Inside the Black Box: Labour Market Institutions, Wage Formation and Unemployment in Italy

28 Pages Posted: 8 Jan 2001

See all articles by Carlo Dell'Aringa

Carlo Dell'Aringa

Catholic University of the Sacred Heart of Milan

Claudio Lucifora

Università Cattolica del Sacro Cuore di Milano ; IZA Institute of Labor Economics

Date Written: September 2000

Abstract

This study provides an assessment of the features that, operating "inside the black box", shapes the evolution of the Italian economy. In the first section the focus is placed on the functioning of the labour market at the aggregate level. The picture described suggests that the Italian labour market is characterized by high employment rates for adult males and both low participation and low employment rates for other groups of individuals (such as young, old and females) and by a large share of long-term unemployment. The rise in unemployment and its persistently high level have been blamed, both in Italy and in other European countries, on imperfections and rigidities originating mainly in the labour market. In this case, both strong employment protection regulation and rigid system of wage determination appear to have played a major role in Italy. In particular, the existence of high wage floor - either set through statutory minimum wages or by collective bargaining - has the effect of segmenting the labour force, increasing job instability and paradoxically increasing the duration of unemployment. An additional dimension of "segmentation" also characterizes the Italian labour market, notably the 30 percent's unemployment rate in the South (6 percent in the North) and the presence of a large share of the labour force employed in the underground economy. In the last section, we discuss how the decentralisation of bargaining, the introduction of higher labour market flexibility as well as the reform of social security, could reduce "insider" power in the labour market and eliminate the vicious cycle that tends to displace workers out of the "primary" sector, thus fueling the irregular economy.

Keywords: Unemployment, wages, labour market, institutions

JEL Classification: J2, J3, J5

Suggested Citation

Dell'Aringa, Carlo and Lucifora, Claudio, Inside the Black Box: Labour Market Institutions, Wage Formation and Unemployment in Italy (September 2000). FEEM Working Paper No. 66.00. Available at SSRN: https://ssrn.com/abstract=243909 or http://dx.doi.org/10.2139/ssrn.243909

Carlo Dell'Aringa (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Istituto di Economia dell'Impresa e del Lavoro
20123 Milano
Italy

Claudio Lucifora

Università Cattolica del Sacro Cuore di Milano ( email )

Department of Economics and Finance
Largo Gemelli, 1
20123 Milano
Italy
+39 027 234 2525 (Phone)
+39 027 234 2781 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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