New ESRI research finds that most of the recent minimum wage increases in Ireland had no impact on inflation

A new ESRI study, funded by the Low Pay Commission, examines whether increases in the minimum wage affect the prices consumers pay for goods and services in industries with large numbers of minimum wage workers. Higher prices may arise if businesses choose to pass some of the resulting increase in labour costs on to consumers.

The research finds 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.

Key findings from the report include:

• 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. The minimum wage rose by 12.4 per cent, from €11.30 to €12.70 per hour—the largest increase to date in Ireland—and was associated with a 2.5 per cent increase in prices across affected categories: hairdressing, takeaway coffee, takeaway meals and restaurant meals.

• The price categories identified as being affected by the 2024 minimum wage increase account for just 11 per cent of total consumer spending, while minimum wage employees account for an estimated 2.7 per cent of the total wage bill in Ireland. As a result, the overall impact of small to moderate minimum wage increases on inflation in Ireland is likely to be negligible.

• Compared with minimum wage increases, other policies and economic events in recent years 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.

Dr Paul Redmond, co-author of the report and Associate Research Professor at the ESRI, said, “Our 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 said, “The Low Pay Commission’s ongoing research partnership with the ESRI continues to strengthen our understanding of minimum wage employment in Ireland. This latest high-quality independent research makes a valuable contribution to that evidence base.

A clear understanding of how the minimum wage affects the prices consumers pay for goods and services is particularly important to the Commission in considering its recommendations. The rigorous analysis provided through this paper allows the Commission to make informed, data-driven decisions, even in complex macroeconomic conditions.

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.”