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Cambridge Journal of Economics Advance Access published online on April 17, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep011
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Little innovation, many jobs: An econometric analysis of the Italian labour productivity crisis

Federico Lucidi and Alfred Kleinknecht*

* Sapienza University of Rome and Fondazione Giacomo Brodolini, Rome (FL) and Economics of Innovation, TU Delft, Università La Sapienza Rome (Guest Professor, 2006) and Université Panthéon Sorbonne Paris I (Guest Professor, 2008–09) (AK)

Address for correspondence: Alfred Kleinknecht, Department Economics of Innovation, TU Delft, Jaffalaan 5, NL-2628 BX Delft, The Netherlands; email: a.h.kleinknecht{at}tudelft.nl

Over the past 20 years, Italy has realised changes in labour legislation, leading to a decentralisation of wage bargaining and increased flexibility in labour relations. Both these factors have helped to curb wage growth and to enhance employment growth, but have also led to a crisis in Italian labour productivity growth. Our estimates among 3,000 firms show that firms with a high share of flexible workers, a high labour turnover and lower costs of labour (relative to capital) experienced significantly lower rates of labour productivity growth. Our findings raise doubts about the mainstream call for flexibilisation of European labour markets. We argue that the Italian shift towards a low-productive and labour-intensive growth path is problematic against the background of an ageing population.

Key Words: Flexible labour • Deregulation of labour markets • Innovation • Labour productivity growth

JEL classifications: J5, J24, J31, J41, M54, O12, O13, O33

Manuscript received July 16, 2007; final version received December 12, 2008.


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