Labor Productivity and Wage Allocation: Thom and I Were Right!

The EU Commission’s recent report on Monitoring progress in the Member States for Italy, on pag 2,  acknowledges that

“Slow productivity growth is mostly due to inefficiency in allocating resources. Indeed, Italy’s investment rate is comparable to that of other euro-area countries, but its level of capital efficiency is lower and declining.
According to a recent analysis, one of the root causes of modest productivity growth is that labour market reforms have focused mainly on flexibility and have neglected to address rigidities in the wage-setting mechanism. This is producing perverse effects: since 2000 wages have increased more in sectors where labour productivity has grown less, and, in the short term, employment is tending to move towards sectors where labour productivity is increasing less. (324)

(324) P. Manasse e T. Manfredi, Flessibilità, mito infranto del lavoro in Italia, e-book, 2014 (linkiesta),  English Version on Voxeu