Back Matter

Appendix

Table A1.

Italy and Euro Area: Export Price Regressions for the Full Period

article image
Standard errors in parentheses. ***, **, and * denote significance at 1, 5, and 10 percent significance level, respectively.
Table A2.

Italy and Euro Area: Export Price Regressions for Sub-periods

article image
Standard errors in parentheses. ***, **, and * denote significance at 1, 5, and 10 percent significance level, respectively.
Table A3.

Model Specification and Parameterization

Calibration to Steady-State Labor Market Conditions

article image
Note: all parameter values are quarterly, baseline is sector level wage bargaining. The column for Europe shows Jimeno and Thomas (2013) calibration for an average continental European labor market.

References

  • Adalet McGowan, M., Andrews, D. and V. Millot, 2017, “The Walking Dead? Zombie Firms and Productivity Performance in OECD Countries,” Economics Department Working Papers No. 1372.

    • Search Google Scholar
    • Export Citation
  • Ahn, J., Mano, R. and J. Zhou, 2017, “Real Exchange Rate and External Balance: How Important Are Price Deflators?IMF Working Paper No. 17/81 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Amici, M., Bobbio, E. and R. Torrini, 2017, “Patterns of convergence (divergence) in the euro area: profitability versus cost and price indicators,” Bank of Italy Occasional Papers, forthcoming.

    • Search Google Scholar
    • Export Citation
  • Anderson, D., Hunt, B., Kortelainen, M., Kumhof, M., Laxton, D., Muir, D., Mursula, S. and S. Snudden, 2013, “Getting to Know GIMF: The Simulation Properties of the Global Integrated Monetary and Fiscal Model,” IMF Working Paper WP/13/55 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Anderson, G. and M. Raissi, 2018, “Corporate Indebtedness and Low Productivity Growth of Italian Firms,” IMF Working Paper (forthcoming).

  • Andrews, D. and F. Cingano, 2014, “Public Policy and Resource Allocation: Evidence from Firms in OECD Countries,” Economic Policy, Vol. 29, No. 78, pp. 253296.

    • Search Google Scholar
    • Export Citation
  • Andrle, M., Hebous, S., Kangur, A., and M. Raissi, 2018a, “Italy: Toward a Growth-Friendly Fiscal Reform,” IMF Working Paper (forthcoming).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Andrle, M., Kangur, A. and M. Raissi, 2018b, “Italy: Quantifying the Benefits of a Comprehensive Reform Package,” IMF Working Paper (forthcoming).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Bassanini, A. and R. Duval, 2009, “Unemployment, Institutions, and Reform Complementarities: Re-assessing the Aggregate Evidence for OECD Countries,” Oxford Review of Economic Policy, Vol. 25, No. 1, pp. 4059.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Bayoumi, T., Harmsen, R., and J. Turunen, 2011, “Euro Area Export Performance and Competitiveness,” IMF Working Paper No. 11/140 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Blanchard, O. and J. Gali, 2010, “Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment,” American Economic Journal: Macroeconomics, Vol. 2, No. 2, pp. 130.

    • Search Google Scholar
    • Export Citation
  • Blanchard, O.J., Griffiths, M. and B. Gruss, 2013, “Boom, Bust, Recovery: Forensics of the Latvia Crisis,” Brookings Papers on Economic Activity, Vol. 44, No. 2, pp. 325388.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Bluedorn, J. and H. Lin, 2017, “External Adjustment in Europe: Competitiveness, the Real Exchange Rate, and the Trade Balance, IMF Country Report No. 17/236.

    • Search Google Scholar
    • Export Citation
  • Bobeica, E., Christodoulopoulou, S. and O. Tkačevs, 2016, “The Role of Price and Cost Competitiveness for Intra- and Extra-Euro Area Trade of Euro Area Countries,” ECB Working Paper No. 1941.

    • Search Google Scholar
    • Export Citation
  • Boeri, T., 2014, “Two-Tier Bargaining,” IZA Discussion Paper No. 8358.

  • Bobeica, E., Christodoulopoulou, S. and O. Tkačevs, 2015, “Perverse Effects of Two-Tier Wage Bargaining Structures,” IZA World of Labor, ISSN 2054–9571, No. 101. http://dx.doi.org/10.15185/izawol.101

    • Search Google Scholar
    • Export Citation
  • Boeri, T., Ichino, A. And E. Moretti, 2014, “Housing prices, wage and income differences in Italy,” XVI European Conference presentation.

    • Search Google Scholar
    • Export Citation
  • Bugamelli, M., Fabiani, S., Federico, S., Felettigh, A., Giordano, C. and A. Linarello, 2017, “Back on Track? A Macro-micro Narrative of Italian Exports”, Bank of Italy Occasional Papers No. 399.

