REPORT ON THE ALLOWANCES PROVIDED FOR BOARD & LODGINGS UNDER THE

NATIONAL MINIMUM WAGE REPORT ON THE ALLOWANCES

PROVIDED FOR BOARD & LODGINGS UNDER THE

NATIONAL MINIMUM WAGE REPORT ON THE ALLOWANCES

PROVIDED FOR BOARD & LODGINGS UNDER THE

NATIONAL MINIMUM WAGE

2018

May 2018

LPC NO. 6 (2018)

February 2018

LPC NO. 8 (2018)

REPORT ON THE LENGTH OF TIME EMPLOYEES SPEND ON THE NATIONAL MINIMUM WAGE

REPORT OF THE LOW PAY COMMISSION

ON

THE LENGTH OF TIME EMPLOYEES SPEND

ON THE NATIONAL MINIMUM WAGE

Contents

1. Introduction 1

2. Transitions from the Minimum Wage 6

3. Conclusions 14

Appendix 15-16

Acknowledgements

We are very grateful to Mr Brian Ring and his colleagues in the Central Statistics Office for their cooperation in developing very valuable new data sources. We also wish to acknowledge the contribution of Dr Seamus McGuinness, Dr Helen Russell, Mr Bertrand Maître and Dr Paul Redmond of the Economic and Social Research Institute in providing research essential to our work. We are particularly grateful to the Secretariat to the Commission, Máire Ní Chuirc, Roshin Sen, Paul Norris, and Chris Smith for organising our business so efficiently and for their work in preparing our report.

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Chapter 1 Introduction

Our Brief

1. Section 10c(4)(a) of the National Minimum Wage Act, 2000 provides that, if so requested

by the Minister, the Commission shall examine and report its views and

recommendations on such matters as are specified in that request.

2. In February 2017, the Minister for Employment & Small Business, Mr Pat Breen, T.D.

asked the Commission to “ascertain if being on the minimum wage is just a starter rate

for people and if there are people trapped in minimum wage jobs for a considerable

periods of time”.

The Minister made this request “in order to obtain information about how long people

spend on the national minimum wage and to ascertain if the national minimum wage

provides a step link for people to move upwards through employment as they get older”.

The Minister also requested that the Commission “examine the extent to which lack of

progression from the minimum wage might link to poverty/welfare traps”, and indicated

awareness that “the reasons behind those traps are complex and not to be

underestimated”.

Structure of the Report

3. This report first sets out what information is currently available in relation to the age

profile of minimum wage workers and the length of time that a person spends on the

minimum wage, and outlines some of the limitations of existing data in this regard.

Chapter Two summarises the main findings from the research carried out by the ESRI on

behalf of the Commission for this report in relation to the labour market transitions of

employees earning the minimum wage. This includes an overview of international

research in this area, how the ESRI results for Ireland compare to this and any evidence

in relation to welfare traps. Chapter 3 sets out the Commission’s conclusions based on

the available evidence.

Current Data

4. Since the second quarter of 2016, the Central Statistics Office (CSO) has included a

question specifically relating to the National Minimum Wage (NMW) in the Quarterly

National Household Survey1 (QNHS). This question provides the Low Pay Commission

with up to date data on the number of people on the NMW and a range of worker

1 Since the beginning of Q3, 2017 the QNHS has been replaced by the Labour Force Survey (LFS). However, the

results of the LFS in relation to the minimum wage have not yet been published.

2

characteristics2 (age, gender, sector of employment etc.) While there is no specific

question in the QNHS in relation to the length of time an employee has been earning the

minimum wage, it is possible to examine the length of time a person earning the

minimum wage has worked for their current employer.

It should be noted that while there are, on average, 155,100 employees earning the

minimum wage in the three quarters of 2016, the number of responses to specific

questions may not add up to this total due to either no response being stated to the

specific question and/or the number of responses being too low for the CSO to report on.

Age Profile of Minimum Wage Workers

5. Table 1 below displays the age profile of minimum wage workers. Of workers earning

the minimum wage or less, the highest number are in the age category 25 to 34 (41,200

workers), followed by those aged 20 to 24 (34,900 workers). Few are in the older age

categories (aged 55 or older).

