Salaries: problems and solutions

of Matteo Gianola

(immagine da blitzquotidiano.it)

Versione in Italiano qui.

It is not news that Italian wages are lower than the average of EU member states, as any survey of the different statistics research institutes merely point out, but these days the gap seems to be more pronounced and unsustainable.

In the past years the problem was attributed to poor economic management by the government of center-right and the “c.d. creative finance” applied by Minister Tremonti, and the subsequent victory of the ruling center-left was seen, by most media,  as the advent of a new era of prosperity and social justice.

The reality, unfortunately, was different: the disproportionate and unnecessary increase in taxes aggravated the situation while it had already revealed itself as quite difficult. The return to the Government of the executive team headed by Berlusconi didn’t solve problems, and after having to burden the tax levy in response to the crisis of sovereign debt, was replaced by a new “technical” government headed by prof. Mario Monti and strongly supported by international partners, who, as a first act, has issued a recessive economic maneuver, the third of its kind in a row. The result is the  exacerbation of the fiscal burden on citizens already heavily bombarded in almost the complete silence of the social partners. The available income of Italians was thus further eroded to the detriment of both savings and consumption.

Are wages so low in reality?

Certainly looking at the payroll, net of taxes and social charges the answer would definitely be a positive, but if you observe the gross salaries and add to this the “tax wedge” paid by companies the outcome would be quite different. Considering, for example, the salary of a new bank employee you can notice that the gross earnings exceed 2000 euros per month, which should be increased by about 60%, as calculated by the average Italian salaries by CGIA Mestre on the “wedge” referred to above. In this “wedge” what actually figures on the bank account of the employee is a decreased to just over 1300 euros amount, to which must be then calculated the cost of the excise tax on fuel and energy, and the imposition of VAT on every purchase. From this derives an uncomfortable truth: that real wages, corresponding to the real cost of employment, are actually very high, the highest in Europe, probably in the OECD, against a purchasing power every day the smaller .

Such a description shows that the reckless fiscal policy can be seen as the chief cause of poor consistency of earnings in Italy, but two other factors must be considered equally as fundamental causes of nowadays situation:

  • the 1993 agreement between the Ciampi Government and social partners, who have given up the conflict, in exchange for the opportunity to be an equal part in the decision of the economic policies of the state, accepting a downward flexibility of wages, exactly as predicted by the evergreen Keynesian theory, binding increases with a programmatic inflation rate which has always been lower than the actual rates; even though recent changes to the regulation of collective negotiation have eliminated this parameter, the situation has not changed, it could be even considered worse in some conditions;
  • the operation of lira depreciation in order to allow the entry into the European single currency regime produced the effect, in real terms, of the loss of almost a third of the value of the old national currency.

 

The creation of the €uro area has forced the creation of a “tunnel of prices” to prevent cross border trade between Member States, both favored by the adoption of a single currency and the abolition of borders to allow free movement of goods, capital and services as required by the EU Treaty.

Therefore, today, a step change is required in the Italian wage market, with tax exemption of employed labor, that is the abolition of IRAP on work (although it would be preferable the  abolition of IRAP tax tout court), tax exemption of hours overtime, and as well as the productivity bonuses (which are already taxed at source as business income). It would also be advisable the transformation of social security contributions in accordance with a true criterion, which is the direction being taken by the reform Monti – Fornero, and efficiency, permanently separating retirement, fueled by the contributory system, from assistance, fueled instead by general taxation , allowing the end of the generational conflict created by the structure of INPS today, between those who work in the labor market and who, by right, and age limit already have come out of it.

One last point could be the overcoming of the logic of concerted national contract, enabling this serves mainly to establish the minimum criteria required for entering into an employment contract and leave more room for the second-level negotiation, sector negotiating, for more efficient agreements related to the territorial needs and the cost of living, an ideal CCRL (Regional Labor Collective Agreement) and the remaining third-level negotiation, that is the Company, the quota setting variables such as production bonuses and salary systems incentive.

With changes in the country system aimed in this direction, it might as well be possible to overcome the situation, almost unbearable at the moment, in which Italy writhes since decades, creating a virtuous cycle of competition between productive areas. This way it will raise productivity, it will fuel consumption and above all, the savings, primary source of investment resources, as courses in economics repeat since their first lesson quoting Say’s Law. Unfortunately, without a genuine desire for the change, a serious project of tax reform, a policy that embraces a federalist criteria, already embodied in the Constitution, imposition and collection and a thorough reform of the labor market, aimed at the simplification of contracts and the protection of incomes and no more, merely, of the workplace, such a structure would be insufficient. Will then private interests of politics, its clients and labor unions ever let it happen?

 

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