    • Search Google Scholar
    • Export Citation
  • Bussière, M. and T. Peltonen, 2008, “Exchange-Rate Pass-Through in the Global Economy. The Role of Emerging Market Economies,” ECB Working Paper No. 951.

    • Search Google Scholar
    • Export Citation
  • Calmfors, L., 1993, “Centralization of Wage Bargaining and Macroeconomic Performance: A Survey,” OECD Economic Studies No. 21.

  • Calmfors, L., and J. Driffill, 1988, “Bargaining Structure, Corporatism and Macroeconomic Performance,” Economic Policy, Vol. 3, No. 6, pp. 1361.

    • Search Google Scholar
    • Export Citation
  • Christodoulopoulou, S. and O. Tkatčevs, 2014, “Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries. What do Alternative HCIS Tell us?ECB Working Paper Series No. 1736.

    • Search Google Scholar
    • Export Citation
  • D’Amuri, F. and C. Giorgiantonio, 2015, “The Institutional and Economic Limits to Bargaining Decentralization in Italy,” IZA Policy Paper No. 98.

    • Search Google Scholar
    • Export Citation
  • Dao, M., 2015, “Recent Labor Market Reforms: A Preliminary Assessment” in Spain: Selected Issues, IMF Country Report No. 15/233 (Washington).

    • Search Google Scholar
    • Export Citation
  • Decressin, J., Espinoza, R., Halikias, I., Leigh, D., Loungani, P., Medas, P., Mursula, S., Schindler, M., Spilimbergo, A. and T. Xu, 2015, “Wage Moderation in Crises: Policy Considerations and Applications to the Euro Area,” IMF Staff Discussion Note (Washington).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Den Haan, W., Ramey, G., and J. Watson, 2000, “Job Destruction and Propagation of Shocks,” The American Economic Review, Vol. 90, No. 3, pp. 482498.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • EC, 2016, “Country Report Italy 2016,” Commission Staff Working Document,” Brussels, SWD(2016) 81 final.

  • ECB, 2003, “Developments in the euro area’s international cost and price competitiveness,” ECB Monthly Bulletin, August 2003.

  • Felipe, J. and U. Kumar, 2011, “Unit Labor Costs in the Eurozone: The Competitiveness Debate Again,” Levy Economics Institute Working Paper No. 651.

    • Search Google Scholar
    • Export Citation
  • Giordano, R., Lanau, S., Tommasino, P. and P. Topalova, 2015, “Does Public Sector Inefficiency Constrain Firm Productivity: Evidence from Italian Provinces,” IMF Working Paper No. 15/168 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Giordano, C. and F. Zollino, 2016, “Shedding Light on Price- and Non-price-competitiveness Determinants of Foreign Trade in the Four Largest Euro-area Countries,” Review of International Economics, Vol. 24, No.3, pp. 604634.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Hausmann, R., Hwang, J. and D. Rodrik, 2007, “What You Export Matters,” Journal of Economic Growth, Vol. 12, Issue 1, pp. 125.

  • Haugh, D., Kopoin, A., Rusticelli, E., Turner, D. and R. Dutu, 2016, “Cardiac Arrest or Dizzy Spell: Why is World Trade So Weak and What Can Policy Do About It?OECD Economic Policy Paper No. 18.

    • Search Google Scholar
    • Export Citation
  • Henn, C., Papageorgiou, C. and N. Spatafora, 2013, “Export Quality in Developing Countries,” IMF Working Paper 13/108 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Hidalgo, C.A. and R. Hausmann, 2009, “The Building Blocks of Economic Complexity,” PNAS, Vol. 106, No. 26., pp. 1057010575.

  • Hobijn, B. and A. Şahin, 2007, “Job-Finding and Separation Rates in the OECD,” Federal Reserve Bank of New York, Staff Report No. 298.

    • Search Google Scholar
    • Export Citation
  • Ignatenko, A., Raei, F., Mircheva, B. and V. Tulin, 2018, “Global Value Chains: A New Database and Insights for Europe,” IMF Working Paper (forthcoming).

    • Search Google Scholar
    • Export Citation
  • IMF, 2017, “2017 External Sector Report”, IMF Policy Paper (Washington).

  • IMF, 2011, “Changing Patterns of Global Trade,” IMF Policy Paper (Washington).

  • Jimeno, F.J. and C. Thomas, 2013, “Collective Bargaining, Firm Heterogeneity and Unemployment,” European Economic Review, Vol. 59, pp. 6379.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Jin, Y. and P. Lenain, 2015, “Labour Market Reform for More and Better Quality Jobs in Italy,” OECD Economics Department Working Papers No. 1266.

