Austerity and competitiveness in the Eurozone: a misleading linkage

After a preliminary focus on increasing government debts, the debate on the “Eurozone crisis” switched over persistent external imbalances - both trade and net foreign assets - among European Monetary Union country members. Endorsing a pure neoclassical view, current account differentials were almost exclusively ascribed to weak price competitiveness of deficit countries (the so called Euro Area periphery), neglecting both demand-side factors and the structural productive asymmetries of the EMU. As a consequence, policy makers decided to impose austerity measures to peripheral countries in order to foster their competitiveness, and consequently to correct external imbalances by means of increasing export - while current accounts realignment mainly occurred due to decreasing import. In this paper, we identify this view as competitive austerity, in parallel with the debated expansionary austerity. According to their proponents, these policies would have a direct impact on trade balances and expansionary effects on real output and employment. By contrast, from an alternative standpoint fiscal restraints can be generally considered as counterproductive. In this perspective, following Keynesian arguments the aim of this paper is to critically assess the austerity-competitiveness linkage from a theoretical perspective. Moreover, some macroeconomic evidences are suggested to evaluate both effectiveness on external positions and real side-effects of austerity policies

The evolution of wages, labour cost and the labour share in national income: a sectoral analysis (1970-2020)

Il documento presenta i risultati di una ricerca che si concentra sull’evoluzione della distribuzione funzionale del reddito e del costo del lavoro in Italia. In particolare, viene calcolata la quota salari aggiustata e il CLUP per il periodo 1970-2020 a partire da dati di contabilità nazionale (Istat). Oltre al totale dell'economia, il contributo fa riferimento all'andamento della quota salari in quattro macrosettori (il settore privato non agricolo ad esclusione dell’immobiliare, il manifatturiero, i servizi commerciali e professionali, i servizi finanziari e di rete). Tali andamenti vengono inoltre analizzati con riferimento alla dinamica del salario reale medio, della produttività del lavoro e dei prezzi relativi

Exporting differently? The political economy of alternative export-led strategies

The paper enters the current debate at the intersection of comparative political economy and international trade on the role of price and non-price competitiveness in influencing export. Through an econometric exploration, we identify price competitiveness as a non-negligible factor in driving export, for a set of OECD countries from 1994 to 2019. The documented price sensitiveness, combined with the institutions and policies adopted to promote export-led growth, casts an unsettling light on the prospects for a recovery, particularly for the Euro area. These worrying conclusions are not, however, unescapable. The emergence of the export-led growth model - with its twin brother, the debt-led one - answered the demand-generating problems created by years of wage share decreases and a steady retreat of the State from its traditional demand management role. Drastically inverting these tendencies would contribute to strongly narrowing the need for export-led strategies

Austerity and Competitiveness in the Eurozone: a misleading linkage

After focusing on fiscal indiscipline, the debate on the Eurozone crisis switched over persistent external imbalances among the European Monetary Union countries. Current account differentials were almost exclusively ascribed to the weak price competitiveness of deficit countries – neglecting demand-side factors – and consequently austerity measures have been imposed to peripheral countries in order to foster their competitiveness with the purpose of adjusting external imbalances through export growth. In this context, the contribution of this paper is twofold. Firstly, we identify this view as competitive austerity (in parallel with the expansionary austerity narrative), as the set of measures which, according to policy makers, would stimulate trade balance, output and employment. Secondly, we criticize this approach since fiscal restraints were proved to be counterproductive. We conclude by disproving the austerity-competitiveness linkage from a Keynesian perspective as well as by means of some macroeconomic evidence, and we provide an alternative recipe to the Eurozone issues

Austerity and competitiveness in the Eurozone: a misleading linkage

After a preliminary focus on increasing government debts, the debate on the “Eurozone crisis” switched over persistent external imbalances - both trade and net foreign assets - among European Monetary Union country members. Endorsing a pure neoclassical view, current account differentials were almost exclusively ascribed to weak price competitiveness of deficit countries (the so called Euro Area periphery), neglecting both demand-side factors and the structural productive asymmetries of the EMU. As a consequence, policy makers decided to impose austerity measures to peripheral countries in order to foster their competitiveness, and consequently to correct external imbalances by means of increasing export - while current accounts realignment mainly occurred due to decreasing import. In this paper, we identify this view as competitive austerity, in parallel with the debated expansionary austerity. According to their proponents, these policies would have a direct impact on trade balances and expansionary effects on real output and employment. By contrast, from an alternative standpoint fiscal restraints can be generally considered as counterproductive. In this perspective, following Keynesian arguments the aim of this paper is to critically assess the austerity-competitiveness linkage from a theoretical perspective. Moreover, some macroeconomic evidences are suggested to evaluate both effectiveness on external positions and real side-effects of austerity policies

Italian economic trends and labor market reforms: a 50-years overview

This paper aims to investigate the Italian economic development from 1960 to the present day, performing an analysis of meaningful economic trends and relating them to the implementation of major labor market reforms. For this purpose, we observe the dynamics of main macroeconomic variables related to growth, income distribution and employment. Especially, we focus on different theoretical approaches explaining labor productivity trend, and on Classical theory of distribution

Italian economic trends and labor market reforms: a 50-years overview

This paper aims to investigate the Italian economic development from 1960 to the present day, performing an analysis of meaningful economic trends and relating them to the implementation of major labor market reforms. For this purpose, we observe the dynamics of main macroeconomic variables related to growth, income distribution and employment. Especially, we focus on different theoretical approaches explaining labor productivity trend, and on Classical theory of distribution

On the Non-Inflationary Effects of Long-Term Unemployment Reductions

Contrary to the New Keynesian paradigm, long-term unemployment can be reversed without a significant uptick in inflation The paper critically examines the New Keynesian explanation of hysteresis based on the role of long-term unemployment. We first examine its analytical foundations, according to which rehiring long-term unemployed individuals would not be possible without accelerating inflation. Then we empirically assess its validity along two lines of inquiry. First, we investigate the reversibility of long-term unemployment. Then we focus on episodes of sustained long-term unemployment reductions to check for inflationary effects. Specifically, in a panel of 25 OECD countries (from 1983 to 2016), we verify by means of local projections whether they are associated with inflationary pressures in a subsequent five-year window. Two main results emerge: i) the evolution of the long-term unemployment rate is almost completely synchronous with the dynamics of the total unemployment rate, both during downswings and upswings; ii) we do not find indications of accelerating or persistently higher inflation during and after episodes of strong declines in the long- term unemployment rate, even when they occur in country-years in which the actual unemployment rate was estimated to be below a conventionally estimated Non-Accelerating Inflation Rate of Unemployment (NAIRU). Our results call into question the role of long-term unemployment in causing hysteresis and provide support to policy implications that are at variance with the conventional wisdom that regards the NAIRU as an inflationary barrier