{"id":11828,"date":"2026-01-22T20:47:10","date_gmt":"2026-01-22T19:47:10","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=11828"},"modified":"2026-01-22T20:47:10","modified_gmt":"2026-01-22T19:47:10","slug":"why-we-need-a-minimum-wage","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2026\/01\/22\/why-we-need-a-minimum-wage\/","title":{"rendered":"Why We Need a Minimum Wage"},"content":{"rendered":"

Poverty among people who are nevertheless employed is a widespread problem in Italy and in Europe. This is one of the reasons why the debate on the minimum wage has reignited. It is, in fact, a tool designed to protect workers from excessively low pay and to guarantee them a subsistence income. In the political sphere, it enjoys a fair degree of popularity, to the point that several countries have adopted it. But it has also attracted various criticisms. It is therefore worth examining what economic research has to say about it. According to the most recent studies, an increase in the legally established base wage can raise incomes without causing more layoffs. It encourages firms to improve efficiency and productivity. Therefore, if properly calibrated, it can be a measure capable of reducing inequalities without undermining either employment or the competitiveness of the productive system.<\/em><\/p>\n

 <\/p>\n

More than 2.2 million families (8.4% of the total) and 5.7 million people (9.8% of the population) in Italy live in conditions of absolute poverty. This means that they can afford consumption spending equal to\u2014or even lower than\u2014the monetary value of a basket of goods and services considered essential to avoid severe forms of social exclusion. But there is more: 8.7% of families in which the reference person is an employee are also in absolute poverty. The percentage rises to 15.6% if this person is a manual worker or similar.<\/p>\n

This worrying picture emerges from the poverty report published by ISTAT in October.<\/p>\n

Those Most Affected by In-Work Poverty<\/strong><\/h3>\n

Despite strong labor market performance and the presence of social protection systems, in-work poverty remains an open challenge in Italy and in Europe. According to Eurostat, in 2024, 8.2% of employed people in the European Union were at risk of poverty, although differences across countries are wide.<\/p>\n

Particularly high rates of in-work poverty are recorded in southern and eastern European countries, such as Greece (10.7%), Spain (11.2%), and Bulgaria (11.8%), while they are lower in central and northern Europe, such as Germany (6.5%) and Denmark (6.2%).<\/p>\n

The pandemic and the subsequent surge in the cost of living have exacerbated these trends, with inflation and stagnant wages hitting low-income workers hardest. Young workers, part-time employees, and those in precarious employment conditions are particularly vulnerable.<\/p>\n

A Widespread Tool \u2014 But a Controversial One<\/strong><\/h3>\n

In the international landscape, one of the most widespread policies for supporting low-income workers is wage regulation, in particular through the establishment of a minimum wage: the basic amount that an employer is required to pay employees for work performed over a given period. This amount cannot be reduced by either collective agreements or individual contracts.<\/p>\n

The purpose of the minimum wage is to protect workers from unduly low pay and to guarantee them a subsistence income. This tool ensures a minimum income for all workers, preventing excessively low wages in sectors less covered by collective bargaining.<\/p>\n

At the same time, it can play an important role even where national or sectoral collective bargaining exists, as highlighted in the OECD\u2019s Employment Outlook 2023<\/em>. For example, when inflation is high, the minimum wage represents an effective protective tool, since it tends to adjust rapidly to rising prices, thanks to annual updates or automatic indexation mechanisms. By contrast, wages negotiated in collective agreements respond more slowly, because contracts are not renewed every year.<\/p>\n

Over the past decade, the minimum wage has gained unprecedented popularity. Several countries have introduced a legal form of it. For example, Hong Kong adopted it in 2011, Germany in 2015, and Cyprus in 2023. Where it already existed, significant increases have been recorded, for instance in the United Kingdom since 2016 and in Spain since 2017.<\/p>\n

In OECD countries, the average nominal minimum wage increased by 29% between December 2020 and May 2023. In the United States, more than half of states have a minimum wage higher than the federal one, and more than forty cities have set thresholds even higher than state or federal levels.<\/p>\n

In 2022, the European Union adopted a directive to update and improve minimum wage levels, promote collective bargaining in wage setting, and increase workers\u2019 access to this form of protection in all member states.<\/p>\n

Despite its diffusion and popularity, the minimum wage remains one of the most controversial regulatory tools. Supporters argue that it improves workers\u2019 conditions without undermining employment and may even increase aggregate productivity, because it encourages the reallocation of labor from less efficient firms\u2014unable to bear the cost of a minimum wage\u2014to more productive ones. It also helps redistribute part of employers\u2019 profits to workers.<\/p>\n

Critics, on the other hand, fear that the measure may harm the most vulnerable workers: firms may replace less-skilled labor with technology or more experienced staff, while consumers may end up paying higher prices for goods and services in the most affected sectors.<\/p>\n

What Scientific Research Says<\/strong><\/h3>\n

Who is right? Fortunately, economic research over the past thirty years has greatly expanded our understanding of the effects of the minimum wage. The most recent studies show that increases tend to significantly raise the wages of low-income workers, while effects on employment are, on average, very limited.<\/p>\n

Most empirical analyses indicate that the elasticity of employment with respect to the minimum wage\u2014a measure of how much employment changes in response to a change in the minimum wage\u2014is very low, indicating that job losses are small relative to wage gains.<\/p>\n

Since the impact on employment is generally modest, firms mainly react through other adjustment channels.<\/p>\n

The main strategy consists in passing part of the higher labor costs on to prices, a mechanism that, according to some estimates, can cover up to about 80% of the increase in labor costs. Consumer demand, however, tends to remain stable, suggesting that price increases are absorbed without significant effects on sales.<\/p>\n

Then there is the efficiency channel: lower turnover, reduced training costs, and higher worker productivity help firms further offset wage increases. Profit reductions appear more limited and, according to some analyses, account for about 20% of additional costs.<\/p>\n

In short, raising the minimum wage pushes firms not so much to lay off workers as to innovate and reorganize in order to sustain a better-paid workforce.<\/p>\n

An increasingly studied aspect concerns the reallocation effects generated by the minimum wage within the labor market. When this measure is introduced, less productive firms or those based on very low wages tend to shrink or exit the market, while more efficient ones manage to raise wages, improve organization, and enhance job quality.<\/p>\n

Data show that, overall, workers move toward more solid and productive firms, with positive effects on the structure of the productive system. In this sense, the minimum wage not only raises incomes, but also helps \u201cselect\u201d more competitive firms, fostering a more dynamic and fair economy.<\/p>\n

Ultimately, economic research in recent years leads to a fairly clear conclusion: the minimum wage significantly increases the incomes of the poorest workers without major effects on employment, at least within certain thresholds and in specific economic contexts.<\/p>\n

This suggests that, if properly calibrated, it can be an effective economic and social policy tool, capable of improving working conditions and reducing inequalities. This does not mean that it works everywhere and under all circumstances. The most important question today is no longer whether to introduce a minimum wage, but how to set it at a level that guarantees dignity to workers without undermining employment and business competitiveness.<\/p>\n

 <\/p>\n

Giulia Giupponi is Professor of Economics at Bocconi University. She earned a PhD in Economics from the London School of Economics and Political Science. In her research, she analyzes the effects of social security programs and the minimum wage on employment and welfare.<\/em><\/p>\n

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