Regional disparities and the Italian NAIRU

Abstract

In this paper we estimate the Italian NAIRU using annual data for the period 1951-96. We find evidence consistent with aggregate wage setting in Italy depending only on the rate of unemployment prevailing in the Northern and Central areas of the country. There is evidence supporting the presence of a long-run cointegrating relationship among unemployment in the Northern and Central areas, the tax wedge, the real interest rate and a measure of union power. The response of unemployment to exogenous shocks is sluggish, suggesting that persistence is an important feature of the Italian labor market. Copyright 2000 by Oxford University Press.