Looking at the proportion of workers in each age group that are earning the NMW or

less, the majority of workers aged 15 to 19 earned the NMW or less (70.1%). The

proportion of 20 to 24 year olds earnings the NMW or less decreases to 32.4%, and falls

to 10.3% for the 25 to 34 year olds and 5.6% for 35 to 44 year olds.

Table 1: Employees classified by age group and National Minimum Wage status

Average Q2 2016 to Q4 2016

Age Bracket Earning Proportion of Age

Group earning NMW

or Less

NMW or Less

More than the NMW

15-19 23,900 10,100 70.1%

20-24 34,900 72,800 32.4%

Youths (15 – 24) 58,800 82,900 41.5%

25-34 41,200 358,000 10.3%

35-44 25,200 426,300 5.6%

45-54 18,100 312,500 5.5%

55-59 5,700 115,400 4.7%

60-64 (3,800) 66,400 (5.4%)

Source: Central Statistics Office, QNHS – National Minimum Wage Estimates Q2 to Q4, 2016

The data suggest that the minimum wage is of most significance to younger workers, as

a disproportionately higher percentage of younger workers earn the NMW or less.

However, in terms of absolute numbers, the highest numbers of NMW workers are 25 to

34 years of age. Approximately one in three of those earning the NMW is aged 35 or

over. Accordingly, the minimum wage is not confined to younger workers earning the

minimum wage as a starter rate.

2 More details on this question and the results available from the survey were reported in extensive detail in

the Commission’s 2017 Recommendations for the National Minimum Wage.

3

Length of time with current employer

6. Table 2 below outlines the length of time a person earning the minimum wage has

worked with their current employer. This can be used as a possible indicator for the

length of time that a person has earned the minimum wage. The first column of the table

breaks down the number of workers earning the minimum wage by the length of time

with their employer. It is notable that the most common length of time for minimum wage

employees to have worked with their employer is four years or more (40,000 workers).

In total, an average of 62,800 NMW workers report having been with their employer for

less than a full year while 78,500 report working with their employer for more than 12

months.

Table 2: Employees classified by duration of employment and National Minimum

Wage Status (‘000) Average Q2 2016 to Q4 2016

Length of Time

Employees reporting earning

NMW or less More than the NMW

Less than 3 months 21,100 50,100

3-5 Months 17,100 50,800

6-11 Months 24,600 91,300

12-17 Months 15,900 72,400

18-23 Months 10,700 57,000

24-47 Months 22,600 145,800

48 Months or greater 40,000 881,200

Source: Central Statistics Office, QNHS – National Minimum Wage Estimates Q2 to Q4, 2016

7. Table 3 below gives a breakdown of the percentage share of NMW workers by duration

of employment versus the percentage share of all employees by length of employment.

This table shows that the percentage of NMW employees who have worked with their

employer for four or more years is significantly less than the percentage of total

employees who do the same (25.8% versus 60.0%). In line with this, NMW workers are

also more likely than other employees to have been in their current role for a shorter

period of time; 40.5% of NMW workers have been in their current job for less than 12

months compared to only 16.6% of all employees.

Table 3: Share of NMW employees and total employees by duration of employment

Duration of

Employment

Share of employees

earning the NMW or less

Share of total employees

by duration of employment

Less than 3 months 13.6% 4.6%

3-5 months 11.0% 4.4%

6-11 months 15.9% 7.6%

Less than one year 40.5% 16.6%

12-17 months 10.3% 5.8%

18-23 months 6.9% 4.4%

24-47 months 14.5% 11.0%

48 months or greater 25.8% 60.0%

More than one year 59.5% 83.4%

Source: Central Statistics Office, QNHS – National Minimum Wage Estimates Q2 to Q4, 2016

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8. Table 4 below further shows that those who earn the NMW or less are far more highly

represented among those who have been in their current employment for a relatively

short period of time. Out of all employees working with their employer for less than three

months, 29.7% were earning the NMW or less, while out of all employees working their

employer for more than 48 months, 4.3% were earning the NMW of less.

