On wages and inequality: a fresh start through collective bargaining

Talks between the social partners on a new protocol for industrial relations appear to have reached an impasse. And that is a shame, because there was a concrete measure on the table for next year’s contract renewals: an inflation-protection clause designed to prevent further losses in purchasing power. Meanwhile, we are witnessing a growing divergence between collective agreements, which is translating into a social divide. And it risks increasingly separating the prospects of young graduates from those of non-graduates.

We can divide young Italians into two groups: those who go on to graduate and those who do not – still around 50 per cent today. In the past, skilled employment, particularly in the South, was found in the public sector, which today hires few people and pays low wages. Graduates are increasingly turning to advanced services, the professions, technology, consultancy and finance. High school leavers, on the other hand, used to find work in manufacturing, which now employs fewer people and requires higher skills. Those without a degree are concentrated in retail, tourism, catering and less skilled services. These sectors not only offer different wages, but also different opportunities to maintain purchasing power.

The Italian economy has split into three sectors. The manufacturing sector has seen a fall in employment but has increased productivity, whilst maintaining sound industrial relations. The advanced services sector has seen growth in productivity, wages and skilled employment. Finally, there is the retail, hospitality, catering and personal services sector: high levels of employment, relatively low productivity and even lower wages.

For thirty years, we have explained Italy’s wage stagnation with a simple argument: wages are not rising because productivity is not rising. This explanation is largely true for the economy as a whole. But when we look at individual sectors, the picture changes. And it becomes more political. Low productivity does not explain what has happened to wages in recent years. According to Istat data, between 2019 and 2025, real hourly contractual wages across the entire economy fell by 7.24 per cent, whilst hourly productivity remained virtually static, falling by just 0.15 per cent. In retail, transport, hotels and catering, wages fell by 9.14 per cent, compared with a decline in productivity of just 1.2 per cent. In the services sector, there was no collapse in productivity comparable to that of wages; in some sub-sectors, productivity actually increased. We cannot attribute the loss of purchasing power solely to what workers produce. It is also a problem of income distribution and wage structures.

The old factory had an extraordinary feature: it allowed even a worker with an average level of education to join a manufacturing firm and earn a middle-class wage. Today, high productivity, mass employment and decent wages no longer go hand in hand. Advanced sectors pay well, but they mainly employ skilled workers. Retail, tourism and the hospitality sector create a great deal of lower-skilled employment, with poor wage prospects. This raises two issues. Economic policy should not focus solely on semiconductors, artificial intelligence and large industrial firms. It should also be concerned with the productivity of hotels, retail chains and restaurants. Company size, technology, work organisation, training and managerial skills matter here too.

But higher productivity does not automatically guarantee higher wages. We need collective bargaining that can distribute the benefits. And this is where the agreement between the social partners comes into play. For decades, Italian collective bargaining has promised an implicit form of insurance against inflation. Not the old ‘sliding scale’, but periodic renewals capable of preventing permanent losses in purchasing power. The inflationary shock of 2022–23 put this promise to the test. And the system performed worst where the most vulnerable workers are concentrated: expired contracts, delayed renewals, incomplete catch-up payments. A safeguard clause would have prevented these delays from turning into lasting losses. The result is a new form of inequality. Young Italian school leavers are not necessarily excluded from the labour market. They often find employment, but in sectors where wages are low and protection against inflation is weaker. Exclusion does not stem from a lack of work: it stems from the income that work guarantees. And the gap with university graduates – who have greater career opportunities and potential for wage growth – risks widening.

In this story, the super-rich have very little to do with it. No wealth tax can permanently rectify a system in which educational qualifications determine not only one’s starting salary, but also one’s ability to protect it against inflation. Fiscal redistribution can mitigate inequalities, but it cannot replace effective collective bargaining.