A report by the University of Valencia lays the foundations for establishing a local and regional minimum interprofessional wage

The report was commissioned by the Economic and Social Council of Barcelona and was presented on Wednesday, 5 February, to the Economy and Finance Committee of the city council, as well as to the members of the Council.

The study concludes that when comparing the economic effects of setting the minimum wage at the national level versus smaller territorial areas such as municipalities or regions, the possibility of worker, business and consumer mobility mitigates both the positive and the negative effects of the minimum wage. In Todolí’s words, “workers whose wages would improve thanks to an increase in the minimum wage may end up moving to work for companies in neighbouring municipalities or regions where the minimum wage is lower, thus limiting the positive effects of the wage increase”.

As positive aspects of this regulation, Todolí and López highlight that most of the literature concludes that increasing the minimum wages enhances the economic growth of municipalities where a specific minimum wage exists. “Cities with a minimum wage generally have a higher proportion of workers with higher education, a higher proportion of the workforce in the professional services sector and, therefore, a consumer base with higher incomes”, they explain.

Additionally, raising the minimum wage increases household consumption and reduces individual debt. The increase in the minimum wage — whether at a local or regional level — also reduces the wage gap between professional categories within companies, meaning that the disparity between those who earn the most and those who earn the least decreases.

As negative aspects of implementing this new policy, Adrián Todolí and Paula López explain that scientific literature indicates that in smaller municipalities and regions where the minimum wage is raised, business growth rates tend to decline, as companies opt to establish themselves in areas with lower costs. Also, the proximity of municipalities allows consumers to shop where prices are lower, impacting business competitiveness. Additionally, an increase in the local minimum wage can drive up rent prices, which fundamentally harms low-income households (which are mostly renters) and benefits owners, who generally have higher incomes.

Finally, the study highlights other non-economic effects that can occur when the minimum wage is set by local or regional public administrations rather than through collective bargaining, such as the polarisation of wage policy debates or the weakening of collective and trade union negotiations.