Minimum Wage Hike Promises To Boost Consumer Spending And The Economy

While Italy has no set minimum wage, each sector has a minimum wage which is set by unions across the country. In most cases, this falls around the €7.00 per hour mark. This low minimum wage is having a detrimental impact on Italy’s economy which fell into recession last year. And while it’s slowly showing signs of improvement, the economy is only predicted to grow by 1.3% this year. But, by increasing the minimum wage, Italy’s economy could see even greater growth, and Italy’s workforce will benefit too.

Greater disposable income

It’s been proposed that Italy’s minimum wage should be upped to €9.00 per hour. At present, 22% of private-sector workers in Italy earn less than this. As a result, the average household has a net-adjusted disposable income that’s just over $7,000 less than the global average. However, should the minimum wage in the country be increased, households will have more cash to spend on goods and services. When Italian business booms in this way, corporations typically employ more staff in order to meet demand, overtime is available, and wages rise. This then results in a greater number of workers earning more cash and plowing more of it back into the country.

Less debt

Household debt in Italy sits at 86.8% of a household’s income. Consumer debt plays a significant role in the weakening of an economy as individuals opt to save their money rather than spend it. But by increasing the amount workers earn, they’ll be able to pay off their debt quicker. This will ultimately see more money being put back into Italy’s economy quicker as when automotive loans, credit cards, and store credit is paid back, businesses flourish and demand for goods is greater.

Increased consumer confidence

As of April 2019, consumer confidence in Italy was just 110.5, the lowest it’s been since July 2017. Consumer confidence directly impacts how much consumers spend, and when they feel skeptical, they’re cautious with their spending. Evidence from other countries, such as New Zealand, suggests that when a minimum wage hike is planned, consumer confidence increases and their spending grows. In turn, the economy will grow as consumers will part with more of their cash, businesses will expand, and shares will rise.

A high number of workers in Italy are earning low salaries. However, should the country’s pay rise proposals be given the go-ahead, these individuals will benefit as they’ll have more cash to cover their costs. But, best of all, the economy will prosper too.