{"id":3037,"date":"2024-06-26T18:03:50","date_gmt":"2024-06-26T16:03:50","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=3037"},"modified":"2024-06-26T18:03:50","modified_gmt":"2024-06-26T16:03:50","slug":"who-decides-the-right-wage-for-workers","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/06\/26\/who-decides-the-right-wage-for-workers\/","title":{"rendered":"Who Decides the Right Wage for Workers?"},"content":{"rendered":"

Two rulings by the Supreme Court of Cassation marked a turning point in defining the \u201cright wage.\u201d The sector-specific national collective agreements are no longer the standard reference; each judge will decide, case by case. This creates uncertainty that can only be resolved by setting a minimum wage by law.<\/span><\/i><\/p>\n

What is the wage that \u201censures a free and dignified existence for the worker and their family\u201d, the right, recognized in Article 36 of the Constitution, of anyone who lives by their labour? Until September 2023, labour judges applied the Article by recognizing a worker\u2019s right to receive at least the minimum wage established in the national collective agreement negotiated by the most representative trade unions and business associations, even for workers who were not members of a trade union. According to the Supreme Court of Cassation, the judge could deviate from the minimum reference wage only in exceptional cases and when considering specific circumstances: for example, in severely impoverished areas or when the renewal of the collective agreement was significantly delayed. But in general, the idea prevailed that the \u201cright wage\u201d corresponded to the standards negotiated by the most representative unions.<\/span><\/p>\n

Collective Bargaining Is No Longer a Reliable Parameter<\/b><\/h3>\n

Recently, whether the negotiated standards indeed correspond to the \u201cright wage\u201d is being increasingly questioned, not least because of a severe crisis in the collective bargaining system. In many sectors, national collective agreements are not regularly renewed; nor are agreed wage increases keeping pace with inflation.\u00a0<\/span><\/p>\n

In October 2023, the Court of Cassation ruled that a judge, when called upon to decide a wage dispute, cannot merely assume that the standard negotiated by the main unions is sufficient to ensure a free and dignified existence for a worker and their family; the judge must verify that it is so in practice and weigh the specific circumstances of each case. The Court listed new parameters to be considered, such as the poverty line defined by Istat (Italian institute of statistics), the average or median wage identified through Uniemens data on current wages registered by Inps (Italian social security institute). Other factors include local costs of living or the wage standards set by collective bargaining in other sectors.\u00a0<\/span><\/p>\n

Recalling an EU directive, the Court emphasized that the judge must ensure that the wage not only protects against poverty but ensures \u201ca free and dignified existence.\u201d This is more than observing the poverty line as defined by Istat and Inps. The minimum wage \u2013 warns the Court \u2013 must ensure that the worker can, among other things, participate in the social life of the community, attend shows, or other cultural initiatives. The criteria indicated by the Court do not refer to the productivity of work in the specific sector.<\/span><\/p>\n

The Working Poor<\/b><\/h3>\n

The case referred to by the two October 2023 Cassation rulings concerns the \u201cfiduciary services\u201d sector (private security, cash transport, reception, and custodial or safekeeping services). A collective agreement for the sector, which expired in May 2023, set a very low minimum monthly wage \u2013 930 euros, which corresponds to an hourly wage of about 6.13 euros \u2013 just slightly higher than the 834.66 euros per month set at the time as the relative poverty line at the time. The Court of Cassation therefore determined that the trial judge could refer, even retroactively, to a national collective agreement for a different sector that provided a more adequate wage standard. Considering the level of wages being discussed in that case, using judicial authority to unilaterally increase the wages is understandable. However, the Cassation could have done so within the scope of its previous rulings: it would have been enough to note that the renewal of that particular collective agreement was years late. Instead, it used the case to establish a new principle: \u201cit is not enough for a collective agreement to be stipulated by the most representative unions for it to be presumed to respect the principle of fair pay.\u201d\u00a0<\/span><\/p>\n

The judge can and must always check that the constitutional principle is respected and correct any collective agreement deemed inadequate. In Italy (unlike in most other developed countries), the lawmaker has not wanted to set a universal minimum wage standard, the so-called minimum wage. And now, the \u201cwage authority\u201d sceptre has evidently passed from the most representative trade unions and business associations to labour judges. And here arises a problem: there are many judges, each with their own idea of what comprises the \u201cfree and dignified existence\u201d provided for by Article 36 of the Constitution. In exercising this function, each judge has \u201cbroad discretion\u201d (a concept repeatedly emphasized in both Cassation rulings). There could therefore be considerable differences between the minimum wage standards set by different courts as well as by different judges within the same judicial office. For example, in a medium-sized provincial capital with ten labour judges, applying the many criteria indicated by the Cassation could yield very different results. Unless the judges can find a way to somehow informally coordinate amongst themselves, it\u2019s possible for several different minimum wage standards to be set for the same type of work and in the same area, in as many rulings.\u00a0<\/span><\/p>\n

