compared to last year, housing costs are an average 7.5 per cent higher than 2019. If rents had stayed at 2019 levels the 2020/21 rate would have fallen to €11.90.  Dublin housing costs now account for 63.3 per cent of a Living Wage net salary, based on the 2020/21 rate. 

Housing costs have effectively driven the rise in the Living Wage rate each year and offset all reductions in other areas of minimum expenditure need and USC. Since 2014, the year of the first Living Wage rate, housing costs (in the Living Wage calculation) have increased by 62 per cent in Dublin and 46 per cent to 19 per cent outside of Dublin. 

It is estimated that approximately one-in-five full-time workers are earning less than the Living Wage in Ireland and the gap between the National Minimum Wage (NMW) and the Living Wage stands at €2.20 per hour.

In our Budget Choices 2021 policy briefing, Social Justice Ireland urges Government to move the NMW in the direction of the living wage. Recent increases in the NMW have been welcome, but the rate (€10.10 per hour) remains significantly below what is necessary for a single adult to achieve a socially acceptable standard of living working a 39 hour week.

Social Justice Ireland is a part of the Living Wage Technical Group, which calculates the rate of the Living Wage.

What is the Living Wage?

The Living Wage establishes the average gross salary which will enable adults in full time employment (39hrs per week) and without dependents across Ireland to afford a socially acceptable standard of living. It provides for needs, not wants, and differs from the National Minimum Wage (NMW) in that the calculation is evidence-based and built on budget standards research, while the NMW is not (and never has been) based on the cost of living, or ever been linked to changes in the cost of living over time. The Living Wage reflects a belief across societies that individuals working full-time should be able to earn enough to enjoy a decent standard of living.

In principle, the Living Wage is an income floor; representing a figure which allows employees to afford the essentials of life. Earnings below the living wage suggest employees are forced to do without certain essentials so they can make ends meet.

The Living Wage reached €12.30 in 2019, a rate that represented a 40c per hour increase over the 2018 figure. That increase was driven by modest changes in the cost of household goods (furnishings, kitchen utensils etc), food costs and the cost of communications (phone, internet etc) decreased the cost of the weekly minimum expenditure. A reduction in the Universal Social Charge (USC) paid by an employee on the Living Wage also impacted on the calculations as the amount of USC collected from these employees decreased.

However, the effects of these decreases in living costs and increases in post-tax income were outweighed by increases in some areas of expenditure. Most notable were increases in housing (rent) costs driven by the current housing crisis. It is now an established trend that accommodation costs are disprpoortionately affecting movements in the Living Wage. It is interesting to note that were it not for persistent increases in accommodation costs in the last few years, the level of the Living Wage would actually have fallen in four of the last six years, and would have fallen overall for that period. There are several good reasons for Government to effectively address Ireland's accommodation crisis, and from an economic perspective this is certainly one of the best.

How is the Living Wage calculated?

The Living Wage is set by the Living Wage Technical Group, based on research identifying the Minimum Essential Standard of Living (MESL) in Ireland. This research establishes a consensus on what members of the public believe is a minimum standard that no individual or household should live below. Social Justice Ireland has been part of the Living Wage Technical Group since the group's foundation.

The calculation of the Republic of Ireland Living Wage is focused on a single-adult household. However, in recognition of the fact that households with children experience additional costs which are relevant to any consideration of such household’s standards of living, the group simultaneously publishes estimates of a Family Living Income each year. More information on this, and a more detailed account of the methodology used to set the Living Wage, has been published in an accompanying Technical Document and is available on the Living Wage website.

Implications for policymakers

Social Justice Ireland has long argued that the NMW should, over the next few years, be moved closer to the level of the Living Wage.

The confirmation earlier this year of an increase in the NMW to €10.10 was a welcome development. This increase ensures that a full-time worker on the minimum wage will receive an additional €608 per annum in gross pay in 2020. However, the hourly minimum wage rate of €10.10 was still approximately 18 per cent below the contemporary Living Wage of €12.30 per hour.

Addressing low pay remains a key challenge for Irish society. As Social Justice Ireland has continuously highlighted, annual poverty figures show that more than 100,000 people in employment are living in poverty (the working poor). Improvements in the low pay rates received by many employees offer an important method by which these levels of poverty and exclusion can be reduced. Social Justice Ireland believes that concepts such as the Living Wage have an important role to play in addressing the persistent income inequality and poverty levels outlined earlier in our submission. Improvements in the low pay rates received by many employees offer an important method by which levels of poverty and exclusion can be reduced. Paying low paid employees a Living Wage offers the prospect of significantly improving the living standards of these employees and we hope to see this new benchmark adopted across many sectors of society in the years to come.

Social Justice Ireland would like to see government commit to a timeframe over which the National Minimum Wage would move towards the rate of the Living Wage.

Family Living Incomes

While the calculation of the Living Wage is based on a single-adult household, the Living Wage Technical Group recognises that households with children experience additional costs which are relevant to any consideration of such household’s standards of living.

To put the Living Wage rate in context, and demonstrate the additional income and social support needs of households with children, a range of Family Living Income needs have also been calculated, following a complimentary method to that used for the Living Wage. Details of these Family Living Incomes are published each year to accompany the annual Living Wage update and are available on the Living Wage Technical Group website.