On collective agreements

This column compares the impact of different wage bargaining models in Italy, which has limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, and Germany, which has a tighter link between local wages and local productivity. The Italian system is successful at reducing nominal wage inequality, but creates costly geographic imbalances. If Italy were to adopt the German system, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively.

[A] firm may be hit by a shock at different stages of the “life” of its workers’ collective agreement. If the monetary policy shock occurs when the agreement is close to the renewal, any change in firm profitability due to a macroeconomic shock will be taken into account in the new contract. On the other hand, if there is a long time left before the renewal, workers and managers will be “stuck” with the same wage despite the fact that the firm’s profitability might have drastically changed. Hence, in this case, the impact of a change in the Central Bank’s monetary policy will have stronger effects on firm outcomes.