The Italian political debate in the past months has been characterized by a continuous attention to labor law topics. While the Meloni cabinet prepared a budget package for 2024 which promised to cut payroll taxes for many workers, the opposition parties signed a proposal to set a minimum wage at €9 per hour, which would be applicable to all sectors and in every Italian region.1
Leading politicians in this group often describe their battle for a minimum wage as a struggle for a more equitable society, where everyone obtains a fair compensation for their work. While the latter is an easily agreeable argument, representing a noble goal in many respects, is it the best reason to justify an economic intervention of the scale of a minimum wage introduction?
A review of the current situation in Italy, together with the relevant economic theory, might aid in addressing this question.
Italy, together with Austria, Denmark, Finland, and Sweden, is one of the five EU Member States that currently do not have a statutory minimum wage in place.
A wage floor here is guaranteed through industry-level bargaining, with sectoral collective agreements.2
A sector level agreement in Italy is not immediately applicable ‘de iure’ to all workers outside of signatory unions. In fact, ‘erga omnes’ clauses, making the agreement enforceable for outside parties, are not present in Italy. However, there is a ‘the facto’ general effect, extending the agreement to all workers and all firms, even outside of signatory unions and employers’ associations.3
The reason for this is that the jurisprudence in Italy takes the outcomes of the collective bargaining process as a benchmark for the right to ‘fair remuneration’ established in the Constitutional chart.
Indeed, Article 36 of the Italian Constitution states that “Workers have the right to a remuneration commensurate to the quantity and quality of their work and in any case such as to ensure them and their families a free and dignified existence.” 4
Upon request, judges in Italy can also fix a minimum wage, though it would be binding only on the parties to an individual contract of employment.5 In fact, they are allowed to enforce contracts from related sectors if the present one proves inadequate. As the minimum wage has become a somewhat partisan issue, the judiciary steps in to assume the role of a surrogate to politics.6
However, the effectiveness of this system as an ‘Italian way’ to the minimum wage is currently under discussion.7
The implementation of statutory minimum wage systems across various European Union member states demonstrates a diverse spectrum of approaches, reflecting the unique socio-economic dynamics and legal frameworks of each country. Indeed, the economic rationale for the introduction of a minimum wage stems from efficiency reasons. The existence of firms having some kind of monopsony power (the situation that arises where firms have the power to set wages unilaterally)8 creates a suboptimal labor market outcome, with both values of wages and employment being below the levels that would theoretically prevail in a perfect labor market (i.e., one characterized by perfect competition). Depending on the degree of monopsony power firms have in a given State, it might be desirable to set a minimum wage above the level observed in that market, but below the theoretical perfect labor market equilibrium level. Minimum wages set in this range (which is different for every country) will increase wages, employment, and overall welfare. It should thus not come as a surprise that different countries adopt different approaches when regulating minimum wages, and that these policies lead to many distinct outcomes across distinct countries.
The future of minimum wages mainly rests in the accuracy with which the relevant economic theory will be applied. A properly set minimum wage has the potential to increase overall welfare, through increases in both wages and employment levels. However, if the minimum wage is set too high, then we can except a decrease in the employment level, with only non-displaced workers enjoying the higher wage.
The determination of the optimal minimum wage level is thus of paramount importance for such policies to work in practice, and to ensure overall positive effects on the welfare of a country.
While it might be tempting to uphold the introduction of a minimum wage on equity grounds, economics tells us that efficiency-enhancing effects must also be considered.
Defending the equity arguments is somewhat easier, as some constitutions around the world already recognize the right to an equitable pay. Determining whether a given minimum wage level is efficient is certainly a tougher task, and it is the main contribution that economics might give to labor law in the coming years.
- Il Sole 24 Ore – “Salario minimo, controproposta del centrodestra: no ai 9 euro all’ora”
- Boeri and Van Ours – “The Economics of Imperfect Labor Markets, Third Edition” (2021)
- OECD – “Collective Bargaining in OECD and accession countries” (2016)
- Constitution of the Italian Republic – Art. 36
- ItaliaOggi – “Minimum wage, judges decide”
- Menegatti – “Wage-setting in Italy: The Central Role Played by Case Law” (2019)
- OECD iLibrary – “Monopsony and concentration in the labour market”
I was born and raised in Como, Italy, and - after receiving a scientific education - I’m now enrolled in the Bachelor’s in Economic and Social Sciences. I use writing as a tool to record my thoughts and opinions while making them available for others to read.