The Irish Small and Medium Enterprise Association (ISME) has warned of potential negative impacts of the planned increase to the national minimum wage to establish a living wage.

Last week, the Government agreed to the introduction of a new national living wage to replace the minimum wage by 2026.

It will be phased in over a four-year period starting next year, and will be set at 60% of the hourly median wage.

In 2023, it is estimated that 60% of median earnings would equate to approximately €13.10 per hour.

The minimum wage will increase by 80 cent from 1 January 2023 to €11.30 per hour.

This will be followed by gradual increases until the minimum wage reaches 60% of hourly median earnings.

ISME says that while the plan announced by Government last week will be politically popular, moving to a living wage will come at a serious economic and social cost in Ireland, most especially for lower-skilled and unskilled workers.

The association says that the cost of the increase will be met by reduced working hours, or increased worker productivity, or increased sales prices, or a combination of all three.

Where employers pass on increased wage costs by increasing the cost of foodstuffs and consumer goods, it reduces the value of the pay increase for ordinary workers, ISME says.

"The most significant cost for individual workers today is that for accommodation," said Neil McDonnell, CEO of ISME.

"Adjusting the minimum wage upwards will have no impact on the affordability of housing and rental accommodation for workers as rents spiral upwards, chasing an ever diminishing supply of accommodation," Mr McDonnell said.