five: Transformational Ideas

FIVE: TRANSFORMATIONAL IDEAS

LIVING WAGE: IRELAND WANTS TO BE WORLD’S LEADER – BUT COULD CRUSH SMALL BUSINESSES

Maeve O’Sullivan

Lecturer in Management and Programme Director, MSc Human Resource Management, Cork University Business School at UCC.

Explore more:

O’SULLIVAN, M., CROSS, C., LAVELLE, J. (2021). Good or bad jobs? Characteristics of older female part-time work. Industrial Relations Journal. bit. ly/3GFXNm2

COVID-19 has brought the living wage debate back into focus, particularly since many essential workers are the lowest paid in society.

Numerous major companies such as Ikea and Unilever now pay a living wage, as does the Scottish government. Ireland, however, could soon go one step further. The Irish government has tasked its Low Pay Commission with examining how a living wage could be introduced across the republic. Due to report later in the year, the Commission could enable Ireland to become the first nation to require all businesses to pay a true living wage, raising all wages from the minimum wage of €10.20 (£8.81) an hour to €12.30 (£10.61) an hour. As in many countries, the living wage is currently optional in Ireland, with some employers such as Lidl and Aldi making a virtue out of paying it. A republic-wide living wage sounds laudable from the perspective of workers’ entitlements, particularly at a time of rising inflation. On the other hand, Irish business groups argue that the timing is poor considering how businesses have been hit by the pandemic. While many elsewhere will be watching closely to see how this develops, there is a danger of going too far. The living wage can have unintended consequences and detract from better ways in which government policies can improve people’s living standards.

The living wage so far

The concept of the living wage originates from the 19th century, when it was championed by the likes of the Catholic Church to address the appalling working and living conditions caused by industrialisation. The campaign has been back on the agenda since the 1990s in developed countries such as the US, UK, Canada and Ireland, mainly because having a job is no guarantee of making ends meet. More recently, the debate has been attracting greater attention in poorer countries too. The Global Living Wage Coalition is active in 40 countries, including Pakistan, Peru, South Africa and Nigeria. While there are many good living wage initiatives around the world, the UK currently leads the way with its national living wage of £8.91 per hour for 23 and overs. This is less than the £9.50 that living wage campaigners argue for, and which is paid by the likes of Ikea, but the national rate is set to rise to £10.50 by 2024. The disparity between government policy and campaigner demands reflects the fact that it’s tricky to define the living wage, with different criteria producing different rates.

Benefiting who?

Ireland has the third worst rate of low pay in the EU. Rental costs have doubled in the past decade and childcare costs are among the highest in the OECD. Although income tax is low for low-paid workers, an OECD report from March 2020 found nearly half of Irish workers were three pay cheques away from poverty (compared to around one third of UK workers). Since then, Ireland’s National Economic & Social Council has found that COVID-19 has made many poor jobs more valuable to society, but also worse in the sense that they often can’t be done remotely and tend to carry a higher risk of infection. But if this is the context for Ireland’s proposed living wage, what will it achieve? The UK’s Living Wage Foundation promotes the many benefits to business from paying a living wage, including increased employee retention, decreased absenteeism and better quality of output. Nonetheless, these benefits are only attainable if a living wage is affordable to employers: of the nearly 8,000 living wage employers in the UK, many are Britain’s largest firms. For smaller businesses, it may not be affordable. A 2019 report by Sheffield

PEOPLE

• Human Resource Management • Individual & Societal Wellbeing • Diet, Food & Health

PLANET

• International Development Sustainable Food Security • Regional & Environmental Economics

INNOVATION

• Innovation & Entrepreneurship • Design Thinking • Innovative Technologies • Business Continuity

Management • Risk Management

PROFIT

• Financial Technologies • International Competitiveness • Business Resilience

Sustainable Business drives CUBS research, with major projects underway that address the innovation and key challenges for people, the planet and profit.

