Italy’s Minimum Wage Should Be EUR 8.25–9.65 per Hour

The optimal minimum wage for Italy should range between EUR 8.25 and 9.65 per hour. This is one of the main conclusions of a new study by the research network EconPol Europe based on data from 2018. This amount corresponds to around 63 to 73 percent of the median wage in the observed sample of Italian firms. “We also show that the calculated value of the optimal minimum wage has remained relatively stable between 2011 and 2018,” says Mauro Caselli, one of the co-authors of the study.

According to the study, monopsony power is a widespread phenomenon in Italy, especially in its central and southern regions. The introduction of a minimum wage, based on the value currently being discussed in the Italian parliament, may alleviate this labor market distortion which arises from highly productive firms paying low wages. However, such a policy measure would also generate the opposite effect on the Italian economy, as it would force less productive companies to reduce the number of their employees or even to exit the market. “In light of these considerations, we calculated the optimal value of a minimum wage that would minimize the share of firms that may suffer damage but that would also reduce the market power of high-productivity firms who pay low wages,” says co-author Jasmine Mondolo.

The study is based on a data set containing the financial statements for around 235,000 Italian limited liability companies, operating in the manufacturing sector during the 2011–2018 period. The data covers revenue, labor costs, number of employees, book value of capital stock, expenditures on intermediate inputs (e.g., material), as well as the industrial sector and the year in which the company was founded.