The labour market and inflation in transitional growth: lessons from the Italian experience

Abstract

The paper argues that in later-developing countries that have chosen an export-led growth strategy, such as Italy, growth is likely to be sped up in the initial stage when technology provides an increase in labor productivity to counterbalance the rise in money wages. As the stage of ‘unlimited supply of labour’ comes to an end, however, the imitation of international wage levels spreads and increasing inflationary tendencies appear. At the same time, the implementation of welfare systems inflates government expenditures and deficits, thus lowering the national propensity to save and the ‘warranted’ rate of growth. A model of inflation for late-developing countries in employed to develop this argument.