Unit iii power point

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 Create a PowerPoint presentation that outlines the advantages and disadvantages of union representation, mandatory benefits in a bargaining package, how market factors may drive the bargaining process, and how these factors increase or decrease employee motivation or morale.

  • Within your PowerPoint presentation, address how collective bargaining plays a role with employees.
  • Identify mandatory benefits that should be included in a bargaining package.
  • Discuss some possible market factors that impact the negotiation process.
  • You must use the “Notes” feature in PowerPoint to add comments explaining each slide.
  • Make certain to include 8–10 slides, not counting the title slide and references slide.

You must use two resources (one must come from the CSU Online Library, and blogs are not acceptable). Adhere to APA Style when constructing this assignment, including in-text citations and references for all sources that are used. 

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Union representation elections and labor law reform: lessons
from the Minneapolis Hilton
Authors: John W. Budd and Paul K. Heinz
Date: Winter 1996
From: Labor Studies Journal(Vol. 20, Issue 4)
Publisher: Transaction Publishers, Inc.
Document Type: Article
Length: 6,864 words

Abstract:
As part of the development package to build a major hotel with significant public funding in Minneapolis, Minnesota, labor
organizations were granted rights to access employees at work and to seek voluntary recognition based on signed authorization
cards and the management company pledged to remain neutral in any organizing drive. Thirty-two days after the hotel’s opening, the
employees achieved union representation. This case contains important lessons for labor law reform and for local unions seeking
innovative organizing strategies.

Full Text:
The statistics are well-known: in 1953, 35.7 percent of U.S. private, nonagricultural employees belonged to labor unions whereas in
1993, 11.2 percent belonged to unions (Troy and Sheflin, 1985; U.S. Department of Labor, 1994). The reasons underlying this drastic
decline in private sector union density are controversial and highly-debated, however. Since the potential reasons for this decline are
numerous, including changing workforce demographics, employer resistance, and union obsolescence, there have been calls for
reform in a variety of areas. Perhaps no area however, has been as controversial as reforms to labor law, especially because the
actual effects of various reform proposals if implemented are not known. This article uses the events to organize the Minneapolis
Hilton and Towers by the Hotel Employees and Restaurant Employees International Union and the Teamsters to illustrate the
potential effectiveness of several reforms to one aspect of labor law: the union certification process.

More specifically, the lease agreement between the City of Minneapolis and the Hilton’s developer guaranteed labor organizations
rights of access to employees at work, voluntary card-check recognition, a pre-defined bargaining unit, and a neutral employer during
any organizing drives. The result of these rights, namely union certification in 32 days, contains important lessons for labor law
reform. The case study also provides useful lessons for local unions pursuing innovative strategies for organizing.

Union Representation Elections and Labor Law Reform

On the surface, U.S. labor law pertaining to union representation is straightforward: Section 9(a) of the Wagner Act (1935) and the
Taft-Hartley Act (1947) states:

Representatives designated or selected for the purposes of collective bargaining by the majority of the employees in a unit
appropriate for such purposes, shall be the exclusive representatives of all the employees in such unit for the purposes of collective
bargaining. . . .

In short, if a union has the support of a majority of the employees, it is entitled to be certified as the exclusive representative.(1) In
practice, the designation or selection of a representative by a majority of the employees is anything but straightforward: unions and
employees are generally required to seek representation through a National Labor Relations Board (NLRB) election process in which
union organizers have minimal rights of access to employees while employers have rights of full participation. After nearly 60 years of
evolving labor law doctrine, employers clearly have a legal advantage in the union election process (Block, Wolkinson, and Kuhn,
1988).

The Wagner Act provided that if there was a question pertaining to “the representation of employees,” the NLRB “may take a secret
ballot of employees, or utilize any other suitable method to ascertain such representatives” [[section]9(c), emphasis added]. Until
Cudahy Packing Co., 13 NLRB 526 (1939), and Armour & Co., 13 NLRB 567 (1939), the NLRB used a variety of “other suitable
methods” to determine majority status: authorization cards, petitions, union membership applications, employee affidavits of
membership, strike participation, and employee testimony (Becker, 1993; Murphy, 1988). The Taft-Hartley Act explicitly made secret
ballot elections of primary importance: section 9(c) was re-worded to provide that if the NLRB finds that “a question of representation
exists, it shall direct an election by secret ballot.” Moreover, in Linden Lumber Division, Summer & Co. v. NLRB, 419 U.S. 301 (1974),
the Supreme Court ruled that an employer could still request that a secret ballot election be held, even if majority status as indicated

by signed authorization cards is not in doubt. Thus, employees and unions currently can be, and generally are, forced to endure the
lengthy NLRB election process.