University Management School on the impact of introducing the national living wage in retail and hospitality in parts of the UK identified various negative knockon effects for workers. These included leavers not being replaced, increased use of variable hours contracts, replacing older workers with younger ones and increasing the number of part-time workers at the expense of full-timers. Fast-forward to Ireland in 2021 and business association IBEC is claiming that introducing a living wage, particularly for entry-level jobs, will pose a significant barrier to employing young people, the main recipients of low wages. IBEC argues that the proposed living wage is being calculated on excessively high housing and rental costs, and with little consideration of geography, sector, enterprise size or employers’ ability to pay. Critics also argue that when you raise wages, you inevitably lose jobs. As a result, small firms are liable to be driven out of the market. For example, President Joe Biden’s proposal to raise the US federal minimum wage from US$7.25 (£5.11) per hour to US$15 (£10.58) was recently forecast to cost 1.4 million jobs by 2025. Even without the living wage, the Irish Small Firms Association’s recent sentiment survey identified increased business costs as one of the biggest risks to continued survival for small businesses.

The verdict

Introducing a fair living wage is an important way of improving worker outcomes. Clearly, however, if set too high, it may badly hinder small businesses and end up making life harder (albeit a little wealthier) for those who keep their jobs. If Ireland wants to become the world’s first genuine living wage nation, it therefore needs to proceed cautiously. Also, focusing on pay alone will not fix the problems associated with low pay. Giving workers a greater voice, better regulation of the gig economy and other societal measures such as better public services and sustained efforts to reduce income inequality are all important too. The same is at least as true for the quality of people’s jobs. At the EU’s Social Summit in March, heads of government committed to creating quality jobs and new industries, while the UN Sustainable Development Goals encourage all countries to promote prosperity while protecting the planet. As governments spend heavily to create green industries for the future, the decent jobs that this promises to create should be one of the key motivations for doing so.

FIVE: TRANSFORMATIONAL IDEAS

WE NEED HARD SCIENCE, NOT SOFTWARE, TO POWER OUR POST-PANDEMIC RECOVERY

Wim Naudé

Professor of Economics, University College Cork, Cork University Business School at UCC

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Wim Naudé, From the entrepreneurial to the ossified economy, Cambridge Journal of Economics, 2021;, beab042, https://bit. ly/31UePyi

Ten years ago, PayPal founder Peter Thiel condensed the growing sense of disappointment in new technologies down to just nine words.“We wanted flying cars,” he wrote, “instead we got 140 characters”.

That these words still ring true a decade later shows just how far short of expectations new technologies have fallen. To drive growth in a postpandemic world, we should remember that real economic progress has in the past been driven by hard science – not flashy consumer gadgetry. For years, hopes for productivity growth have been pinned on “Fourth Industrial Revolution” (4IR) technologies such as artificial intelligence (AI), the Internet of Things (IoT), and 3D-printing. But, in contrast to previous industrial revolutions, recent advances in digital technology have not resulted in the expected boost in productivity. Labour productivity growth has been stagnating since the 1970s. In the UK, it’s actually at its slowest rate in 200 years. Stagnating productivity has not gone unnoticed. Having banged the drum of the Fourth Industrial Revolution since 2016, the World Economic Forum has now changed its narrative to the “Great Reset”. No doubt this change reflects new economic realities wrought by the pandemic, but it’s also a silent admission that the 4IR has dramatically under-delivered on its promises of productivity and prosperity. Why? First, dominant firms that possess 4IR technologies are hindering their diffusion by leveraging their technological advantage to further entrench their dominance and reduce competition. This happens because software technology, which is subject to large fixed costs but low marginal costs, enables larger firms to develop better-quality products and services than their smaller rivals. That leaves smaller firms facing high obstacles and low benefits when considering the adoption of 4IR technologies. Many elect simply to continue without them.

