The starting point of Riccardo’s analysis was that a convergence in nominal wages between the two regions since the late-1960s had not been accompanied by a parallel convergence of productivity levels; the ensuing higher unit labour costs in Southern Italy were thus contributing to higher unemployment there.
In order to achieve more wage flexibility in Southern Italy’s labour market, Riccardo’s main proposal was to introduce a third type of wage bargaining arrangement – a regional one – to complement or replace bargaining at the centralised and firm levels, with a view to bringing closer wages and productivity levels while addressing higher unemployment in the South.