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  • International Journal of Manpower The Italian productivity slow-down: the role of the bargaining model Leonello Tronti

    Article information: To cite this document: Leonello Tronti, (2010),"The Italian productivity slow-down: the role of the bargaining model", International Journal of Manpower, Vol. 31 Iss 7 pp. 770 - 792 Permanent link to this document: http://dx.doi.org/10.1108/01437721011081590

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    Users who downloaded this article also downloaded: (2010),"Assessing the impact of incomes policy: the Italian experience", International Journal of Manpower, Vol. 31 Iss 7 pp. 793-817 http://dx.doi.org/10.1108/01437721011081608 (2010),"Labour, productivity and growth: an introductory essay", International Journal of Manpower, Vol. 31 Iss 7 pp. 701-712 http://dx.doi.org/10.1108/01437721011081554 (2010),"Trends of labour productivity in Italy: a study with panel co-integration methods", International Journal of Manpower, Vol. 31 Iss 7 pp. 755-769 http://dx.doi.org/10.1108/01437721011081581

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  • The Italian productivity slow-down: the role of the

    bargaining model Leonello Tronti

    Dipartimento della Funzione Pubblica, Rome, Italy

    Abstract Purpose – The purpose of this paper is to assess the role of the Protocol ’93 bargaining model in favouring the slow-down of the Italian economy and to design a correction.

    Design/methodology/approach – The impact of the Protocol on factor income distribution is assessed through a deterministic dynamic model, and tested for the 1993-2008 period. The paper explores theoretically and empirically the weakening of the incentives for both workers and employers to engage in fostering productivity.

    Findings – In a macroeconomic setting with structural imbalance between the product and the labour markets reforms, the bargaining model has automatically increased up to 2002 the capital share in income, reducing the incentives for both social partners to accelerate productivity, as the labour share in income and the propensity to invest are co-integrated ( Johansen test). An analytical solution for correcting the bargaining distributive bias is proposed.

    Research limitations/implications – Further research should provide a picture of the different distributive behaviours of industrial sectors, particularly for industries exposed to/protected from international competition. The actual functioning of the new bargaining model (the Accordo Quadro of 2009) should also be assessed.

    Practical implications – The bargaining model should be reformed so as to restore the right incentives for social partners. National industry-wide wage bargaining should both incentivise and complement insufficient local bargaining.

    Social implications – The benefit of increased productivity and resumed growth has vast social implications, especially with reference to the sustainability of the welfare system.

    Originality/value – The scientific literature has lacked any formal description of the dynamic operation of the Italian bargaining model, which is particularly valuable to both social partners and policy makers.

    Keywords Collective bargaining, Incomes policy, Productivity rate, Economic change, Recession

    Paper type Research paper

    1. Introduction: The Italian productivity slow-down For many years before the international financial crisis, the Italian economy experienced difficulties in growing. After 1995 the Italian GDP registered an annual growth rate (1.4 per cent) that is much lower than the EU-15 average (2.2 per cent), France (2.1 per cent), the UK (2.7 per cent), the USA (2.9 per cent), Spain and Greece (3.6 and 3.7 per cent, respectively). After 2000, Italy further slowed down to the negative values of the present crisis. If Italy has is some way grown as or even faster than some other countries (Germany, Switzerland, Japan), this is due to a stronger employment growth, which has sustained GDP in spite of subdued productivity.

    However, small and persisttent differences can cause dramatic effects over the years. Italians, who in 1995 enjoyed a per capita income above the European average, higher than the UK and close to such traditionally prosperous countries as France or Sweden, over the following decade experienced a sizeable relative impoverishment. In

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    International Journal of Manpower Vol. 31 No. 7, 2010 pp. 770-792 q Emerald Group Publishing Limited 0143-7720 DOI 10.1108/01437721011081590

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  • 2007, in terms of purchasing power standard, they were nine points under the European average and 15 points under the UK. The long-term poor performance of the Italian economy (a 15.2-point fall in its international position) is even more striking when compared to the far smaller adjustments of Germany, France and Portugal, or to the marked improvements of the UK, Spain, and Greece (Figure 1).

    As in the same period employment has increased strongly (15.6 per cent), the reason behind the Italian slowdown can only be traced to productivity growth. In terms of product per employed person, in 1995 Italians scored more than 14 percentage points above the EU average. Today, this advantage has completely vanished. What keeps Italy around the European average is the length of working hours which, given the still comparatively limited diffusion of part-time jobs, are on average longer (Istat, 2006). However, if we consider the evolution of hourly productivity (which measures work’s productive power whatever the duration of working hours), the picture is discouraging. In 1995, the level of average hourly productivity of the Italian economy exceeded the European average by 5 percentage points; in 2007, after a 16-point drop (Figure 2), it had fallen to 89 per cent of the European average. In addition, while Italy worsened, the other big European countries maintained or even improved their relative positions.

    This disappointing performance is to be placed in the context of three exogenous shocks, common to all the economies of the euro[1]:

    (1) the spreading of new technologies;

    (2) the appearance of new competitors on the global market; and

    (3) the adoption of the euro and the ensuing impossibility to resort to so-called competitive currency devaluations.

    Figure 1. Relative per capita GDP: differences between 2007

    and 1995

    The Italian productivity

    slow-down

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  • These challenges have required European economies to launch structural reforms – and even more so the Italian economy, which historically has been characterised by high inflation and an export specialisation in traditional manufactured goods. But the Italian reforms have only partially been implemented[2].

    The hardship of the required measures is to be understood in light of the profound transformations that hit the Italian economy and labour market. The agricultural exodus slowly and progressively ended, and so did the beneficial effects of the structural transformation process deriving from the substitution of low-productivity agricultural jobs with more productive ones in the manufacturing and services industries (Istat, 2008). Another structural change is the so-called