Tuesday, June 9, 2009

The Italian Economy: Day 7

Two things today, so this one will be a little longer.

First: We learned about the Italian equivalent of the minimum wage, the gabbie salariali. Essentially, instead of one federally mandated wage (along with some states that legislate over top), they have a "wage chart" that crosses years of experience and education level. So picture a 5x5 chart for each industry with wages in each box. You find the spot for a BA with 5-10 years of experience (assuming those are your qualifications) for the industry in which you work and that is your minimum wage.

It's an interesting idea, more virtuous than a unified wage in my opinion. It also comes from the "same work, same wage" doctrine implemented here in the 1960s. In its current form, it functions as the absolute wage definition in the (backward) South, which has a lower cost of living, and sets benchmarks for the North which are exceeded.

Second: The Partita Iva Army. Essentially, Italian labor laws make it "easy to hire, difficult to fire." It's also costly to have employees, due to the hundreds of state programs that must be paid into on a per-worker basis. Many Italian citizens, in the struggle to find jobs, essentially create their own contracting firms. These citizens are then hired on short-term contracts by companies in Italy... this helps the companies keep their costs down and escape a lot of the labor regulation.

I have to run now but that's a very interesting phenomenon, predicted by mainstream economics, and I plan on exploring it further in the future. Ciao!


Pete Abbate said...

I must admit that I'm still intrigued by the gabbi salariali and the idea of a varied minimum wage rather than a unified one. However, in class today we had some more discussions and it's a little scary sometimes to look at the reality of the Italian economy.

There's a lot of communism inherent in this wage grid. From each according to his ability, to each according to his need. It's very much of an anti-meritocratic system, as each company sort of uses it as a bottom line rather than a benchmark for negotiation.

I think some of that is probably an Italian cultural thing and would be curious to see what translated if a similar system were implemented in America.

Ravi said...

But just imagine how much worse the bureaucrats would implement it here, if given the opportunity. It's like the FairTax - a great idea in principle, but it would never be implemented true to its original ideology.

Pete Abbate said...

According to my professor, the Italian bureaucracy is even less efficient than their American counterparts! Hard to imagine but he's convinced it's true.

If we're talking free-market principles, then there's no debate... minimum wage should be abolished. But the politics are such that it's not going away anytime soon. I'm still not sure, but I think if the minimum wage is truly supposed to be a "living wage" then you should offer higher minimum wages based on education and experience.

Ravi said...

I would argue that anyone with significant education or experience would already garner higher wages than the minimum wage and the free market should be allowed to decide what that wage should be for each person.

However, by implementing a minimum wage, I believe the government allows those people to be paid by employers rather than through unemployment wages or the like from the government - it's the minimum involvement from the gov't necessary to force businesses to pay the money that the gov't would otherwise have to. I do think it should be raised significantly to meet the inflation rate (I think some counties in MD have made it $10 and up now, which also helps reduce employee churn from what I've read).

Pete Abbate said...

America's got a growing Partita Iva Army (or equivalent), according to Business Week.

Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty