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

(ProQuest: ... denotes formulae omitted.)1. PremiseDuring the last four decades of the 20th century, the average total fertility rate (TFR) has continuously dropped in Europe, as it generally has in Organization for Economic Cooperation and Development (OECD) countries. The aggregate trend covers considerable differences across Europe, with the main differences appearing between northern and southern European countries (Eurostat 2012).During the same period, important changes have also occurred in the labour market arrangements of both men and women, with changes in individuals' and couples' economic conditions. Whereas by the 1980s the fall in fertility was coupled with a rise in female employment, since the late 1980s the fall has been accompanied by a rise in unemployment, particularly among women.Explaining the determinants of such a fall in fertility and the links with changes in the labour market statuses of both men and women has become a major topic over the last years (D'Addio and Mira d'Ercole 2005; Kreyenfeld 2010).The rise in unemployment for women and men in southern and central European countries that occurred during the 1990s has been proposed as an explanation for the more pronounced decrease in the TFR in these countries, as in other countries with low female labour force participation rates (Ahn and Mira 2002; Adsera 2005; Engelhardt and Prskawetz 2004). This evidence highlights the need to further examine the role of unemployment in fertility behaviour.This paper seeks to describe the connections between fertility and unemployment in Italy from a gender-based and geographic perspective. Italian workers have experienced a rising trend of unemployment - with gender and regional differences - since the mid-nineties, resulting in a feeling of uncertainty about the future. We are in agreement with the hypothesis that macro-level economic conditions are likely to be related to fertility (Brewster and Rindfuss 2000): in particular, economic uncertainty can induce a short-term reduction in fertility that is presumably due to the postponement of decisions to have an (additional) child until the economy recovers.We utilised time series of aggregate data on fertility and unemployment during the interval 1995-2012, which includes the period of economic downturn that began at the end of 2007.We began from the hypothesis that the connection between unemployment and fertility differs among the various Italian regions, and we used a regression dynamic model to evaluate whether changes in fertility in different Italian geographic areas are more related to changes in male or female unemployment, as well as the strength of the link. Moreover, we paid particular attention to specific temporal links between the two series in different geographical areas.The structure of the paper is as follows:- Discussion of the literature and previous research on the relationship between fertility and unemployment of both men and women. We utilised aggregate data, but we also referred to studies of individual-level data to understand how the issue has been addressed by different approaches;- Discussion of these relationships in Italy within the European context;- Methodological approach and analysis of aggregate trends of fertility and unemployment in Italy by gender and geographic area; and- Discussion of the results.2. Unemployment and fertility: A complex relationshipA modern discussion on fertility in developed countries began in the 1960s and focused on the importance of socio-economic factors at the community or country level, 4 the incompatibility between work and family, increasing female education, and the roles of women in different contexts related to specific welfare policies (Oppenheimer 1988; McDonald 2006; Pison 2009).The decrease in fertility rates in the 1960s and 1970s in most industrialised economies was correlated with an increase in female employment (Adsera 2004). …

Intersectoral labour reallocations and unemployment in Italy

This paper investigates how Italian labour market institutions influence business cycle fluctuations. We apply a DSGE model that features Italian labour market rigidities and we estimate the latter on Italian data using Bayesian techniques to assess the effects of demand, supply, and labour market shocks on the macroeconomy, and to measure their significance for economic fluctuations. Our results show: First, technology, time preference and wage bargaining shocks are key drivers of economic fluctuations across horizons. Second, matching efficiency and wage bargaining shocks are significant sources of unemployment and vacancies fluctuations but their role is limited for output fluctuations. Third, labour market relaxation policies have only marginally contributed to the reduction in unemployment. Last, accounting for wage rigidities influences labour market dynamics and helps the model to fit data well. We, therefore, urge policymakers to support additional changes in labour market institutions.