This means that 4IR technologies are not diffusing fast enough. The gap between the “technology haves and have nots” in the corporate world is widening. A recent study also found that this gap is widening between rich countries and poor countries. When few companies have access to 3D printers, robots, or cutting-edge AI, there are fewer actors to leverage such technologies to the point at which productivity will increase across the board. It was general-purpose technologies – such as steam engines and the electric dynamo – that powered change in previous industrial revolutions. At present, it remains unclear whether 4IR technologies can do the same.

For example, AI has been of little value against the pandemic, failing to contribute constructively to solving the biggest problem of a generation. 4IR technology is stuck in what research firm Gartner call the “trough of disillusionment” – a state of disappointment we feel when technologies fail to live up to the hype.

Shifting investments

This “technology problem” has been well documented. New digital technologies are often found to deliver diminishing returns over time, especially once “lowhanging fruit” have been plucked, leaving only more ambitious, costly, and risky projects up for grabs. To avoid a technology problem, we need to invest in science that delivers general-purpose technologies, and technologies that deliver real scientific progress. To get there, we’ll need new strategies in research and investment once the pandemic subsides.

For instance, the vast majority of investment in digital technologies is currently driven by venture capitalists out to score quick returns on start-ups that can be scaled fast. As a result, technologies that require more development time – but that are most likely to lead to new breakthroughs – tend to be starved of funds.

This investment trend can leave crucial industries and technologies without the necessary funds to advance and innovate. For instance, venture capital (VC) funding into medical instrument technologies – vital for the continuing fight against pandemics – declined by over 50% between 2003 and 2017. Elsewhere, the VC market for technologies to combat climate change is in a crisis.

With markets allocating insufficient funding to technologies that might help tackle our grand global challenges, controversial arguments are now being made for mission-oriented innovation policies, which would entail an “entrepreneurial state” leading the charge towards key technologies.

Back to the lab

Many doubt this “creationist” view of innovation whereby the state can lead innovation, and argue instead that innovation is a bottom-up process. Whether innovation is creationist or bottom-up, we need to rethink our institutional frameworks for doing science, and start with the role of universities.

According to a growing chorus of commentators, fundamental physics, which delivered virtually all of the technologies underpinning earlier industrial revolutions, has been stagnating for years. This stagnation is now accompanied by a rise in anti-science movements that reject scientific knowledge on climate change, vaccine safety, and even the shape of the earth. At the same time, academic freedom is under threat.

University science has also become encumbered by unhelpful administrative incentives, box-ticking, and “a focus on incremental studies rather than more ambitious projects which are likely to fail, but might lead to more exciting breakthroughs”. Overcoming these obstacles should be a leading priority as we develop postpandemic research and innovation policies.

How we reset

The Fourth Industrial Revolution never really got off the ground — largely due to human flaws in distribution, investment and research which restricted the diffusion of its technologies and skewed investment into technologies with less meaningful economic impact. The Great Reset, like the Fourth Industrial Revolution, reads like a Hollywood script. To move beyond headline-grabbing science fiction and glitzy gadgetry, we need a real “back-tobasics” revolution — in the kind of science-plusrisk-taking that delivered economic prosperity in the past. For a start, this will demand more entrepreneurial university research projects that may well fail, but which might break new ground, too. 

The impact of digital technologies rely on datanetwork effects which accrue to early adopters.

FIVE: TRANSFORMATIONAL IDEAS

HOW THE GOVERNMENT’S RETROFITTING SCHEME RISKS LEAVING MIDDLE IRELAND OUT

Dr Wendy Rowan

A Lecturer in Business Information Systems at Cork University Business School at UCC.

Dr Stephen McCarthy

A lecturer in Information Systems and Co-director of the MSc Business Information and Analytics Systems course at Cork University Business School at UCC

While the Government’s €8.7 billion plan to retrofit 500,000 Irish homes is progressive, the State needs to help people finance retrofitting projects otherwise the plan will fail to live up to its ambition.

