Labor Market Institutions, Productivity, and the Business Cycle: An Application to Italy

Josué Diwambuena, Raquel Fonseca () and Stefan Schubert

Cahiers de recherche / Working Papers from Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics

Abstract: This paper studies the effect of labor market institutions on the cyclicality of labor productivity and aggregate fluctuations in Italy. It uses a New Keynesian model with labor market frictions and labor effort when two wage bargaining settings (efficient Nash and right-to-manage) interact with three types of hiring costs. We focus on three sets of labor market deregulation modeled as a fall in wage rigidity, hiring costs, and the bargaining power of workers. We show that, when labor effort varies, reforms trigger procyclical productivity under efficient bargaining, and countercyclical productivity under right-to-manage bargaining. Reforms also have different effects on cyclical moments. Second, we estimate the model with Bayesian techniques and find that productivity is mainly driven by technology shocks.

Keywords: Labor market institutions; labor productivity; business cycles; hiring costs; effort. (search for similar items in EconPapers)
JEL-codes: C51 C52 E24 E32 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-des, nep-dge, nep-eff, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:rsi:creeic:2302

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