Minimum wage, the effects on employment and Italy’s position


Italy is one of the few European countries without a universal minimum wage. While minimum wages are set by national collective bargaining, the boom in ‘pirate contracts’ in recent years and fragmentation in union representation have nevertheless led to an increase in what’s referred to as ‘poor work’. As wages fall, the debate on whether to introduce the measure is intermittently rekindled in our country. Especially now that the European Commission has also proposed a directive to introduce a minimum wage in the Member States.

Modern economic theory, in fact, seems to be increasingly aware of the importance of having a starting point, a floor, to ensure fair wages for workers, especially since the idea that the minimum wage can shift the balance of the labour market is now outdated.

One of the key contributions of David Card, who was awarded the Nobel Prize in Economics this year along with Joshua Angrist and Guido Imbens, concerns the effects of the minimum wage on employment. Working alongside Alan Krueger, the results of their research in 1994 caused a sensation: raising the minimum wage does not necessarily lead to fewer jobs.

 

A European map

Despite considerable differences in the figures set as a minimum threshold, 21 out of 27 EU countries now have a legal minimum wage. According to data provided by Eurostat, 13 states, mainly in Eastern Europe, ensure minimum wages below one thousand euros per month. Spain and Slovenia are in the €1,000–1,500 range. The other six (Ireland, Germany, France, Belgium, the Netherlands and Luxembourg) top €1,500 per month. They range from €332 in Bulgaria to €2,257 in Luxembourg. These figures must, of course, be adapted to the cost of living and thus to the purchasing power they guarantee in each state.

While Italy has extensive collective bargaining, it is one of the few EU countries without a legal minimum wage alongside Denmark, Cyprus, Austria, Finland and Sweden.

 

The situation in Italy

Labour Minister Andrea Orlando has engaged a working group of economists and sociologists to review interventions and measures to combat in-work poverty in Italy.

The report [relazione presentata] explains that having a job in Italy is not enough to keep from falling into poverty. In-work poverty increased from 10.3% in 2006 to 13.2% in 2017, concentrated mainly among the self-employed and part-time workers.

Proposals to introduce the minimum wage by law have been made in Parliament for a long time, yet no legislation has ever been passed. For this reason, the working group made five proposals aimed at supporting individual and family incomes. First and foremost, the concept of introducing appropriate minimum wages was put on the table.

“Adequate minimum wages are a necessary, albeit insufficient, condition to curb in-work poverty among employees,” the experts explained on Lavoce.info. “There are two options that have long been under discussion in Italy: either extending the scope of the main collective bargaining agreements to all workers in the affected sector (i.e. including companies that have not signed that agreement) or introducing a minimum wage by law“.

These two options have run up against “political and technical obstacles that have been blocking any progress on the issue for years. For this reason, we suggest starting with piloting a statutory minimum wage or wage grids based on collective bargaining agreements in a select number of sectors with greater criticality in order to assess their impact on the economy and industrial relations system”.

The English and German systems can be taken as models. Germany introduced legal minimum wages in specific sectors where bargaining had been weak before the measure. In the UK, however, the Low Pay Commission, made up of trade union representatives and academic experts, was tasked with setting the minimum wage that was introduced in 1999.

 

Research by the Nobel Prize laureate in Economics

Nobel Prize laureate David Card’s research on minimum wages for fast food workers in New Jersey is viewed as a turning point on the issue. Card, a professor of economics at the University of California, Berkeley, published a paper in 1994, co-written with Alan Krueger, that broke new ground in thinking about setting wages. Before their article, the conventional theory in economic research was that raising the minimum wage would reduce jobs.

For years, research in the field remained disconnected from empirical studies, practical statistical evidence and other factors. Textbook economics basically dictates that a minimum wage higher than the one determined by market forces of supply and demand would make more people willing to work, but fewer firms able to afford to pay a higher wage.

If so, the theoretical consequences would be job destruction, i.e. very high unemployment. Empirical studies were then brought into the equation and revealed that this outcome does not exist in practice, or not in such a direct connection as classical economic theory would have us believe.

Card and Krueger’s research was something of a revolution in this field. In Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania, the two economists compared employment rates at 410 fast food restaurants (including Burger King, KFC and Wendy’s) in the US States of New Jersey and Pennsylvania. The comparison was made on employment, wages and prices in shops in New Jersey, a state that had raised its minimum wage from $4.25 to $5.05 an hour in 1992, and in shops in Pennsylvania, which had not changed its minimum wage. The researchers thus found that changes in a state’s minimum wage made no difference in employment.

The study was so successful that it not only revolutionised thinking about the minimum wage, but also revolutionised the way of looking at how economic studies should be conducted, challenging an orthodoxy that had dominated the field for decades.

 

A new vision?

A lengthy analysis by the American radio station NPR [Una lunga analisi della radio americana Npr] helped to explain the change brought about by Card and Krueger’s study: “Since its publication, most mainstream economists have changed their positions on minimum wages. Back in 1978, 90% of the members surveyed by the American Economist Association agreed that minimum wages substantially reduce employment among low-wage workers. In 2000, however, only 46% agreed“.

In 2014, a group of leading American economists, including seven Nobel Prize laureates (Kenneth Arrow, Peter Diamond, Eric Maskin, Robert Solow, Thomas Schelling, A. Michael Spence, Joseph Stiglitz) and eight former presidents of the American Economic Association, signed a letter to the US president and Congress supporting the economic benefits of raising the minimum wage to $10.10.

The letter urged legislators to implement a gradual increase over three years: this would have allowed minimum wage workers employed full-time for the whole year to receive an increase in their salary from $15,000 to about $21,000.

The visibility of these calls, the impetus provided by a Nobel Prize winner and the success of minimum wage studies open up the possibility that in many countries politicians will change their stance on the issue, be more willing to propose legislation for the introduction of the minimum wage and perhaps guarantee workers higher wages.

A number of examples can already be seen. US President Joe Biden has proposed raising the minimum wage for federal public workers to $15 per hour, while Olaf Scholz’s new government in Germany has agreed to raise the minimum wage to €12 per hour.

 

Di |2024-07-15T10:06:49+01:00Febbraio 14th, 2022|english, Human Capital, MF, Welfare|0 Commenti