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Italy's tripartite central agreement of 23 July 1993 laid the basis for the structural reduction of inflation and eventual entry into EU Economic and Monetary Union (EMU). Following the agreement, wage increases were initially lower than the inflation rate, and dependent workers' share of the national income diminished considerably. However, this trend petered out in 1996, prior to Italy rejoining the European Monetary System, which was a precondition for EMU membership. Over 1996-8, the system of income distribution seems to have stabilised, and the conditions now seem to be in place to boost policies for employment and in support of the production system, which were envisaged by the 1993 agreement but to date have been pursued somewhat halfheartedly.
The Protocol on incomes and employment policy, on bargaining arrangements, on labour policies and on support for the production system (Protocollo sulla politica dei redditi e dell'occupazione, sugli assetti contrattuali, sulle politiche del lavoro e sul sostegno al sistema produttivo) was drawn up by the presidency of Italy's Council of Ministers on 3 July 1993 and signed by the employers' and trade union organisations on 23 July 1993 (IT9803223F).
The July 1993 tripartite agreement followed a long period of confrontation and conflict between the unions and employers' associations. The central issue was the high cost of labour resulting from the combined economic effects of national-level sectoral bargaining (the main component of the Italian bargaining system), "supplementary" company-level bargaining, and the "sliding scale" wage indexation system. The situation was exacerbated by the growing weight of the tax burden on workers' incomes, and of the social security contributions paid by employers. This combination of factors gave rise to an inflation rate higher than that of Italy's main trading partners.
For almost 20 years (after the financial crisis of January 1976) the macroeconomic solution to this problem was abandonment of any attempt to defend the exchange rate, and devaluation of the lira (ITL), remedies which periodically restored Italy's competitiveness. However, the prospect of joining EU Economic and Monetary Union (EMU) meant that currency depreciation was no longer a practicable solution for the country's internal distributive problems.
In this situation, the government came to assume the role of the third actor in the Italian industrial relations system (a system which hitherto had been substantially bilateral). Thus, on the occasion of the first tripartite agreement - signed on 6 July 1990 by the unions, employers' associations and government - the government took on the task of proposing economic policy programmes (budget and incomes policies) to the social partners, with the aim of achieving "high and stable growth of the economy" and reducing "the inflation rate to the levels of the leading industrialised countries". In view of these shared goals, the social partners agreed to begin negotiations "on restructuring the wage and bargaining system and on introducing a new wage-indexation system".
The July 1993 agreement
Amid progress and setbacks, the negotiations continued for more than three years and concluded with the drafting of the July 1993 protocol, which stated that the presence of the government was necessary to coordinate "contractual arrangements" with "labour policies and policies in support of the productive system". The government pledged to implement these policies so that the "income and employment policies" agreed upon - and which determined the behaviour of the government and the social partners - would enable achievement of:
- "an inflation rate in line with the average of the economically more virtuous countries of the EEC";
- "a reduction in the state deficit"; and
- "monetary stability"
As regards labour costs, the protocol altered the pay determination system in three ways:
- by eliminating the cost-of-living allowance;
- by assigning the task of maintaining "economic effects coherent with the planned inflation rate assumed as a common objective" to national-level sectoral bargaining; and
- by encouraging the introduction of company-level pay incentives "correlated with the achievement of targets jointly set by the parties and geared to improvements in productivity, quality and other elements of international competitiveness ... as well as to the company's economic performance".
Bargaining matters and pay growth since 1993
As far as sectoral bargaining arrangements are concerned, the 1993 agreement provided for four-year national collective agreements, with renewal only of the sections relating to pay (but in line with the government's "programmed inflation rate") midway through each period. Between July 1993 and the end of 1997, 224 national labour contracts were renewed; of these, 119 were again renewed, in terms solely of pay levels, at the end of the first two years (source: Monitor lavoro).
Initially, the actual inflation rate was higher than that projected by the government. Between June 1993 and June 1995 (the first two-year period of application of the new rules), the actual inflation rate was 9.8%, compared with the government's predicted rate of 5.6%. As a consequence, for the agreements renewed in this period, agreed pay levels rose more slowly than inflation, thereby reducing workers' purchasing power. After 1996, actual inflation was brought into line with programmed inflation: the former amounted to 7.6% over the two-year period between June 1995 and June 1997, while the latter was 7.5%. Subsequently, actual inflation was lower than predicted inflation: between December 1995 and December 1997 the former rose by 4.1%, an increase which was well below the projected 6.6%.