Table 4: Proportion of total employees who earn the NMW or less by duration of

work Q2 2016 – Q4 2016

Duration of Employment Proportion of total

employees who earn the

NMW or less

Number of employees

who earn the NMW or

less

Less than 3 months 29.7% 21,100

3-5 Months 25.1% 17,100

6-11 Months 21.2% 24,600

12-17 Months 18.0% 15,900

18-23 Months 15.8% 10,700

24-47 Months 13.4% 22,600

48 Months or greater 4.3% 40,000

Source: Central Statistics Office, QNHS – National Minimum Wage Estimates Q2 to Q4, 2016

9. These data suggest that as the length of time with an employer increases, the likelihood

that a person earns the minimum wage decreases. However, for a significant minority of

workers, the minimum wage remains a feature despite having worked with their

employer for 4 years or more.

Conclusions from Existing Data

10. The QNHS data do, to a certain extent, bear out the idea that the NMW is a starter wage

for younger workers and that employees progress out of it relatively quickly to higher

paid employment over the course of their careers as:

a disproportionately higher number of younger workers earn the NMW or less

compared to older workers; and

those earning the NMW or less represent a greater share among those who have

been in their current employment for less than 12 months than compared to those

who have been in their current employment for 24 months or more.

However, on the other hand, there is also evidence that:

approximately one in three of those earning the NMW or less is aged 35 or over,

and

one in four employees earning the NMW or less has worked with their employer

for four years or more.

This would indicate that for some workers, the minimum wage may not represent a

starter wage, and that these workers may remain working for the minimum wage for a

prolonged period of time.

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11. In order to gain a better understanding of what type of workers find themselves on the

NMW for longer periods of time the Commission requested that the ESRI, as part of its

research partnership, examine transitions in and out of minimum wage employment.

Chapter 2 sets out the main findings of the ESRI study.

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Chapter 2 Transitions from the Minimum Wage

1. This chapter reports on the ESRI research into transitions in and out of minimum wage

employment, and provides an overview of the welfare supports that are available to

minimum wage workers.

Objective of ESRI research

2. This section is based on the ESRI report, “An Examination of the Labour Market

Transitions of Minimum Wage Workers in Ireland”. The full report provides a

comprehensive account of the research methods used and more detailed results than

outlined below.

3. The ESRI sets out that the objective of the research is two-fold:

To identify the labour market status and key characteristics of individuals moving

in and out of NMW employment, and

To assess the extent to which NMW is transitory, to identify the rate at which

NMW employees transition to higher paid jobs, and the characteristics of the

individuals most likely to make this transition.

4. This chapter reproduces the main findings from the ESRI research and international

comparisons contained in the ESRI paper. These findings add to the available evidence

base in Ireland on the characteristics of workers that transition out of minimum wage

employment into higher earnings, and of those that remain on the minimum wage.

5. The ESRI also provide a discussion on the impact of tax and welfare arrangements on

minimum wage transitions.

Main Findings from the ESRI report

6. The main findings from the report include:

This study uses a new measure of minimum wage employment in Ireland, taken from

the Quarterly National Household Survey (QNHS), to assess the degree to which

individuals in receipt of the National Minimum Wage (NMW) transition in and out of

NMW employment over a period of three quarters3 in 2016 and 2017.

In total we have longitudinal data on 1,514 employees who were in receipt of the

NMW in at least one of three consecutive quarters.

Of the 1,514 employees, 18 percent remained on the minimum wage for all three

quarters. Approximately 30 percent transitioned from minimum wage employment to

3 The Commission notes that although the QNHS data is primarily cross-section in nature, there is a limited

longitudinal component to the data whereby some individuals are followed for a maximum of five consecutive quarters. However due to sample size constraints this study follows people for just three quarters.

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higher paid employment and approximately 6 percent transitioned from minimum

wage employment to unemployment or inactivity.

Therefore, more workers transitioned from minimum wage to higher paid employment

over a period of three-quarters than remained on the NMW.

