Minimum wage increase led to modest price increases

The minimum wage increase which was implemented in 2024 has led to some modest price increases according to a new study from the Economic and Social Research Institute. The study which was funded by the Low Pay Commission examined whether increases in the minimum wage affect the prices consumers pay for goods and services in industries with large numbers of minimum wage workers. The research found that for most minimum wage increases implemented since 2016 there was no detectable impact on prices.

However the largest minimum wage increase to date which was implemented in 2024 led to modest price increases in a small number of minimum wage intensive price categories. For seven of the eight minimum wage increases that were examined no significant impact on prices was detected. The only minimum wage change associated with higher prices was the January 2024 increase when the minimum wage rose by 12.4pc from €11.30 to €12.70 per hour.

Researchers found the increase was associated with a 2.5pc rise in prices across affected categories including hairdressing, takeaway coffee, takeaway meals and restaurant meals. The ESRI stated that compared with minimum wage increases other policies and economic events in recent years have had substantially larger effects on prices. VAT adjustments in 2019 and 2023 along with the Covid-19 pandemic in 2020 were associated with price increases three to four times larger than those associated with the 2024 minimum wage increase. In July it was reported that the Low Pay Commission had recommended that the minimum wage should increase by 5.6pc.

Paul Redmond, co-author of the report and Associate Research Professor at the ESRI, shared: “The research shows that most minimum wage increases in Ireland in recent years were not associated with higher prices. The 2024 increase, the largest to date, was associated with modest price increases across a small number of goods and services. By comparison, VAT adjustments and the Covid-19 pandemic had a far greater impact on prices.”

Ultan Courtney, Chair of the Low Pay Commission, shared: “The findings of the paper will provide a practical reference point that will help the commission assess the relationship between minimum wage changes and consumer prices in the years ahead.”