The risks of having a minimum wage without reforming bargaining

A threshold of 9 euros and rigid national contracts are an explosive mix. Learning from Germany: Adopt a minimum wage, but leave the possibility to exempt economically disadvantaged areas, companies or sectors in crisis

The debate on the minimum wage cannot be separated from a rethinking of collective bargaining. Which in Italy has always been too rigid. It is so in the duration of the renegotiations: every three years, while in Germany it happens every two and in France every year and a half. It is so in the level of bargaining: the same for the entire national territory, while in countries such as Germany, Greece, Portugal and Spain it is highly decentralized. These two factors mean that in Italy wages always react very late to price increases, are unable to respond to differentiated local shocks and create conditions of horizontal disparity between individuals who do the same job in Milan or Catania. Fixing the same nominal wage throughout the country translates into enormous differences in real wages, given the large differences in the cost of living. According to the latest available data from the Numbeo company, which estimates the cost of living in all cities of the world on a high-frequency basis, the cost of living (excluding rent) in Milan is 30 percent higher. Thus, in real terms, a worker in Milan ends up earning at least 30 percent less than in Catania. If rents are also considered, which in Milan are three times that of Catania, the difference in terms of cost of living rises to over 40 percent. It is bizarre that it was precisely these differences, considered unfair, between the wages of similar workers in different geographical areas that were the cause of the protests in 1969 which then led to the abolition of the so-called “wage cages” in the early 1970s. Yet at the time, the maximum differences between workers’ (nominal) wages were about half the actual gaps that exist today.