riccardo faini memorial conference italy ’ s lost productivity and how to get it back bank of italy, via nazionale 91 opening remarks by ignazio visco governor of the bank of italy rome, 13 january 2017 i am pleased to welcome all participants to this conference to remember professor riccardo faini. i first met riccardo in 1978 when i presented a paper written with stefano micossi in the famous monetary workshop held by franco modigliani and stan fisher at mit ( riccardo was then a phd student with giampaolo galli and luca barbone … ). we met often in the following years inside and outside of italy, socially and professionally, exchanging views and commenting on each other writings. indeed, issues related to the topic of today ’ s conference – long - standing poor productivity dynamics in italy – happened to be at the centre of a couple of professional exchanges between us in the mid - 1990s and early 2000s, which i would like to briefly share with you. in 1994, at a seminar on “ the new frontiers of economic policy ” ( le nuove frontiere della politica economica ) organised by the innocenzo gasparini institute for economic research ( igier ), i discussed – along with luigi spaventa – a paper by riccardo on wage and productivity differentials ( stesso lavoro, diverso salario?, i. e. “ same jobs, different wages? ” ) between northern italy and southern italy – the mezzogiorno. the starting point of riccardo ’ s analysis was that a convergence in nominal wages between the two regions since the late - 1960s had not been accompanied by a parallel convergence of productivity levels ; the ensuing higher unit labour costs in southern italy were thus contributing to higher unemployment there. in order to achieve more wage flexibility in southern italy ’ s labour market, riccardo ’ s main proposal was to introduce a third type of wage bargaining arrangement – a regional one – to complement or replace bargaining at the centralised and firm levels, with a view to bringing closer wages and productivity levels while addressing higher unemployment in the south. in my comments i raised some criticisms, but on one major point we were in close agreement, namely that the issue of lower productivity ( and higher unit labour costs ) in southern italy should be addressed not only by reforming the labour market but also by implementing broader structural reforms to overcome well - known distortions of the general institutional

including those working at the bank of italy, has long highlighted the importance of structural factors that are specific to the italian economy and to their interaction with the three fundamental changes that have taken place since the second half of the 1990s : globalization, the technological revolution and the demographic transition, especially, but not only, linked to population ageing. on top of all this we have had the establishment of the economic and monetary union and the adoption of the euro. to all these changes the italian economy has adjusted very slowly, if at all, and with substantial delay. the result has been the inability to overcome well known structural weaknesses. some of these weaknesses are internal to italian firms, which are, when compared to those located in other developed economies, considerably smaller, older, with a lower propensity to innovate and adopt new advanced technologies. management skills and practices leave much to be desired and are often old - fashioned. to finance their activity firms rely on bank credit much more than what happens in other advanced countries : in this regard, it is well known that this is not the ideal source for financing innovations. the capability of italy ’ s productive economy to increase sales and create value added has been also undermined by long - standing institutional weaknesses. since 2011 italy has undertaken a vast programme of structural reforms, aimed at creating a more growth - friendly environment. legislators have approved, in various steps, measures to reduce red - tape, to simplify bureaucratic procedures for starting and running businesses, to improve the efficiency of the public administration and the judiciary system, to prevent and fight corruption, to stimulate innovation, and to achieve a more flexible and dynamic labour market. the process is still ongoing and far from being concluded, even if in several areas there are first effects. the stock of pending civil proceedings is decreasing : our estimates show that some of the measures adopted in the past to reduce red tape and to simplify business start - up regulations have had positive effects on the entry rate of start - ups. the jobs act is a wide - ranging reform, that has tackled employment protection legislation, unemployment insurance, wage supplementation funds, active labour market policies and other aspects. but while its long - term effectiveness still remains to be seen, we must understand the risks of going backwards, as reducing labour market segmentation is fundamental in the quest to allocate labour from less to more productive uses, and to boost aggregate productivity. factors that negatively impinge on aggregate productivity growth by constraining both efficiency gains