Exporting companies most exposed to the sterling fall, in areas such as tourism, retail, manufacturing and food processing, are the least able to absorb wage increases.
The Low Pay Commission recently recommended that the government increase the minimum wage by 10c per hour.
The government is considering the increase in the 2017 budget from the current floor pay of €9.15 per hour – a rate introduced at the start of the year from the previous level of €8.65 per hour.
Linda Barry from the Small Firms Association said while the 10c increase might seem modest, it’s on top of the 6pc increase in the minimum wage that was brought in in January.
“The environment for small businesses at the moment is uncertain and worrying,” says Barry.
“Small firm owner-managers have identified wage inflation as the biggest threat to their businesses in the coming year.”
Barry says that an increase in wages needs to take into account the “most vulnerable” businesses in the country.
According to Barry, there are certain sectors that will get hit the most by an increase in wages.
“Certain areas haven’t seen a recovery from the recession, such as retail. They’re still under pressure and will be further hit by an increase in wages.
“Other sectors such as businesses along the West where employment is falling will also feel the pressure as well as businesses near the border that are already hurt by Brexit,” she argues.
While an increase in minimum wage could improve employee relations, Barry said that businesses need to be in the position financially to offer such benefits.
“Some companies are giving pay rises because they see the positives in it. But it depends on their performance in the market and if they can afford the salary increases.”
The fall in sterling
Director of Employer Relations at the Irish Business and Employers’ Confederation (IBEC) Maeve McElwee says, “While the proposed increase is broadly in line with wage trends elsewhere in the economy, many businesses just cannot afford pay rises. Exporting companies most exposed to the sterling fall, in areas such as tourism, retail, manufacturing and food processing, are least able to absorb wage increases. Irish exporters are now facing a further blow to their ability to compete and win business in the UK. It will have a direct impact on their capacity to create and sustain jobs.
“The minimum wage is currently 6pc higher here than in the UK. With the exchange rate likely to move towards £0.90 over the coming months, this will make it 14pc higher.
“IBEC supports the national minimum wage as a principle and recognises that it should increase over time. However, an increase is not justifiable in the current economic environment and would only intensify cost pressures on businesses.”
The living wage
The Irish Congress of Trade Unions said it’s calling on the Low Pay Commission to work towards making the minimum wage closer to the living wage and welcomed pay increases.
“The economy is growing strongly, and it would be remiss of the Low Pay Commission not to take advantage of the prevailing economic conditions and the emerging societal consensus and move the level of the hourly rate of the minimum wage closer to that of the living wage,” stated the ICTU.
“Some 70pc of those paid at the level of the minimum wage are under 40. Because of their age, these workers are more likely to have to endure costs for essential services like childcare and are also likely to have rental and mortgage costs. A substantial increase in the minimum wage will contribute to improving the quality of life of these workers and could increase participation in the labour market particularly for women and lone parents.”
Article by Catherine Devine.