Approximately 13 percent of the sample transitioned from higher pay to minimum

wage employment, while 11 percent transitioned to minimum wage employment from

unemployment or inactivity.

Finally, just under 17 percent had more than one transition. This includes 9 percent

who transitioned from higher paid work to minimum wage employment and back

again to higher paid work. There were 5 percent who went from being on the

minimum wage to higher pay and back again to minimum wage employment and

approximately 3 percent who transitioned from unemployment/inactivity to minimum

wage employment and back to unemployment/inactivity4.

The results also show that exits from NMW status to higher waged employment are

achieved primarily through within-employer wage progression rather than between

employer job change. Over 90 percent of employees who transition to higher paid

employment do not change occupation or employer.

There is some variation in the characteristics of workers who exit NMW status,

relative to those who remain in NMW employment. Our multivariate analysis shows

that Irish nationals, older workers, those with higher levels of schooling and full-time

employees were more likely to exit NMW employment to higher paid employment5

compared to non-nationals, younger persons, those with lower educational

attainment and part-time workers.

Individuals in sales occupations are relatively less prominent among those leaving

NMW employment, which may suggest less scope for wage progression within such

occupations.

The research suggests that NMW employment is likely to represent more of a “trap”

for members of some groups than others.

Approximately 11 percent of people who were in NMW employment in at least one of

the three quarters experienced unemployment or inactivity in a subsequent quarter.

This is higher than the transition rate to unemployment or inactivity among higher

earning employees.

Our analysis reveals that a high percentage of responses to the minimum wage

question do not come from the individual themselves, but from another family

member (so called “proxy responses”). In quarter 2 of 2016, 56 percent of responses

to the minimum wage question were proxy responses.

Approximately one quarter of individuals in the sample move from higher pay to

minimum wage employment at some point during the three quarters, without

4 The remaining 5% fell into categories for which there was no clear pattern.

5 The Commission notes that this analysis refers to transitions within a year.

8

changing employer or occupation. While it is possible that proxy responses may be

leading to some misclassification among this group, our research does not find

strong evidence of this.

While the introduction of the minimum wage question is an important addition to the

QNHS survey, it is important to take account of the limitations of this measure which

relate to high levels of proxy responses.

International Comparisons

7. The ESRI note in the paper’s introduction that:

There is a limited literature on the extent to which minimum wage employment leads to

future labour market progression. However, the evidence that does exist is supportive of

the view that minimum wage employment can act as a stepping stone to higher earning

positions for many individuals. For the USA, Smith and Vavrichek (1992), using

longitudinal data to examine the wage progression of workers in the mid-1980s, find that

60 percent of workers on the minimum wage earn higher wages one year later. Similarly,

Schiller (1992), also for the USA, find that less than 15 per cent of workers are still in

receipt of the minimum wage three years following the take up of minimum wage

employment.

However, while large proportions of minimum wage workers appear to transition to

higher paid employment quite quickly, a substantial minority are likely to remain in low

paid jobs for a considerable period. Carrington and Fallick (2001) use the National

Longitudinal Survey of Youth to study the transition patterns of young workers entering

minimum wage jobs in the US, and find that approximately 8 percent are still employed in

minimum wage positions ten years into their careers. Carrington and Fallick (2001) also

report that individuals remaining in long-term minimum wage positions are more likely to

be from minorities, female and have lower levels of schooling. With respect to evidence

from the UK and elsewhere, Dickens (2000), while not strictly focusing on minimum

wage workers, finds that between 20 and 30 per cent of British males in the lowest

income decile remained there after three years, with similar results for females. Stewart

and Swaffield (1999), also for the UK, report high rates of persistent, low-wage

employment. They also find that low wage workers tend to move more frequently

between employment and unemployment. Finally, for Italy, Cappellari (2007) finds that

accepting a low paid job raises the probability of future low wage episodes, with

persistence levels higher for females and those with lower levels of education. Therefore,

the international evidence suggests that minimum wage employment is likely to lead to

higher earnings for most workers. However, a significant minority experience persistent

low-wage employment.