The early doctrine regarding employer participation in organizing campaigns has similarly undergone major change. The Wagner Act
does not make any provisions for including employers in the election process (Becker, 1993) and some early NLRB decisions forbade
such participation (e.g., Wickwire Brothers, 16 NLRB 316 (1939)). However, in NLRB v. Virginia Electric & Power Company, 314 U.S.
469 (1941), the Supreme Court ruled that employer rights of free speech allowed them to participate in the organizing process as
long as their participation was not coercive. Section 8(c) of the Taft-Hartley Act codified this approach by explicitly allowing employer
participation in the election campaign process, as long as “such expression contains no threat of reprisal or force or promise of
benefit.”

An important topic within employer participation in the election process is the captive audience speech whereby an employer requires
its employees to attend a meeting in which the employer discusses unionization. These captive audience speeches were ruled to be
in violation of the Wagner Act before the passage of Taft-Hartley (Clark Brothers Co., Inc., 70 NLRB 802 (1946)). Although section
8(c) of Taft-Hartley was interpreted to allow captive audience speeches (Babcock & Wilcox, 77 NLRB 577 (1948)), Bonwit Teller, Inc.,
96 NLRB 608 (1951), established a right of reply for unions. In other words, if an employer used a captive audience speech during an
organizing drive, under the Bonwit Teller doctrine the employer must provide the union with an equal opportunity to address the
employees. The Bonwit Teller doctrine was reversed in Livingston Shirt, 107 NLRB 400 (1953). Currently, absent a history of unfair
labor practices (J.P. Stevens and Co., 245 NLRB 20 (1979)), unions do not have a right to respond to captive audience speeches.

In fact, NLRB v. Babcock & Wilcox Co., 351 U.S. 105, 112 (1956), allows employers to (non-discriminatorily) bar nonemployee union
organizers from its private property as long as “reasonable efforts by the union through other available channels of communication
will enable it to reach the employees.” Moreover, the NLRB nearly always determines that other channels exist – the main exceptions
being isolated resort hotels (NLRB v. S&H Grossinger’s Inc., 372 F.2d 26 (2nd Cir. 1967)), logging camps (NLRB v. Lake Superior
Lumber Corp., 167 F.2d 147 (6th Cir. 1948)), mining camps (Alaska Barite Co., 197 NLRB 1023 (1972)), or petroleum facilities (North
Star Drilling Co., 290 NLRB 826 (1988)). More recently, in Lechmere, Inc. v. NLRB, 112 U.S. 841 (1992), the Supreme Court allowed
union organizers attempting to organize workers at a store in a shopping mall to be banned from the mall’s privately-owned parking
lot (Estlund, 1994). Thus, non-employee union organizers have minimal rights of access to employees. In lieu of access to employees
at work, Excelsior Underwear, Inc., 156 NLRB 1236 (1966) grants unions a list of names and addresses of bargaining unit employees
after an election is scheduled.

Given the potential contradiction between employees’ rights to organize unions and the above doctrines, there have been numerous
proposals for reforming these aspects of the union certification process.(2) In terms being able to force unions and employees to go
through the union election process (Linden Lumber Division), card-check recognition has been advanced as desirable replacement
for the secret ballot election (Gould, 1993; Murphy, 1988). In a system with card-check recognition, if a union is able to collect signed
authorization cards from a specified percentage of the bargaining unit, it would be certified without a secret ballot election – as often
occurred before 1939. In fact, this type of recognition system is widely used in Canada: most of the provinces plus the federal
government certify unions on the basis of signed authorization cards accompanied by a nominal membership fee (Weiler, 1983;
Murphy, 1988). In Ontario, for example, the required majority is 55 percent and if a union collects less than 55 percent, a secret ballot
election will be held. Alternatively, Weiler (1983, 1990) proposes instant elections: if a union collects 55 or 60 percent (for example)
signed authorization cards accompanied by a nominal membership fee, the NLRB would have to conduct a secret ballot election
within 5 days. This system is also utilized in Canada in Nova Scotia (Weiler, 1983; Murphy, 1988). The Commission on the Future of
Worker-Management Relations (a.k.a. the Dunlop Commission) (1994) argues for NLRB elections within two weeks.

