Paolo Manasse, Thomas Manfredi, Saturday, April 19, 2014

Italy’s labour market productivity has been stagnating in the past decade despite numerous reforms. This column gives an explanation why this is so. By focusing exclusively on flexibility, past labour market reforms have completely neglected incentives. There is severe allocative malfunctioning in the Italian labour market. Wages do not reflect sector productivity in the short run, while in the long run they rise in sectors in which productivity falls. Thus, a comprehensive reform of the collective bargaining system is crucial.