Labour Market Power and the Quest for an Optimal Minimum Wage: Evidence from Italy

This paper investigates the recent trends in labor market power in Italy and assesses the impact of a potential minimum wage using a large sample of manufacturing firms. The authors show that, despite a general shift of labor market power from the employer to the workers, monopsony power is still widespread, especially in certain sectors and regions. The introduction of a minimum wage would be beneficial to the economy as it reduces the monopsony power of highly productive firms that pay low wages. However, it may also have a negative impact, since firms with low labor productivity may react by reducing the number of their employees or even by exiting the market. The optimal minimum wage, which minimizes the negative effects and maximizes the positive effects on the economy, ranges between EUR 8.25 and 9.65 per hour.