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

Short Summary:
This paper examines how Italian labor market institutions influence the cyclicality of labor productivity and business cycle fluctuations in Italy. The authors simulate a business cycle model characterized by nominal rigidities, labor market frictions and labor effort when two distinct wage bargaining mechanisms (Efficient Nash and right-to-manage) interact with different types of hiring costs. The authors find, among other results, that when effort varies, the reforms lead to procyclical productivity in the presence of efficient bargaining and countercyclical productivity when night-to-manage bargaining is used. Moreover, reforms have different effects on the volatility of unemployment and inflation.

Publications Authors: Josué Diwambuena, Raquel Fonseca and Stefan Schubert