Labour Market Institutions, Wage Rigidity and Unemployment: An Empirical Analysis of the Employment Effects of Wage Indexation in Italy

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Project objective

Research objectives and contentThere is a widespread view that the rise in European unemployment in the last two decades has been due to due to excess wage rigidity. Until 1991 wages of Italian workers have automatically adjusted to realised inflation via the Scala Mobile, an indexation mechanism with re-distributive effects. This project aims at answering the following demand: Did the wage protection offered to low wageworkers by this mechanism imply detrimental employment effects at the bottom of the skill distribution? The research articulates into a first part in which micro foundations for the behaviour of firms and workers are laid and a second one where a demand function for labour based on the testable implications of the model is estimated I argue that the Scala Mobile can be usefully employed to uncover the relationship between wages and quantities along a firm labour demand curve.Training content (objectives benefit and expected impact)By testing the hypothesis that labour market rigidity" can be blamed for the rise in unemployment, this research aims to provide a base for discussions on efficient systems of labour relations, ways of achieving redistribution of resources and in particular should shed some light on the causes of increased unemployment and in Europe and its possible cures.Links with industry / industrial) relevance (22)"

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Participants

• UNIVERSIDAD CARLOS III DE MADRID · GETAFECoordinatorSpain

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