The “great recession” has affected labor markets in Euro-area countries in very different ways. This chapter documents two important aspects of their response: the impact effect of the recession on the rate of unemployment, and the persistence of high unemployment. We find that countries lie on a trade-off between “resilience” and “persistence”: countries where the rate of unemployment is less affected on impact by output shocks (resilience) typically show higher unemployment persistence. We investigate the role of labor and product market institutions, and find evidence that more protected markets are associated to more resilience at the expense of more persistence. This suggests that implementing front loaded “structural reforms” at times of a fiscal consolidation, as many Southern European countries did during the recent crisis, may foster the rise in unemployment and possibly undermine the political support for the reforms. When we estimate the contribution of product and labor market reforms to the rise of unemployment in Southern Europe, however, we find positive, but relatively small effects that are quickly reversed.

This paper considers the increased incidence of insecure job conditions for young individuals entering the Italian labour market and their chances of moving to a more secure job-condition after a reasonable period of time. In particular, we investigate empirically whether and how long-term changes in labour market institutions and conditions have modified the role of the family of origin for both labour market entry and subsequent transitions. We use the Italian Households Longitudinal Study (Ilfi) and show that employment opportunities have changed quite significantly in Italy over the past three decades (from the late 1970s to the early 2000s). For an increasing share of young adults precariousness extends for quite a long period of the working life. The family of origin reduces the probability of insecurity both in the early 1980s and during the 1990s, but in a different way: in the early 1980s, it has an effect in the entry year, but not subsequently; after the implementation of the Treu reform (1997), its effect appears only in the years following the entry one. Our overall results suggest that the rapid expansion of insecure contractual arrangements in the 1990s-early 2000s have produced increasing difficulties in terms of transitions to a «better» job condition (i.e. into secure employment), which enhanced the role of the family of origin in overcoming them, generating new inequalities among young Italians.

Foreign immigration is one of the most important recent changes in Italy. As a consequence, similarly to the traditional European receiving countries, the process of integration of immigrants has also become a crucial political issue in Italy. Labour market insertion of migrants is one of the key points of integration. In this chapter, we aim to provide a broad and updated overview of the migrant situation in the Italian labour market. Empirical evidence suggests that the crisis almost equally hits foreigners and Italian workers, without affecting the structural difference of treatments of these two groups. One of the aims of this work is to evaluate if the gap in terms of integration in the labour market and employment probability between foreigners and Italians has widened or decreased, considering that the labour market is probably the main channel of the integration process. The analysis is structured using a multinomial logit model and some contingency descriptive statistics exploiting, together with regular socio-demographic variables, regional and macro-area differences. The data come from the Italian Labour Force Survey (LFS) provided by ISTAT – Italian National Institute of Statistics – a quarterly survey with a rotating sample that provides an extensive overview of Italian labour market actors. Results show that foreigners have a greater employment probability than Italian natives, a probability that turns out to be better for those who arrived in Italy between 2000 and 2004. Nonetheless, foreigners are largely employed in low-paying or underqualified jobs, returning a low-profile picture of foreigners' integration in the Italian labour market.

While inflation differentials in a monetary union can be benign, reflecting a catch-up process, or an adjustment mechanism to asymmetric shocks or different business cycles, they may also indicate distortions related to inefficiencies in domestic product and labor markets that amplify or make more persistent the impact of shocks on inflation. The paper examines the determinants of inflation differentials in the euro area, with emphasis on the role of country specific labor and product market institutions. The analysis uses a traditional backward-looking Phillips curve equation and augments it to explore the role of collective bargaining systems, union density, employment protection, and product market regulation. The model is estimated over a panel dataset of 10 euro area countries over the period 1983-2007. Results show that high employment protection, intermediate coordination of collective bargaining, and high union density increase the persistence of inflation. Oil and raw materials price shocks are also more likely to be accommodated by wage increases when the degree of coordination in collective bargaining is intermediate. These results are robust to different estimation methods, model specifications, and outliers. The paper suggests that reforming labor market institutions may improve the functioning of the euro area by reducing the risk of persistent inflation differentials.