    • Search Google Scholar
    • Export Citation
  • Lanau, S. and P. Topalova, 2016, “The Impact of Product Market Reforms on Firm Productivity in Italy,” IMF Working Paper 16/119 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Leigh, D., Lian, W., Poplawski-Ribeiro, M., and V. Tsyrennikov, 2015, “Exchange Rates and Trade Flows: Disconnected?World Economic Outlook, pp. 10542.

    • Search Google Scholar
    • Export Citation
  • Lissovolik, B., 2008, “Trends in Italy’s Nonprice Competitiveness,” IMF Working Paper No. 08/124 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Lusinyan, L. and D. Muir, 2013, “Assessing the Macroeconomic Impact of Structural Reforms: The Case of Italy,” IMF Working Paper No. 13/22 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Manasse, P., 2013, “The Roots of the Italian Stagnation,” CEPR Policy Insight No. 66.

  • Marazzi, M., Sheets, N., and R. Vigfusson, 2005, “Exchange-Rate Pass-through to U.S. Import Prices: Some New Evidence,” FED International Finance Discussion Papers No. 833.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Mazier, J., Baslé, M. and J.-F. Vidal, 1999, “When Economic Crises Endure,” M.E. Sharpe, Inc. (Armonk: New York).

  • OECD, 2004, “Wage-setting Institutions and Outcomes,” OECD Employment Outlook, pp. 127181.

  • OECD, 2017, “OECD Economic Surveys: Italy 2017” (OECD Publishing: Paris). http://dx.doi.org/10.1787/eco_surveys-ita-2017-en

  • OECD, 2017, “Collective Bargaining in a Changing World of Work,” in OECD Employment Outlook 2017 (OECD Publishing: Paris).

  • Pellegrino, B. and L. Zingales, 2017, “Diagnosing the Italian Disease,” NBER Working Paper No. 23964.

  • Pellegrino, B. and L. Zingales, 2014, “Diagnosing the Italian Disease,” mimeo.

  • Peracchi, F. and E. Viviano, 2004, “An Empirical Micro Matching Model with an Application to Italy and Spain,” Bank of Italy Economic Working Papers No. 538.

    • Search Google Scholar
    • Export Citation
  • Petrongolo, B. and C.A. Pissarides, 2001, “Looking into the Black Box: A Survey of the Matching Function,” Journal of Economic Literature, Vol. XXXIX, pp. 390431.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Raissi, M., 2015, “Flexible Inflation Targeting and Labor Market Inefficiencies,” Economic Modelling, Vol. 46, pp. 283300.

  • Rodrik, D., 2013a, “Unconditional Convergence in Manufacturing,” The Quarterly Journal of Economics, Vol. 128, No. 1, pp. 165204.

  • Rodrik, D., 2013b, “The Past, Present, and Future of Economic Growth,” GCF Working Paper 1. London: Global Citizen Foundation.

  • Schindler. M., 2009, “The Italian Labor Market: Recent Trends, Institutions and Reform Options,” IMF Working Paper No. 9/47 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Schivardi, F., E. Sette, and G. Tabellini, 2017, “Credit Misallocation During the European Financial Crisis,” Working Paper (LUISS University).

    • Search Google Scholar
    • Export Citation
  • Terzi, A., 2016, “An Italian Job: The Need for Collective Wage Bargaining Reform,” Bruegel Policy Contribution, Issue 2016/11.

  • Topalova, P., 2016, “Female Labor Force Participation in Italy: Drivers and Benefits,” in Italy: Selected Issues, IMF Country Report No. 16/223 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Torrini, R., 2016, “Labour, Profit and Housing Rent Shares in Italian GDP: Long-Run Trends and Recent Patterns,” Bank of Italy Occasional Papers No. 318.

    • Search Google Scholar
    • Export Citation
  • Tressel, T., 2017, “Revisiting the Competitiveness Problem”, in “France: Selected Issues,” IMF Country Report No. 17/289, pp. 2855.

    • Search Google Scholar
    • Export Citation
  • Wolff, E.N., 1999, “Specialization and Productivity Performance in Low-, Medium-, and High-Tech Manufacturing Industries,” in Heston, A. and R.E. Lipsey ed. “International and Interarea Comparisons of Income, Output, and Prices,” University of Chicago Press, pp. 419452.

    • Search Google Scholar
    • Export Citation
  • World Economic Forum, 2016, “The Global Competitiveness Report 2016–2017.”

1

The author is grateful to counterparts at the Bank of Italy and the Ministry of Economy and Finance, Romain Duval and the IMF Research Department for useful comments as well as to Juan Jimeno and Carlos Thomas for sharing their model codes. This paper first appeared as Chapter 1 in the IMF Country Report No. 17/238.

2

This national accounts definition, based on agreed conventions to allocate incomes, facilitates cross-country comparisons across different macroeconomic aggregates (e.g., the labor share). For an Italy-specific view, see Torrini (2016).

