0587476 - NHU-C 2025 CZ eng V - Research Report
Del Prato, F. - Zacchia, Paolo
The heterogeneous consequences of reduced labor costs on firm productivity.
Prague: CERGE-EI, 2024. 40 s. CERGE-EI Working Paper Series, 783. ISSN 2788-0443
Institutional support: Cooperatio-COOP
Keywords : labor costs * productivity * collective bargaining
OECD category: Applied Economics, Econometrics
Result website:
https://www.cerge-ei.cz/pdf/wp/Wp783.pdf

We document how a reduction in labor costs led to heterogeneous effects on the total factor productivity (TFP) of manufacturing firms. Leveraging an Italian labor legislation reform and unique institutional features of the local collective bargaining system, we show that such effects vary along the TFP distribution. Relative to the counterfactual, TFP markedly declines on the left tail, which we explain via selection mechanisms, on the right, TFP mildly increases as firms are able to expand and reallocate their workforce. To guide the evaluation of welfare implications, we develop a general equilibrium model featuring firm selection and frictions in input markets.
Permanent Link: https://hdl.handle.net/11104/0354642