The effects of the events briefly described above on pay and income distribution are summarised in Tables 1 and 2, which show the development of pay levels and of the share of income from work in the value of GNP in the main sectors of the Italian economy between 1987 and 1997. Empirical analysis has been conducted from the date of the last realignment of the ITL within the European Monetary System (EMS) so that assessment can be made of the changes produced by the "concertation" policy introduced by the 1993 agreement. Table 1 sets out the annual percentage variations in "real unitary wages" - ie average wages minus changes in retail prices - and the share of income from work in the value of national output in the last 10 years.
Table 1. Annual % variations in real income per worker and in share of work income in the value of GNP in the Italian economy, by sector, 1987-97
| . | % change in real income per worker |
| Goods and services for sale | | 2.3 | 0.9 | 1.2 | 2.9 | 1.0 | -0.8 | -0.3 | -1.1 | 0.2 | 1.5 |
| Agriculture, forestry, fishing | | 1.8 | -0.7 | -1.4 | 1.9 | 4.4 | 0.6 | -0.5 | -2.9 | -2.0 | 0.2 |
| Industry (strict sense) | | 1.9 | 0.5 | 1.3 | 3.2 | 2.0 | -0.3 | -0.3 | -1.1 | 0.3 | 2.2 |
| Building | | 3.4 | 1.9 | 3.5 | 1.6 | 0.6 | -3.0 | 0.0 | -4.0 | 0.1 | 0.2 |
| Marketable services | | 2.4 | 1.1 | 1.0 | 3.1 | 1.3 | -1.1 | -0.4 | -0.7 | 0.2 | 0.3 |
| Services not for sale | | 5.4 | 0.2 | 10.2 | 1.2 | -2.5 | -2.8 | -2.1 | -1.0 | 3.5 | 0.8 |
| Public administration | | 5.6 | -0.4 | 11.2 | 1.5 | -2.6 | -3.1 | -2.1 | -0.9 | 4.2 | 1.0 |
| Total | | 3.2 | 0.7 | 3.8 | 2.4 | 0.0 | -1.3 | -0.8 | -1.3 | 1.2 | 1.3 |
| . | Share of income from work (%) |
| Goods and services for sale | 68.3 | 67.6 | 67.6 | 68.5 | 69.8 | 69.8 | 68.3 | 66.2 | 64.3 | 64.7 | 66.5 |
| Agriculture, forestry, fishing | 89.9 | 93.8 | 88.3 | 90.8 | 84.8 | 88.8 | 86.4 | 81.7 | 74.6 | 69.9 | 71.8 |
| Industry (strict sense) | 61.8 | 61.0 | 62.0 | 64.4 | 66.9 | 67.2 | 66.8 | 63.3 | 60.8 | 61.6 | 62.3 |
| Building | 64.6 | 64.2 | 63.9 | 64.6 | 65.6 | 66.8 | 68.4 | 67.3 | 66.0 | 64.8 | 65.0 |
| Marketable services | 65.8 | 65.4 | 65.6 | 65.5 | 66.3 | 65.8 | 63.7 | 62.5 | 61.5 | 62.3 | 62.8 |
| Services not for sale | 96.8 | 96.8 | 96.7 | 96.8 | 96.8 | 96.7 | 96.4 | 96.2 | 96.0 | 96.1 | 96.1 |
| Total | 72.9 | 72.6 | 72.4 | 74.0 | 75.1 | 74.9 | 73.5 | 71.6 | 69.6 | 70.3 | 71.1 |
Source: calculation on data from Relazione del governatore della banca d'Italia per l'anno 1997, Appendice statistica .
Table 2 shows the absolute values of annual pay per worker at constant prices (1990), and their annual percentage variations calculated in the two four-year periods immediately before and after bargaining began on labour costs - 1987-91 and 1991-5 - and in 1996-7. Also given is the overall figure for the entire 11-year period examined. The data are from the national accounting surveys conducted by the ISTAT national statistical office. They refer to the total incomes earned by workers - and consequently they comprise increases deriving from any source whatever, including company-level bargaining, upgrading, etc - so the overall effects of curbing wage growth on the incomes effectively earned by workers can be measured.