8. Looking more broadly at progression into higher earnings from low pay, rather than the

minimum wage specifically, the Resolution Foundation in the UK produced a number of

reports on this topic. Their 2013 report6, “Starting out or getting stuck? An analysis of

6 http://www.resolutionfoundation.org/app/uploads/2014/08/Starting-out-or-getting-stuck-FINAL.pdf

9

who gets trapped in low paid work – and who escapes”, defines employees as being

‘stuck’ in low-paid work if they are aged over 25 and low paid in 2012, and have only

held low paid jobs throughout the previous decade (2002 – 2011). Low pay is defined as

pay that is less than two-thirds of the median hourly wage. The research indicates that

more than one in four (28%) of all low paid workers found themselves ‘stuck’ on low pay

for the previous decade, corresponding to 5 per cent of the workforce. The report found

that low paid workers were more likely to have remained on low pay if they are female,

work in a low-skilled occupation and live in a particular geographic location. There was

also an age dimension to this, with middle-aged women particularly affected.

9. Their most recent report7 on this “Escape Plan: Understanding who progresses from low

pay and who gets stuck” (November 2014) was prepared for and funded by the Social

Mobility and Child Poverty Commission, which is an advisory non-departmental body of

the Department of Education, the Department for Work & Pensions and the Cabinet

Office. The main factors impacting on pay progression are listed below:

In terms of individual and household factors, the research found that initially

having a degree or gaining a degree was positively linked to pay progression.

Both quantitative and qualitative research flagged the role of attitudes in pay

progression. Factors that were negatively linked to pay progression include

being registered as disabled, time spent as a single parent, being born in the UK,

living in a local authority rented house and being older in the initial period.

In terms of factors related to firms, working for a large employer (1000+

employees) had a positive impact on pay progression, while working part-time

had a negative impact.

Looking at sectors of employment8, working in sales and hospitality was

negatively linked to pay progression, while working in the public sector had a

positive effect on pay.

10. From a different perspective entirely, Dickinson and Papps (2016) wrote a report9 for the

Low Pay Commission in the UK in relation to how the national minimum wage affects

turnover in the labour market. Their research found evidence that workers who are

affected by an increase in the minimum wage have a reduced likelihood of changing jobs

or exiting employment. The paper concludes that annual increases in the minimum

wage rates have a large negative effect on turnover.

Impact of Tax and Welfare on Minimum Wage Transitions

11. The ESRI report discusses the impact of how tax and welfare arrangements might

potentially influence individual transitions both into and from minimum wage

employment.

7 http://www.resolutionfoundation.org/app/uploads/2014/11/Escape-Plan.pdf

8 The report refers to research carried out in relation to a number of sectors and firms on pathways to improve

progression for low-skilled and low-paid workers. 9 Dickinson, M. and Kerry L. Papps (2016) How the national minimum wage affects flows in and out of

employment: An investigation using worker-level data. Report for the Low Pay Commission. February 2016.

10

In relation to transitions from unemployment or inactivity into minimum wage

employment, the report considers income supports such as the Back to Work Family

Dividend (which allows recipients to retain the child dependent portion of their social

welfare payment on a tapered basis after moving from off welfare to work), the Working

Family Payment (formerly called the Family Income Supplement) and replacement rates,

particularly since the introduction of age-related reduced rates of Jobseeker’s Allowance.

It notes that “the evidence suggests that there are relatively little impediments within the

structure of the Irish tax and welfare system that would actively inhibit transition rates

from unemployment to employment, and in particular, minimum wage jobs”.

12. The Commission notes that the impact of age-related reduced rates of Jobseeker’s

Allowance payments on labour market transitions for young people is evaluated in a

2017 IZA paper10 “Does Reducing Unemployment Benefits During a Recession Reduce

Youth Unemployment? Evidence from a 50% Cut in Unemployment Assistance”. This

research also considered the potential interaction between the benefit system and

minimum wage. While the study found a significant effect of the benefit cut on

unemployment durations for younger claimants there was little evidence that the benefit

cut affected exit wages. This is plausible since the exit wages of these claimants were

already close to the minimum wage rate; as a result there was limited scope for

reductions in the reservation wage.