With respect to employer participation in the election campaign, it has been argued that the employer should be removed from the
campaign process (Becker, 1993; also see Weiler, 1983). More specifically, Becker (1993) advocates a system in which employers
are not a formal party to NLRB hearings and have no right to challenge voter eligibility, captive audience speeches are illegal,
elections are held on neutral ground, and employers must give unions the opportunity to use whatever campaign methods the
employer chooses to utilize. Craver (1993) and Bronfenbrenner (1994) recommend a return to the Bonwit Teller doctrine granting
unions equal opportunity to respond to employer captive audience speeches. Estreicher (1993) advocates providing unions with the
opportunity to give a captive audience speech before an NLRB election. Bierman (1985) proposes institutionalizing a specified
number of election debates on working premises during work hours as a replacement for captive audience speeches. Alternatively, it
has been argued that Excelsior lists should be more readily available: for example, on demand at any time (White, 1991) or after a
union collects 20-30 percent signed authorization cards (Craver, 1993; Estreicher, 1993).

Finally, with respect to nonemployee union organizer access more generally, Estlund (1994), Korn (1984), and Klare (1988) advocate
greater union access to employees at work. More specifically, the rulings of Babcock & Wilcox and Lechmere that place the burden
on the union to show that no other channel of communications exists should be replaced with greater access for union organizers
with the burden of proof on the employer to show that such access interferes with the business (as is the standard set forth in
Republic Aviation Corp. v. NLRB, 324 U.S. 793 (1945) for employees discussing unionization during nonworking times). The
Commission on the Future of Worker-Management Relations (1994, p. 23) is of the view that Lechmere should be reversed by
Congress and that the NLRB revise its “rules relating to access.”

Many aspects of these reform proposals have been introduced in Congress. The Labor Law Reform Act of 1977-78 contained
provisions to require elections to be held within a specified number of days (depending on the complexity of the case) and to provide
unions with equal access to employees if the employer engages in campaigning (Townley, 1986; Rosen, 1979). The House of
Representatives version of the bill also provided for the opportunity for the employer to address employees at a local union hall
(Townley, 1986). In the Senate version of the bill, unions would have access to employees at work only after showing support of the
employees and only after an employer captive audience speech (Townley, 1986). While the Act passed the House of
Representatives in October 1977, a filibuster prevented the Act from coming to a vote in the Senate in the summer of 1978.

More recently, Senator Paul Simon (D-IL) introduced eight bills in Congress in May 1995 ranging from contract debarment for labor
law violators to first contract arbitration. Most relevant for the issues in this paper are bills S. 777 and S. 778 (also introduced in 1993
as S. 1532 and S. 1529). Bill S. 777, the Labor Organizations Equal Presentation Time Act of 1995, would add subsections 8(c)(2)
and 8(c)(3) to the NLRA. Subsection 8(c)(2) would require that if an employer addressed employees at work, then a union would be
allowed an equal opportunity to provide information to the employees “without loss of time or pay.” This would be a return to the
Bonwit Teller doctrine in which unions have a right to reply to captive audience speeches. Subsection 8(c)(3) would give labor
organizations access to employer bulletin boards, mailboxes, and “other communication media” as well as the “right to use the
employer’s facilities for the purpose of meetings with respect to the exercise of the rights guaranteed by this Act.” Bill S. 778, the
Labor Relations Representative Amendment Act of 1995, would add subsection 9(f) to the National Labor Relations Act (NLRA)
requiring that an NLRB certification election be held within 30 days if a union produced signed cards from 60 percent of the
bargaining unit. This expedited election would not be allowed to be delayed for any reason. Representative Bernard Sander (I-VT)
also introduced H.R. 1355, the Workplace Democracy Act of 1995, which would, inter alia, replace representation elections with card-
check certification.

While all of these reform proposals, academic and Congressional, are important, a major gap in knowledge still persists: the actual
effects of such reforms in the United States. Many reforms are aimed at reducing or counteracting employer legal, and especially
illegal, certification election involvement. As is well-known, the actual effects of such participation are controversial (LaLonde and
Meltzer, 1991; Weiler, 1991; Lawler, 1990; Cooper, 1984; Dickens, 1983; Getman, Goldberg, and Herman, 1976). Moreover, even if
employer captive audience speeches, for example, reduce the probability of union certification (Bronfenbrenner, 1994), forbidding
captive audience speeches (as some advocate) may have very different effects than providing unions with rights to respond (as
others advocate). The higher union density rates both in the U.S. public sector and in Canada relative to the U.S. private sector
potentially indicate strong effects of broad-based reform (e.g., see many of the chapters in Friedman, Hurd, Oswald, and Seeber,
1994). On the other hand, there are so many differences between these sectors that the actual effects of such reforms in the U.S.
private sector are still unclear, especially if one considers a single area of reform, e.g., certification elections, in isolation. The
following case study of the Minneapolis Hilton does not totally solve this knowledge gap, but it does provide a stark illustration of the
potential possibilities of even isolated reform.

