Regulating wages by introducing both a minimum and a maximum level can reduce inequality without compromising employment or economic growth. This is the conclusion of a new study conducted by the University of Pisa and published in the international journal Economic Modelling. The research analysed the Italian case using the Eurogreen macroeconomic model.
The simulations show that setting a minimum wage at EUR 10 per hour is particularly effective in reducing in-work poverty and widespread inequality, as it increases incomes at the lower end of the distribution. In the simulations, a maximum wage, set at EUR 40 per hour, instead affects the upper end of the distribution and contributes significantly to reducing the gender pay gap.
At the macroeconomic level, the results indicate that employment and productivity remain broadly stable in the medium term. The increase in lower wages tends to strengthen domestic demand, offsetting the effects associated with higher labour costs, while limiting higher incomes does not have a significant negative impact on overall economic activity.
“Minimum and maximum wages work well together because they address two different aspects of inequality: the former supports lower incomes and strengthens domestic demand, while the latter limits the concentration of earnings at the top. Together, they enable disparities to be reduced more effectively and in a more balanced way, without compromising economic stability,” explains Simone D’Alessandro, Professor in the Department of Economics and Management at the University of Pisa.
“Public debate often frames equity and efficiency as opposing goals,” D’Alessandro continues. “Our work shows that, when assessed from a systemic perspective, well-calibrated wage policies can reduce income and gender inequalities without generating destabilising macroeconomic effects.”
From a methodological perspective, the study provides a detailed reconstruction of how the Italian economy works, based on real data, and distinguishes between 114 groups of workers by sector, skill level and gender. On this basis, a baseline scenario was developed to simulate the evolution of the economy in the absence of policy interventions. Wage policies were then introduced as alternative scenarios to assess their direct effects and how these propagate over time in terms of demand, employment, productivity and prices.
“Our study,” D’Alessandro concludes, “is situated in a particularly critical context for the Italian labour market. Over the past thirty years, Italy has been the only OECD country where average real wages have declined, while they have increased in other advanced economies. This trend has been accompanied by a rise in in-work poverty and widening wage inequalities across sectors, skill levels and gender. In this context, intervening in wage distribution is not only a matter of equity, but also a necessary economic lever to support domestic demand and strengthen social cohesion.”
The study was conducted by Guilherme Spinato Morlin, David Cano Ortiz, Simone D’Alessandro and Pietro Guarnieri of the Ecohesion Collective Research Centre (www.ecohesion.it) at the Department of Economics and Management of the University of Pisa, and Marco Stamegna of the Scuola Normale Superiore.