13. In relation to aspects of the tax and welfare system that would inhibit transition from

minimum wage employment to higher earnings, the report notes that much less is

known. It states that the Working Family Payment (formerly the Family Income

Supplement) eases both the transition from welfare to work and also the transition from

low paid to higher paid employment as once a family qualifies for the payment, the rate

of payment continues for 52 weeks, even if the family moves to higher paid employment.

14. The ESRI report notes that it is possible that welfare or tax disincentives exist for

individuals to move out of low waged employment, but that any impacts are likely to be

highly specific to individual circumstances and household composition.

Some discussion on the income supports available to jobseekers and low-paid workers

is provided in the section below.

Welfare supports for people and families in employment

15. A 2015 ESRI publication entitled Making Work Pay More11, found that, “based on an

analysis of current incomes, benefits and taxes - more than eight out of ten unemployed

jobseekers would see their income increase by at least 40 per cent upon taking up

employment. Fewer than 3 per cent would, in the short-term, be financially better off not

in work. The risk of facing weak financial incentives to work is higher for unemployed

persons with a spouse and children, as the income support goal of the welfare system

10

Doris, A, D. O’Neill and O. Sweetman (2017) “Does Reducing Unemployment Benefits During a Recession Reduce Youth Unemployment? Evidence from a 50% Cut in Unemployment Assistance,” IZA Working paper 10727 11Making Work Pay More: Recent Initiatives. ESRI June 16, 2015 | Budget Perspectives

11

means that they tend to have higher welfare payments. However, even among that

group, fewer than 1 in 15 would be financially better off not working. With the addition of

the Back to Work Family Dividend, that figure drops to 1 in 20”.

16. This section provides a broad overview of the income supports available from the

Department of Employment Affairs and Social Protection (DEASP) to people in

employment, including those who are earning the minimum wage. The DEASP provides

a range of income supports to working people, and in particular, working families.

Jobseeker Payments

17. There are two main schemes for jobseekers seeking full-time work; the social insurance

based Jobseeker’s Benefit and the means-tested social assistance scheme, Jobseeker’s

Allowance. The conditions for both of these schemes require that the person must be

seeking full-time work; however, it is possible for recipients to work up to three days a

week and still qualify for payment. Disregards and tapers apply in the assessment of

earnings in the means test for almost all social assistance schemes, including jobseeker

schemes, to ensure that there are financial incentives to work, even on a part-time basis.

To safeguard against jobseekers entering welfare traps, all long-term jobseekers,

including those working part-time, are subject to activation by the Department (such as

the development of a personal progression plan with a case officer, assistance with job

search and referral to appropriate training courses and employment supports).

Supports for working families

18. For working families, the Back to Work Family Dividend provides an incentive to take up

full-time work (as it is only payable to those who come off a relevant social welfare

payment and enter employment). This scheme continues to pay the qualified child

portion of the person’s social welfare payment (€31.80 per week from 26th March 2018)

for 52 weeks, which tapers to a half-rate payment for the next 52 weeks. As the rate of

payment is not affected by the person’s earnings, there is no disincentive to taking up

higher paid employment.

19. The Working Family Payment (formerly called Family Income Supplement) is an in-work

support that provides an income top-up for low-earning employees with children. The

payment is provided tax-free and is paid weekly to low-income families working a

minimum of 19 hours per week. The payment ensures that there is a financial incentive

to take up or remain in employment in circumstances where the employee might only be

marginally better off in work. Some examples of how the supports provided through the

Working Family Payment and the Back to Work Family Dividend help to make work pay

for families on the minimum wage and low earnings, are provided in the text box below.

Example 1

A lone parent with one child is working the minimum 19 hours at the National Minimum

Wage of €9.55 per hour, giving assessable earnings from employment of €181.45 per

week. With the addition of the Working Family Payment, total family income rises to

€385.45 per week. If the family is moving from welfare to work it will mean they can

qualify for the Back to Work Family Dividend. For this family, this means an extra

€31.80 per week in the first year, giving a total income of €417.25 per week (combined

income supports of €235.80 per week.). This results in an annual income of almost

€21,700 from earnings of c. €9,435 per annum.

