S. Machin «UK Minimum Wages and the Low Pay Commission» Some comments By Paolo Sestito(*) Banca d’Italia Servizio Struttura Economica (*) I thank Francesco D’Amuri and Alfonso Rosolia for having shared with me some thoughts and statistical elaborations

Pros and cons of MW Traditionally economists had been skeptical of MW provisions fearing out-pricing of employment; preference has been given to alternative (fiscal and structural) tools in order to boost income of low skills people However: Some downward wage rigidity (at the bottom) may provide an anchoring vis-à-vis deflationary risks There is evidence that monopsony phenomena may be widespread, particularly in low wage/low skills labour markets MW may help in reaching the income goals of fiscal transfers targeted to low wage/low skills people While not necessarily harmful MW has to be carefully managed: Is there a low-pay/working-poors issue in ltaly? Is there a functional equivalent of MW in Italy? National contracts minima: too weak and too high? Is there anything to be learnt from UK (and other) experiences?

How many low-paid workers in Italy How many low-paid workers in Italy? (Net Wages as measured in LFS data, in 2014Q4 values ; low pay threshold=2/3 of the median)

Who is low-paid? Factors impacting upon the risk of being a low-paid worker (2009-2014, with yearly and seasonal dummies as further controls) variables Hourly low paid Monthly low paid Age: 15-24 0.158*** 0.125*** 25-34 0.0260*** 0.0198*** 45-54 0.000264 0.00631*** 55-64 0.00893***   0.0232*** 65+ 0.0884*** 0.0989*** Gender: female 0.0682*** 0.0869*** Education: High school -0.0278*** -0.0314*** University -0.0586*** -0.0666*** Region: Centre 0.0322*** 0.0389*** South 0.0985*** 0.0912*** Temporary contract 0.0807*** 0.0698*** Blue collar 0.0851*** 0.0901*** Part time -0.0239*** 0.465*** Involuntary Part time 0.00250* 0.119*** Tenure: 1 y or less 0.0868*** 0.0959*** 2 to 5 y 0.0534*** 0.0638*** 6 to 10y 0.0228*** 0.0284*** 16 to 20y 0.00425*** 0.00669*** 21 to 25y -0.0128*** -0.0198*** 26 to 30y -0.0154*** -0.0202*** 30+ -0.0249*** -0.0289***

Permanent or temporary status Permanent or temporary status? status in year t of low paid worker in year t-1 (2009-2014 averages) Hourly wages Monthly wages Exit - higher wage 47.0 26.9 Stay - higher wage 13.7 22.7 Stay - lower wage 18.0 30.4 Exit - self employment 2.7 2.4 Exit - unemployment 6.5 5.8 Exit - inactivity 12.1 11.8

Low-pay as source of household poverty?

The role of national contracts: is the lowest level a relevant downward constraint?

How high is the lowest pay scale level established by national contracts (within each industry)?

The UK experience No authomatic rule (i.e. no indexation) Evidence based judgement stressing: Technical expertise (with a boost to evidence gathering and studies, broad ones and focusing upon impact), in house and commissioned research Stakeholders perspectives (a structured bargaining process) Transparency: an yearly Report and a recommendation to the Government Stress upon specific industries, and socio-demographic groups, but within a national statutory MW framework Role of social partners (and bargaining activity)?