Explaining Italy's decline

What is Italy's problem? In a recent working paper, Italy’s decline: getting the facts right, Francesco Daveri and C. Jona-Lasinio provide an answer: sluggish labour productivity growth.

The Italian economy is often said to be on a declining path. In this paper, we document that: (i) Italy’s current decline is a labor productivity problem (ii) the labor productivity slowdown stems from declining productivity growth in all industries but utilities (with manufacturing contributing for about one half of the reduction) and diminished interindustry reallocation of workers from agriculture to market services; (iii) the labor productivity slowdown has been mostly driven by declining TFP, with roughly unchanged capital deepening. The only mild decline of capital deepening is due to the rise in the value added share of capital that counteracted declining capital accumulation.

Comments

[Ian D-B]

Bob Gordon and I have a paper that you've posted before arguing that much of the decline in labor productivity in the EU is driven by increases in employment. In an update of that paper that we're working on for the journal Economic Policy, we show that you can actually explain a lot of Italy's (and, to an even larger extent, Spain's) recent decline in labor productivity growth with labor market liberalization policies, such as a large decline in taxes on labor.

It's also interesting to note that the countries in Europe with the largest recent slowdowns in LP growth were the same ones in which women finally entered the labor force. Female employment per capita was about 30% ten years ago in Spain. By 2006 it rose to 45% (still a level far below Spanish men and northern European women). That's an enormous change, and it's clearly had a big impact on the macroeconomy.

It's also important to note that while LP growth has slowed in southern Europe, output per capita is still rising at a respectable pace that isn't far below that of the EU-15 as a whole.

[Lafayette]

Italy has a significant "off-the-books" manufacturing component.

I suggest that "official" productivity statistics do not pick up this activity.

[Ted]

This story was first quoted by: www.businesshackers.com a couple of weeks ago.

to read sth more about Italy see:

SO: Made in Italy at Chinese Prices
The next stage of globalization is in full swing in Prato, once the center of the Italian textile industry. After the city lost jobs to factories in the Far East, now the Chinese and their low-wage workers are encroaching on Old Europe.
link: http://www.businesshackers.com/2006/12/11/so-made-in-italy-at-chinese-prices/

[Lafayette]

Ted, from the article I quote this: "In the evening, when the sun sinks behind the Apennine Mountains,"

Prato is next to Florence. Florence is to the west of the Apennines. The sun cannot sink behing the Apennine mountains, unless it reverses course. Of course, Italy being a magical country, perhaps this was the case when the journalist visited Prato ....

Unless, the Chinese have rebuilt Florence and Prato in China, which would surprise no one. I live in a 14th century village in the south of France and, this summer, lo and behold, a contingent of Chinese students and thier teacher were spotted not only walking about the village taking pictures but measuring the streets and the sizes of buildings.

Nobody was surprised. With the employment situation so bad in France, the villagers hoped that the Chinese would be making a French "Historical Park", where the 2.5 million unemployed French could find a job as extras.

Go figure.

Anyway, about Italy: It is an ancient culture that has almost never refused a cultural invasion, except that of the Nazis after Mussolini's capitulation.

It doesn't surprise anyone in Prato that the Chinese are there to do Italian work. You see, they know that the produce will be sold, earning the state 20% in VAT ... which will go to thier pension and/or dole payments. Crafty people, those I-ties.

The Chinese are there to learn a craft, and it is the manufacture of silk products, notably ties. The silk they have back in China. What they have not mastered is the art of designing silk ties. But, that is just down the road in Florence and, after they have acquired the know-how, off they will go to return to China.

Crafty is as crafty does.