Real wages and productivity: a lesson from Italy, 1980-2023

The recent surge in prices has resulted in a reduction in real wages due to the failure to adjust wages to the increase in the cost of living. This can bring to a reduction in aggregate demand, but can also lead to negative structural consequences. In fact, as theorized by Sylos Labini, the reduction in real wages can serve as an incentive for businesses to invest in labor-intensive technologies, often with low technological content. Italy has, in the last decades (with few exceptions), been directed towards a path of reducing workers’ rights. Conse quently, Italy runs the risk of being a model where low wages, high inequality, and poor competitiveness in new technologies coexist. In this paper, we use a panel SVAR methodology to evaluate Sylos Labini’s hypothesis from an econometric perspective in the context of the Italian economy. The results of the analysis confirm the validity of Sylos Labini’s theory.