Just thought I'd explore further into a Krugman post a couple of days ago. He asks further questions to Italian productivity. Essentially his point is that Italy's labor market has always been characterized by poor enforcement and over-done labor regulation. Naturally, (this is a characteristic of the Indian labor economy too), one should expect to see some sort of rise in shadow-labor, black labor, whatever you'd like to call it.
What he does, and what I looked at separately is to dig up measures of cost competitiveness - namely REERs based on ULCs and CPIs/WPIs. The divergence in the data seems in sync with what you would expect in the case of overvaluation and underreported productivity. He makes a note of the possible inconsistencies with an economy that has a difference in quality of their composition of exports but the point is still taken.
The divergence is quite significant. One has to look at BOPs data to know that Italy wasn't really one to run up huge CA deficits. Anyway, what I did is to split the data from 1990-2001 and 2001-present. I'm dealing with indices based to 2005 so in both cases, i based them back to 100 to compare the trend. Here's what they look like:
Post-euro, it's a bit expected but still significant taking into account Italian growth rates and mild/moderate price levels.
What he does, and what I looked at separately is to dig up measures of cost competitiveness - namely REERs based on ULCs and CPIs/WPIs. The divergence in the data seems in sync with what you would expect in the case of overvaluation and underreported productivity. He makes a note of the possible inconsistencies with an economy that has a difference in quality of their composition of exports but the point is still taken.
The divergence is quite significant. One has to look at BOPs data to know that Italy wasn't really one to run up huge CA deficits. Anyway, what I did is to split the data from 1990-2001 and 2001-present. I'm dealing with indices based to 2005 so in both cases, i based them back to 100 to compare the trend. Here's what they look like:
Post-euro, it's a bit expected but still significant taking into account Italian growth rates and mild/moderate price levels.
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