3

At the same time, Giordano and Zollino (2016) show that the PPI for Italy forms a cointegrating relationship with the manufacturing ULC, suggesting it is difficult to disentangle the two.

4

All regressions relate export prices to measures of domestic costs and foreign competitors’ prices; see Marazzi and others (2005) for a short overview of micro-foundations. The dependent variable is the total export deflator. Foreign prices are measures with HICP-based REER (an increase denotes appreciation), divided by domestic HICP. Domestic costs are measured by the domestic PPI excluding construction and energy. PPI oil and non-oil energy prices are added as additional regressors, together with the Brent oil prices in U.S. dollar terms to avoid multicollinearity. All data are quarterly and seasonally and/or working-day adjusted. As in most of the literature, in most cases, a cointegrating relationship cannot be found among the key variables of the model. Accordingly, the regressions are estimated in log-differences without an error correction term. All regressions include a lagged dependent variable as in Bussière and Peltonen (2008) that, in most cases, is found to deliver similar results to a distributed lag representation. Equivalent estimation results for the distributed lag representation can be found in the appendix, Tables A1 and A2. Similarly, instrumenting for the lagged dependent variable to address the potential endogeneity bias delivers qualitatively similar results for most countries, although often with reduced significance. Whereas this paper focuses on country-specific results, various panel data estimators point to a similar aggregate relationship.

5

Lissovolik (2008) estimates that, for the period preceding the crisis, the long-term elasticity of Italy’s real exports to global demand, estimated in the order of 0.4, was about 2–3 times lower than for Germany or Spain.

6

The contrast with Spain is informative, where the 2012 structural labor market reforms, including a prioritization of more efficient firm-level wage bargaining, have contributed to bringing down the ULCs (see text chart on page 3) and avoided job losses in response to labor demand shocks (Dao, 2015).

7

In 2017, the authorities took a series of measures in the context of the “Industry 4.0” plan to stimulate investment and build export capacity. These include (i) temporary extension of super-amortization; (ii) temporary introduction of a hyper-amortization for “Industry 4.0” goods; (iii) more attractive R&D tax credit; (iv) tax incentives for start-ups and innovative SMEs; (v) reduction in the corporate tax rate (IRES) from 27.5 to 24 percent; (vi) reduced 10 percent tax rate on productivity-related wage bonuses at the firm level; (vii) refinanced guarantee fund to facilitate credit to SMEs; (viii) newly created Digital Innovation Hub and the “Industry 4.0” Competence Center; (ix) measures to reinforce technological clusters and the Ultra Broadband Plan; and (x) public investment toward “Industry 4.0” related education and research. Several measures were extended or adapted in the 2018 budget, including the incentives for private investment (‘super-amortization’) differentiated across innovative industries, R&D tax credit, and SME financing.

8

Global value chains capture vertical integration in production processes through trade in intermediate products, where each fragmented production stage is carried out in the most cost-efficient location.

9

The ECI is a measure that captures both countries’ production sophistication and export diversity. Countries at the productivity frontier export goods that tend to be unique and produced only by highly diversified countries. Countries further away from the frontier lack capabilities to produce such specialized or exclusive products.

10

See Schindler (2009) and D’Amuri and Giorgiantonio (2015) for descriptions of other reform initiatives.

11

In OECD (2004), bargaining governability as an indication of vertical control is measured by legal enforceability of collective contracts and whether a peace obligation prohibits industrial action.

12

The standard expression Xm + (1 – Xm)Xm + (1 – Xm)2Xm, is used, where Xm is the monthly job finding rate.

13

Peracchi and Viviano (2004) estimate the aggregate unemployment elasticity for Italy as low as 0.23, increasing to 0.488 in the North-Eastern Italy. Petrongolo and Pissarides (2001) in an extensive survey find support to CRS that in general estimate the coefficient on unemployment in the range of 0.5–0.7, although some estimates that use total hires instead of hires from unemployment as a dependent variable find lower coefficients on the unemployment in the range of 0.3–0.4.

14

The authors also show that changes in the dispersion of firm-specific productivity shocks have little impact.

15

The size of the labor force is normalized to 1, so that a reduction in the unemployment (rate) translates into an equivalent increase in employment.

16

Another reason why a more conservative baseline scenario is followed in the quantification presented here is the nature of the DSGE model, which does not account for other rigidities that can affect equilibrium (un)employment. A comprehensive complementary reform package to tackle structural rigidities is thus necessary to allow the yields from wage bargaining reform to materialize fully.

17

See Anderson and others (2013) for an overview of GIMF simulation properties and Lusinyan and Muir (2013) for an earlier GIMF application to assess structural reforms in Italy.

Competitiveness and Wage Bargaining Reform in Italy
Author: Mr. Alvar Kangur