Until last summer, an entrepreneur intending to invest in Italy could formulate an industrial plan based on the wage standard set in the collective agreement for the sector and its predictable dynamics over time. Today, an investor can no longer rely on that standard, especially in sectors with lower labour productivity where wages tend to be lower, because any judge could consider the collectively bargained wage to be insufficient to match what is provided for by Article 36, based on the largely discretionary application of the Court of Cassation\u2019s criteria.<\/span><\/p>\n

The Retroactivity of the New Standard Set by the Judge<\/b><\/h3>\n

As the new orientation of the Cassation affects the industrial relations system, another problem arises that cannot be underestimated. A wage standard set by law or by a collective agreement applies only from the moment the law is enacted or the agreement is stipulated. In contrast, the labour judge\u2019s ruling can also be applied retroactively. Suppose that ten employees of a company bring a case to a judge, arguing that their monthly wage of 1,200 euros (corresponding to an overall hourly wage of about 7.9 euros) does not comply with the constitutional requirement and has not done so for the past ten years; and suppose the judge deems that 1,500 euros per month (bringing the overall hourly wage to about 9.9 euros) is actually due for the work they performed. Such a decision will not only apply to the work performed from the time the ruling is filed but also to the work previously performed.\u00a0<\/span><\/p>\n

A difference of 300 euros per month for the ten years of work (it could also be twenty or thirty), increased by the related contribution burden plus penalties for omitted contributions, can generate a debt for the work performed by the ten people of over one million euros. For the future, the company might try to cover the higher labour cost determined by the ruling by renegotiating the price of the goods or services offered to its clients. But it cannot do the same for contracts signed and executed in the past. Such a sudden increase in the wage standard, decided by the labour judge and with retroactive effects, can thus create an imbalance in the company\u2019s budget. The effects will be severer the greater the weight of labour costs in producing the good or service. This is not a theoretical exercise: we are already beginning to see cases of serious corporate crises caused by the retroactive application of the new standards set by judges.<\/span><\/p>\n

The Indispensable Legislative Intervention<\/b><\/h3>\n

This cannot be the way to set wage standards in our country. The government should review its decision from last year not to set a universally applicable hourly minimum wage by law. That decision was premised on minimum wage standards being established through national collective bargaining. It was also assumed that the standard would extend to all labour relations: the judge would apply it to all workers in the sector regardless of whether they were members of the unions that signed the collective agreement. But if the collective agreements lose their value as a reference for \u201cfair pay,\u201d the basis for the government\u2019s decision falls. Further, if the major trade unions and business associations no longer play the role of wage authority, that role cannot be assumed by the many hundreds of labour judges who could apply the Court of Cassation criteria in their own way, with retroactive effects.\u00a0<\/span><\/p>\n

In October 2023, the National Council for Economics and Labour supported the government\u2019s abstentionist choice on the minimum wage, writing that maintaining the traditional system was preferred in order to strengthen the collective bargaining system. But the government can no longer turn a blind eye to the grave uncertainty brought about by allowing any labour judge to raise the wage standard at their discretion. The government must therefore take legislative action to remedy it. The lawmaker must establish the universal minimum standard at the level deemed appropriate, with a rule that applies to everyone in the same way.\u00a0<\/span><\/p>\n

Of course, legislative intervention on this matter presupposes that the problem of the substantial disparities in the cost of living across different regions of the country are addressed in some way. One could think, for example, of setting a national hourly minimum wage that can be adjusted for each region or province, based on the Istat cost-of-living index.\u00a0<\/span><\/p>\n

But at this point, the lawmaker must first intervene because only a minimum wage set by law will allow the subjects of collective bargaining to regain the role of \u201cwage authority\u201d that should be theirs but risks being lost.<\/span><\/p>\n

*This article is derived with some simplification from Pietro Ichino\u2019s introductory report at the conference of the National Study Center Domenico Napoletano on \u201cThe Wage Issue in Italy\u201d (June 14 and 15, 2024, Aula Magna of the Palace of Justice in Turin).<\/span><\/em><\/p>\n

Bio<\/em><\/p>\n

Pietro Ichino<\/b> is a professor of labor law at the University of Milan. He was a columnist for Corriere della Sera from 1997 to 2008 and a parliamentarian for three legislatures. He is a member of the editorial board of lavoce.info.<\/span><\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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