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https://act4eco.eu/

This project has received funding from European Union’s Horizon 2020 research and innovation programme under grant agreement No 784988. Middle Ireland faces the very real prospect of being unable to access the supports and schemes that have been specifically designed by Government to reduce residential carbon emissions. As researchers looking at ways of measuring and reducing residential emissions, it is an issue that is becoming increasingly pertinent as young families, in particular, risk being unable to access the progressive grants and funding that has been made available by the SEAI. This shouldn’t be read as an overt criticism of the SEAI, rather, it is more of a commentary on the complicated nexus of external factors that risk overtaking the radical and ambitious plans that they have laid out. As a result, if left unchanged, we risk establishing a dichotomy, where the squeezed middle, a cohort that is largely in favour of climate action, might not be able to afford to access some of the schemes designed to lower Ireland’s residential emissions. Labelled by critics as being overly ambitious, the Government’s €8.7 billion plan to retrofit 500,000 Irish homes is progressive. Afterall, the plan doesn’t just aim to reduce emissions, it endeavours to help alleviate fuel poverty and to create “green jobs” during our “just transition”. The Free Energy Upgrade Scheme, for example, offers free energy efficiency upgrades to homeowners who receive certain welfare payments. This single scheme has the potential to transform the homes of the 17.5% of the population who are in, or at risk of, fuel poverty. Likewise, the Warmth and Wellbeing pilot Scheme, which is currently being delivered at no cost to homeowners in specified areas of Dublin, sees the Government and the HSE attempting to provide energy

efficiency upgrades that will benefit the recipient’s overall health and wellbeing. Schemes such as these should be lauded, particularly as the cost of insulation materials has increased by 12% since the beginning of the year. However, apart the inflated cost of materials, mortgage holders also face the prospect of interest rate rises, which loom ominously on the horizon. As such, rather than taking on the risk and costs associated with a medium-term loan, homeowners might be tempted to continue filling their 1,000-litre oil tank, which currently costs €700 in Cork. It’s a perfectly understandable position to hold given the amount of uncertainty that has permeated into our lives during the last 18 months. Doubly so if you find yourself among the cohort of people that have paid inflated values for older houses in recent years. The irony here though, is that homeowners who cannot afford to upgrade their homes, will face the burden of having to pay increasing carbon taxes, which recently added around €3.52 to the price of a 40kg bag of coal, 76c to a bale of briquettes, and €84 toward the cost of filling a 900-litre oil tank according to Bonkers.ie. This means that those who can afford to invest in retrofitting will begin to reap incremental savings as energy costs rise throughout this decade. A factor that is unintentionally embodied in the plan to install 400,000 heat pumps in Irish homes. From a climate perspective, heat pumps represent an efficient way of heating homes, particularly if the energy used to power them is sourced from the renewable sources. Extremely efficient, air source heat pumps take air from outside your home and The RADICAL project has received funding from the European Union’s Horizon 2020 research and innovation compress it into a hot liquid that is piped programme under grant agreement number 899282. into radiators.

Heat pumps, however, are expensive to install, costing anywhere between €8,500 and €14,500. Although the SEAI provide grants of between €600 and €3,500 towards their installation, homes must first meet specific energy standards. Obviously, it makes sense that homes should be adequately insulated in order to maximise the efficiency provided by heat pumps. After all, it would be wasteful to invest in the technology if all the benefits teemed out of an uninsulated attic.

To that end, the SEAI offer grants of between €400 and €6,000 to install things like dry lining or attic insulation. However, given that only 18% of Irish homes secured a BER rating of B3 or higher in 2019, some form of deep retrofit may be required, which could end up costing households’ tens of thousands of Euro. As such, the retro fitting project risks failing to reach people who cannot afford, or see limited value in, schemes that may only provide real returns in the long term. This isn’t to say that the project is unfair or unjust - although it could do more to work with tenants and landlords who want to upgrade properties. Rather it is to suggest that the State needs to help people finance retrofitting projects. Otherwise, the plan will fail to live up to the ambition contained within it.

Deep retrofitting projects are a key to meet energy standards.