While inflation differentials in a monetary union can be benign, reflecting a catch-up process, or an adjustment mechanism to asymmetric shocks or different business cycles, they may also indicate distortions related to inefficiencies in domestic product and labor markets that amplify or make more persistent the impact of shocks on inflation. The paper examines the determinants of inflation differentials in the euro area, with emphasis on the role of country specific labor and product market institutions. The analysis uses a traditional backward-looking Phillips curve equation and augments it to explore the role of collective bargaining systems, union density, employment protection, and product market regulation. The model is estimated over a panel dataset of 10 euro area countries over the period 1983-2007. Results show that high employment protection, intermediate coordination of collective bargaining, and high union density increase the persistence of inflation. Oil and raw materials price shocks are also more likely to be accommodated by wage increases when the degree of coordination in collective bargaining is intermediate. These results are robust to different estimation methods, model specifications, and outliers. The paper suggests that reforming labor market institutions may improve the functioning of the euro area by reducing the risk of persistent inflation differentials.

The article examines how the steady increases in the statutory minimum wage (SMW) following the end of the Troika adjustment programme in 2014 have impacted the wage distribution and collective bargaining dynamics in low-pay economic sectors in Portugal. It aims at contributing to the literature on the SMW pay equity effects by specifying the mechanisms through which SMW rises shape collective bargaining, wage compression and wage spillovers. Using a mixed-methods research design that combines statistical data from Quadros de Pessoal with semi-structured interviews with social actors and government officials, it shows that wage compression and spillovers are contingent on the institutional and structural features of low-pay sectors, such as exposure to price competitiveness or reliance on the state along a neo-corporatist logic. Moreover, the evidence suggests that spillovers are curtailed when SMW increases are not accompanied by the reinforcement of other labour market institutions.

Partial and targeted labor market deregulation as undergone in Italy during the last two decades has created a strong cohort cleavage on the labor market as regards the risks of a precarious work career. In explaining the logics underlying the different kinds of labor market deregulation, the literature stresses the alternative between labor market adjustment based on wage inequality and job insecurity. Flexible and unequal labor markets in the English-speaking countries are opposed to the continental-European ones, where wage differentiation is limited but deregulation has been «at the margins». Notwithstanding the theoretical debate, there is still relatively little empirical evidence regarding the level of inequality in wages between «contingent» and «secure» work positions, especially in Italy, although, given the ongoing debate, one would expect a trade-off between job security and wage level to be operating. We use the Italian component of the 1995-2001 ECHP panel waves, the SHIW panels 2004-2006, 2006-2008 to provide an empirical based analysis of the persistence of a clear and significant wage differential between contingent and secure work in Italy that parallels and adds to the job insecurity dimension. As regard methods, we apply statistical matching, multivariate analyses and FE models. All our results confirm this specific outcome of the «deregulation at the margins» of the Italian labor market.

Looks at some of the labour market outcomes of recent economic reforms. The extent to which labour market institutions affect the relationship between reform policies and income inequality remains controversial. Some see labour market institutions as a hindrance to more efficient development and growth, while others argue that without proper labour market institutions an economy cannot progress. Labour market policies, regulations, and institutions have at least three goals: improving allocative efficiency (matching supply and demand); improving dynamic efficiency (increasing the quality of the labour force); and improving or maintaining a sense of equity and social justice among labour force participants. These different goals inform the discussion throughout the chapter, which is organized as follows: after an introduction, the second section touches briefly on some theoretical aspects of labour markets and reform policies; the third reviews trends in labour market changes in terms of informalization of employment, wage shares in national income, and wage inequality; the fourth reviews some general trends in labour market policies that have typically been implemented under the Washington Consensus, namely, a decline in minimum wages, shifts in the bargaining power of unions, and a reduction in employment protection; the final section offers conclusions on whether or not labour market policies reduce income inequality.

