The Italian left ignores the origins of low wage levels

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The Italian left ignores the origins of low wage levels

The Italian left ignores the origins of low wage levels

30 Ottobre 2007

The governor of Italy’s Central Bank, Mario Draghi,
has highlighted the relatively low levels of remuneration from which large
parts of the Italian workforce currently suffer. His comments have been taken
up by left-wing politicians who ignore the profound analysis Draghi offers on
the origins of the problem.

 In a speech at the University of Turin,
the head of the Bank of Italy stressed that the median income of Italian
employees is below that of most other Western European countries. He told an
audience of fellow economists and university students that the average wage in Germany is 10 per cent, in Great Britain 20 per cent and in France 25 per cent higher than in Italy. He noted
that due to the weak increases in salaries, consumption and economic growth are
likely to remain subdued.

Draghi’s speech was welcomed by exponents
of the far-left of the political spectrum. This kind of response is unusual given
that Italian communists normally dismiss the Central Bank as being part of the
“neo-liberal” establishment. This time, however, Franco Giordano, chairman of
the biggest communist party (PRC) was quick to applaud the governor. He said
that “he is in complete agreement” with Draghi. Giordano made clear that he
interprets Draghi’s comments to mean that an excessive stress on labor
flexibility has caused economic uncertainty among ordinary workers and hit
their wage levels. In reality, however, Mario Draghi made no such point.
Instead, he even praised the Danish labor market – the most flexible and
deregulated in Western Europe – as an
important model to study.


Other members of the far-left who responded
to Draghi were Paolo Ferrero, minister for social solidarity in the Prodi
government and Paolo Cento, undersecretary at the economy ministry. Ferrero
asserted that Draghi’s remarks must be set into the social context of “the
precariat”, a category of mostly young workers who switch jobs frequently and
search for a long time until they are offered a permanent contract. However,
despite raising the problems of young jobseekers, Draghi clearly distinguished
the phenomenon of “the precariat” from the more general fact that wage levels
in Italy
remain low by European standards. Also Cento’s point that the slow rise in
retribution levels calls for a new policy of fiscal redistribution completely
distorts the central message contained in Draghi’s speech. Whereas Cento
regards the current situation to confirm the “failure of economic liberalism”,
the Central Bank governor clearly outlined that a recovery of future wages
would overwhelmingly depend on Italy’s
ability to raise productivity.


Draghi emphasized that while, according to
OECD figures, Italian wages are trailing those of other European countries,
what is still more alarming is that labor costs in relation to economic output
are rising in Italy
whereas they are falling in several neighboring economies. Consequently,
despite being falling behind in terms of remuneration, Italian wages are still
too high to keep up with European productivity levels. Thus, the problem cannot
be resolved by instant wage rises as these would further weaken overall
productivity. Draghi’s explanation is supported by recent research which
suggests that Italy’s
productivity has fallen since 1999 thus restricting the scope of employers for
wage increases whereas substantial improvements in productivity in the UK and France have allowed their companies
to be more generous in raising salaries.

In his speech, the Central Bank governor also
sketched out some policies to correct the productivity crisis, including a rise
in the pension age, but such a measure would surely not please the radical
left. Therefore, an issue of vital social importance remains unaddressed as old
stereotypes and rhetoric obstruct a proper debate.