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20. As there is no requirement within the Working Family Payment that the family increase

the number of hours worked, there could be a concern that this may lead families to

remain long-term reliant on welfare supports in part-time, low-income employment (Note:

it is not possible to identify the extent to which recipients of the Working Family Payment

are earning the minimum wage). However, analysis of the length of time that families

spend on the Working Family Payment suggests that almost half of claimants (46%)

receive the payment for two years or less, with approximately three-quarters (73%)

receiving the payment for four years or less. Some households do remain on the

payment for longer (see Figure 1 below).

Figure 1: Length of time in receipt of Working Family Payment (formerly FIS), 2017

Those who remain in receipt of the Working Family payment for the longest durations

tend to be lone parent households, which can be understood in the context of childcare

responsibilities, and the fact that it is more difficult to earn above the income thresholds

with one income compared to two possible incomes for couple households.

Further details on the Working Family Payment, such as the income thresholds by family

size, and other income supports provided by the Department are outlined in the

Appendix.

Example 2

A couple family with three children are working 35 hours with assessable earnings from

employment of €500 per week. With the addition of the Working Family Payment, total

family income rises to €634 per week. If the family is moving from welfare to work it will

mean they can qualify for the Back to Work Family Dividend. For this family, this

means an extra €95.40 per week in the first year, giving a total of €729.40 per week

(combined income supports of €229.40 per week). This results in an annual income of

over €37,900 from assessable earnings of €26,000 per annum.

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21. It is also useful to consider secondary payments, which may impact on an individual’s

decision to take up work, or increase hours at work. In this regard, rent supplement,

payable by DEASP, has previously been identified as a potential disincentive to full-time

work, as it is not generally payable where a person or their spouse or partner is in full-

time employment, i.e. for 30 hours or more a week. This potential disincentive has been

addressed with the nationwide roll-out of the Housing Assistance Payment (HAP) by

local authorities since 2017. HAP provides rental assistance to those with a long-term

housing need under the auspices of the Department of Housing, Planning, Community

and Local Government. HAP is particularly attractive for low income households, as they

can work full time and pay the local authority a weekly rent contribution based on their

ability to pay.

22. The Commission notes that the DEASP is bringing forward a report reviewing the

operation of the Working Family Payment to the Committee on Social Protection by the

end of June 2018. This paper will consider potential disincentives to work arising in the

welfare system.

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Chapter 3 Conclusions

Low Pay Commission Conclusions

1. Having considered available data from the Quarterly National Household Survey (QNHS)

and examined the report of the ESRI into the labour market transitions of minimum wage

workers, the Low Pay Commission has drawn the following conclusions in relation to

whether people remain on the minimum wage for considerable periods of time:

a. Approximately two-thirds (65%) of minimum wage workers are under 35. While

most progressed beyond the minimum wage within a year, some remain on the

minimum wage for a longer period of time.

b. Those most likely to progress beyond the minimum wage within a year are Irish

nationals, older workers, those with higher educational attainment and those in

full-time work.

c. Non-Irish nationals, part-time workers and those with lower educational

attainment are more likely to experience longer periods on the minimum wage.

2. The Commission notes that analysis on the length of time a person spends on the

national minimum wage is limited by the lack of longitudinal earnings data in Ireland. In

this regard, the ESRI is necessarily limited, given the constraints of the existing QNHS

data, to studying transitions over a period of three quarters. The Commission notes that

the ESRI research makes use of the available QNHS data, and that this work adds to the

evidence on minimum wage transitions in Ireland.

However, the Commission wishes to highlight the need for the CSO to develop a

comprehensive dataset on earnings, linked to details on both the employer and

employee. This will allow the Commission to conduct more meaningful analysis, and

gain a better understanding, of minimum wage employment.