Italy has very low female labour force participation (LFP hereafter) and fertility rates. Both phenomena have recently drawn the attention of many researchers and policy makers since they are likely to have very important economic consequences. On the one hand, low fertility rates, well below the population replacement level, have caused a progressive ageing of the Italian population, and the social contributions paid by current workers are becoming insufficient to finance the pensions of retired workers, causing huge problems of sustainability of the current pension system. On the other hand, unlike other European countries, in Italy female labour force participation rates are increasing very slowly, and this fact contributes to exacerbating the problem of the progressive lack of manpower related to population ageing. Some of the causes for the low LFP and fertility of Italian women that have been put forward are related to the specific characteristics of the Italian labour market and the Italian welfare system (see Del Boca, 2002b). As to the low female participation (in 1999 more than one out of two women were out of the labour market), it is often stressed that the Italian labour market is heavily regulated and characterised by high levels of employment protection and rigidity. According to an OECD (1999) study Italy ranks 1 between 3 -5 th out of 15 countries as to strictness for individual dismissal, 2 nd -3 rd as to strictness for collective dismissals, 2 nd for strictness of temporary employment regulation and 3 rd for overall employment protection. 2 The hiring system and the very strict firing rules have negative effects especially on the employment rate of particular segments of the labour market, such as young, female and old workers and also contributes to the high long-term unemployment rate. Moreover, part-time work, which may contribute to reconcile family and market work is scarcely diffused in Italy compared to other countries. 3 Eurostat (1999) reports that in 1998 in Italy only 10.1% of employed women worked part-time. The

During the last century poverty was mainly associated with unemployment status. Over the years, changes like the globalization process and policies to increase labour market flexibility led to a weakening of labour market institutions and the consequent worsening of workers’ socioeconomic conditions, to the naissance of the working poor class. The literature does not provide a unique definition of working poverty, but several definitions can be obtained by combining the labour market dimension with different poverty definitions. While “in-work poverty” is the EU indicator to detect working poverty in the labour market, it has several limitations because of its hybrid nature: it considers both the sphere of work of the individual and the family dimension. Relying on an advanced version of the 2019 IT-SILC survey dataset, the objective of this study is twofold. First, we propose an alternative measure considering territorial and sectoral disparities to have a better understanding of the low-wage employment in the Italian labour market. Second, we investigate the determinants of each type of working poverty explored and their potential coexistence.

This paper contributes to the literature on the assimilation of immigrants into the Italian labour market by using over-education as an indicator of labour market performance. The analysis is based on data taken from the Italian Labour Force Survey (LFS) for the period between 2005 and 2007. Distinguishing between the effect of human capital acquired abroad and domestically on over-education, we aim at finding indirect evidence on the increase in skill transferability over time. We find that foreigners are much more likely to be over-educated than natives upon their arrival in Italy and that work experience gained in the country of origin is not valued in the Italian labour market. Moreover, we find that not even experience acquired in Italy is helpful in improving immigrants' educational job matches, suggesting that catch-up by foreigners seems unachievable, even after they adapt their skills to the host country labour market.

Equitable societies with large middle classes are not the natural outcome of market forces. Equity, rather, is created by society, by the institutions – the laws, policies and practices – that govern the society, its economy and, in particular, its labour market. Building just societies means designing institutions that support the creation of quality jobs with decent wages and working conditions, as well as enacting policies to support those who cannot work or who are unable to find work. This book argues that the lack of, or erosion of certain institutions that govern the labour market has contributed to rising inequality in many countries across the world, jeopardizing individual as well as societal wellbeing. Thus, if a country wants to improve equity it will need to strengthen its labour market institutions. The book employs a broad definition of labour market institutions that includes the more familiar institutions that regulate the workplace – collective bargaining, minimum wages, the type of employment contract, and working time regulations – as well as those institutions that redistribute income, including pensions, income support for the unemployed and the poor, as well as public social services. Because work is by far the most important source of household income among nonretired households, the book also considers full employment policies in its analysis. A commitment to full employment implies not treating employment as a residual outcome of economic growth, but designing and implementing policies that make job creation an explicit goal. As the book is concerned with overall equity in a society, it considers not just wage and income inequality, but also inequality between groups. When labour markets are well regulated, when there are encompassing welfare states and when public social services are offered broadly to the population, there is greater equality between groups – as well as greater overall equality in wage and household income. Thus, achieving inclusiveness and equity requires constructing institutions that support people both