The Influence of Unemployment, Productivity and Institutions on Real Wage Trends: The Case of Italy 1970–2000

The aim of this chapter is to describe and attempt to interpret the trends of wages in Italy in the period 1970–2000. While it is an applied work, it may be useful to provide at the beginning a brief clarification of the broader framework implicit in the analysis. On consideration of the analytical faults found in neoclassical substitution mechanisms as a foundation for decreasing factor demand schedules, we do not approach the explanation of wages by assuming that the economic forces underlying their determination can be described by the interaction between labour demand and supply functions. More generally, we envisage no tendency of the economy towards full employment or NAIRU (non-accelerating inflation rate of unemployment) equilibria, such as is still assumed in the models that replace the traditional labour demand and supply curves with ‘pseudo-curves’ based respectively on firm pricing rules and models of wage determination.1 In line with the classical approach and its modern revival, we instead expect wage trends to be affected by a set of historical and current circumstances that can be broadly classified as labour-market conditions, the degree of organization of the parties involved, and broader economic and political/institutional factors. All these circumstances affect wage determination through the same channel, that is their influence on the ability of the parties involved to establish favourable conditions for themselves in the distribution of income (Stirati 1992; Levrero 2006).