Table 2. Real incomes per worker (000s of ITL at 1990 prices) and their % variations, by sector, 1987-97
| 1987 | 1991 | 1995 | 1996 | 1997 | 1987/91 | 1991/5 | 1995/6 | 1996/7 |
| Goods and services for sale | 23,792.7 | 25,584.6 | 25,264.6 | 25,327.1 | 25,703.8 | 1.8 | -0.3 | 0.2 | 1.5 | 0.78 |
| Agriculture. forestry, fishing | 16,985.7 | 16,954.8 | 16,669.8 | 16,332.6 | 16,362.8 | 0.0 | -0.5 | -2.0 | 0.2 | -0.38 |
| Industry: | 24,422.6 | 26,294.1 | 26,059.7 | 26,162.4 | 26,629.2 | 1.9 | -0.2 | 0.4 | 1.8 | 0.87 |
| Strict sense | 25,414.3 | 27,227.8 | 27,295.7 | 27,387.7 | 27,982.7 | 1.7 | 0.1 | 0.3 | 2.2 | 0.97 |
| Energy | 37,621.6 | 43,434.4 | 44,190.5 | 43,645.3 | 43,477.4 | 3.7 | 0.4 | -1.2 | -0.4 | 1.46 |
| Industrial products | 24,836.6 | 26,481.4 | 26,542.0 | 26,661.2 | 27,313.3 | 1.6 | 0.1 | 0.4 | 2.4 | 0.96 |
| Building | 20,406.0 | 22,626.8 | 21,207.5 | 21,226.1 | 21,273.2 | 1.9 | -1.6 | 0.1 | 0.2 | 0.42 |
| Services | 24,109.8 | 25,980.7 | 25,459.6 | 25,501.1 | 25,587.8 | 1.9 | -0.5 | 0.2 | 0.3 | 0.60 |
| Commerce, hotels, shops | 20,004.4 | 21,447.6 | 20,987.7 | 21,020.2 | 21,422.2 | 1.8 | -0.5 | 0.2 | 1.9 | 0.07 |
| Transport and communications | 28,113.2 | 31,068.7 | 30,093.4 | 30,059.8 | 30,440.7 | 2.5 | -0.8 | -0.1 | 1.3 | 0.80 |
| Credit and insurance | 47,829.7 | 49,944.2 | 51,289.4 | 52,537.6 | 52,963.0 | 1.1 | 0.7 | 2.4 | 0.8 | 1.02 |
| Miscellaneous services | 20,530.2 | 22,261.4 | 21,654.9 | 21,791.1 | 22,297.2 | 2.0 | -0.7 | 0.6 | 2.3 | 0.83 |
| Services not for sale | 26,118.2 | 30,776.4 | 28,100.5 | 29,077.7 | 29,321.7 | 4.2 | - 2.2 | 3.5 | 0.8 | 2.70 |
| Public administration | 28,247.4 | 33,505.9 | 30,509.3 | 31,792.4 | 32,107.2 | 4.4 | - 2.3 | 4.2 | 1.0 | 1.29 |
| Total | 24,411.1 | 26,968.9 | 26,059.5 | 26,372.9 | 26,709.6 | 2.5 | -0.8 | 1.2 | 1.3 | 0.90 |
Source: calculation on data from Relazione del governatore della banca d'Italia per l'anno 1997, Appendice statistica .
In brief, the effect of the anti-inflation policy pursued since 1992 - the success of which is evidenced by the fall in the retail prices inflation rate from 6.5% in 1990 to an average 2% in 1997 - on the distribution of income has been a decrease in the share of income from work from 75.1% of GNP in 1991 to 69.6% in 1995. Over that three-year period, the purchasing power of incomes fell by more than 3% on average. After 1996 - when Italy rejoined the EMS, which is a precondition for EMU membership - the situation changed. Average real incomes began to grow again - by just over 1% per year - and the share of work income rose slightly from 69.6% to 71.1%, thus returning to values very close to those of the mid-1980s. The conditions now seem to be in place to boost the policies for employment and in support of the production system which were envisaged by the 1993 agreement but to date have been pursued somewhat halfheartedly.
Commentary
The anti-inflationary policy pursued by the Italian government - of which tripartite concertation has been the central component - has undoubtedly achieved the objectives set out in the 1993 protocol. The temporary curbing of pay increases has been decisive in achieving this end - both directly through the reduction of the cost of labour per unit of output, and indirectly by reducing inflationary expectations. However, the redistribution of national income to the detriment of employees and an increase in companies' operating margins to the level of the 1960s have failed to relaunch real investments, on account of high interest rates inherited from the past and an economic situation characterized by weak demand and by uncertain international markets, both financial and real. This problem is now structural, and the regulators of the Italian economy will have to address it in the near future. However, it is not an exclusively Italian problem, given that all the other EU Member States suffer from the same handicap: a ratio between investments and GDP substantially lower than in the past. The European level, moreover, is the one at which the problem of reviving investments and employment can be most effectively tackled. (Mario Biagioli, University of Parma )