3. With regard to the extent of possible poverty/welfare traps, the Commission understands

that the Department of Employment Affairs and Social Protection is bringing forward a

report to the Committee on Social Protection, reviewing the operation of the Working

Family Payment by the end of June 2018. This paper will consider potential disincentives

to work arising from the welfare system, both in taking up employment and in taking up

additional hours of employment.

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Appendix

Selected income supports provided by the Department of Employment Affairs and Social Protection Jobseeker’s Allowance

Jobseeker’s Allowance (JA) is a social assistance scheme. To qualify, a claimant must be unemployed, capable of work, available for and genuinely seeking full-time work, satisfy the means test and meet the habitual residence condition. Reduced rates are generally payable to jobseekers under the age of 26.

Jobseeker’s Allowance is means-tested payment. The means test for earnings includes an incentive to take up work as there is a daily disregard (€20 per day for a maximum of three days) and a taper provided (whereby earnings above the disregard are assessed at 60%).

The budget allocation for the Jobseeker’s Allowance scheme is €1.837 billion in 2018.

Jobseeker’s Benefit

Jobseeker's Benefit (JB) is a weekly payment to insured people who are out of work. It is a non-means tested payment and it is paid at the same rate as the JA scheme. Reduced rates for those aged under 26 do not apply to the JB scheme.

To qualify a claimant must be unemployed, be available for and genuinely seeking work, and have had a substantial loss of employment.

Recipients can work up to three days a week and still qualify for the payment. In these cases, the weekly payment of Jobseeker’s Benefit is reduced by a daily rate (one-fifth of the weekly rate) for each day worked (up to a maximum of three days).

The budget allocation for the Jobseeker’s Benefit scheme is €331.7 million in 2018.

The CSO’s most recent Live Register publication (January 2018) reports that over 50,200 persons on the Live Register (i.e. in receipt of Jobseeker’s Allowance, Jobseeker’s Benefit or signing for credits) were working on a casual or part-time basis.

Back To Work Family Dividend

The Back to Work Family Dividend (BTWFD) scheme was introduced in January 2015. It allows JA/JB recipients who have been jobseekers for 12 months or recipients of the One-Parent Family Payment to retain their full Increase for Qualified Children (IQC) for the first year in employment, tapering to 50% in the

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second year. From March 2018, BTWFD is payable at a rate of €31.80 per relevant child – up to a maximum of €127.20 for 4 children.

The budget allocation for the BTFWD scheme is 20.7 million in 2018.

Working Family Payment (formerly Family Income Supplement)

Working Family Payment provides support for employees with families who have low earnings in relation to their family size. The payment is provided tax-free and is paid weekly.

Payment is calculated on the basis of 60% of the difference between the income limit for the family size and the weekly family income of the person(s) raising the

children. Earnings are assessed net of tax, PRSI and superannuation payments. The income limits are outlined in the table below.

To qualify for payment, a person must be engaged in full-time paid employment as an employee which is expected to last for at least 3 months and be working for a minimum of 38 hours per fortnight or 19 hours per week. A couple may combine their hours of employment to meet the qualification criteria. The applicant must also have at least one qualified child.

An integral part of the scheme is that once the level of payment is determined, that rate continues to be payable for a period of 52 weeks, provided that the person remains in full-time employment. The exceptions to this rule are where there is an additional child born to the family during that period or following the termination of One-Parent Family Payment due to the age of the youngest child.

The budget allocation for the Working Family Payment scheme is €431.3 million in 2018.

Table: Working Family Payment weekly family income thresholds, 2007 to 2018

2007 2008 2009 2010 - 2015 2016 2017 2018

1 Child €480 €490 €500 €506 €511 €511 €521

2 Children €550 €570 €590 €602 €612 €612 €622

3 Children €625 €655 €685 €703 €713 €713 €723

4 Children €720 €760 €800 €824 €834 €834 €834

5 Children €820 €870 €920 €950 €960 €960 €960

6 Children €910 €970 €1,030 €,1066 €1,076 €1,076 €1,076

7 Children €1,020 €1,090 €1,160 €1,202 €1,212 €1,212 €1,212

8 + Children €1,090 €1,170 €1,250 €1,298 €1,308 €1,308 €1,308