Lessons from the Minneapolis Hilton(3)

With the impending construction of a new convention center, Minneapolis, Minnesota lacked a major convention-center hotel. In
1985, the Minneapolis City Council chose Hilton to establish a new, major hotel in downtown Minneapolis to serve as the focal
convention-center hotel. Ultimately, in a financing package approved in 1989, Minneapolis would spend $40 million to buy and clear
the land for the hotel and build a new parking garage and loan another $44.5 million to the hotel’s developer, 717 HB Minneapolis
Inc., to help construct the $93 million hotel. Exhibit 1 presents an overall chronology of key events in the development and union
organization of this convention-center hotel, the Minneapolis Hilton and Towers.

In 1988, the Minneapolis Community Development Agency (MCDA) and its legal consultants set out to devise a non-negotiable
section pertaining to union organizing to be included in the development and lease agreements with the hotel’s developer. Local 17 of
the Hotel Employees and Restaurant Employees International Union (hereafter Local 17) assisted the development of the lease
language by providing information on organizing procedures while the MCDA determined to what extent certain procedures could be
required. The MCDA was unable legally to take a pro-union stance, but it was able to require that certain procedural steps be fulfilled
by the hotel’s developer and owners.

The result of the efforts of Local 17 and the MCDA is Section 4.10 of the lease between the MCDA and 717 HB Minneapolis Inc.
signed in October 1989. The text of Section 4.10 is reproduced in Exhibit 2. Section 4.10 of the lease agreement and its results are
the focus of this paper. This section guarantees significant organizing rights to the hotel employees and any union wishing to
organize the Hilton employees – rights not provided by Federal labor legislation. More specifically, as shown in Exhibit 2, any labor
organization is entitled to “a complete and accurate list of the names and addresses” of bargaining unit employees [[section]
4.10(a)(i)], “timely and reasonable access to the hotel” for campaigning purposes [[section] 4.10(a)(iv)], “adequate space” for
accessing the employees [[section] 4.10(a)(v)], a pre-defined bargaining unit [[section] 4.10(d)], and voluntary recognition via a card-
check election [[section] 4.10(e)]. Moreover, the hotel must allow employees “reasonable access” during nonworking time to the
space provided to the labor organization for disseminating information [[section] 4.10(c)] and the hotel must remain neutral in any
organizing drive [[section] 4.10(b)].

In short, Section 4.10 is a striking set of rights that effectively repeal, for this lone bargaining unit, decades of Congressional, NLRB,
and court decisions regarding union organizing. Section 8(c) of the Taft-Hartley Act, Livingston Shirt, Linden Lumber Division, NLRB
v. Babcock & Wilcox Co., Lechmere, and Excelsior are all superseded by a developer agreeing to abide by Section 4.10 of the lease
agreement.

When the Hilton opened its doors on November 1, 1992, joint union campaigns by Local 17 and Teamsters Local 638 began. Due to
the provisions in the lease agreement, union organizers were able to staff a table in the hotel’s employee cafeteria and have contact
with and provide information to employees on a daily basis. To prevent any legitimate questions of majority, the unions decided to try
to collect signed authorization cards from 80 percent of the bargaining unit. Not only would this give them a clear majority to gain
recognition, but also a continued majority as the Hilton expanded its workforce. On December 2, 1992, the 80 percent goal was
attained and the unions were certified by the Minnesota Bureau of Mediation Services after a simple check of the signed authorization
cards.(4)

In sum, Locals 17 and 638 and employees at the Minneapolis Hilton and Towers achieved certification in 32 days. In contrast to the
average length of the traditional NLRB certification ordeal, 32 days to achieve certification is remarkable. The average length of time
between filing a petition with the NLRB for an election and conducting the actual election is 2-3 months (Bronfenbrenner, 1994;
Weiler, 1983). However, this does not include post-election challenges which can significantly increase the delay to certification. Add

in the average pre-petition card solicitation effort of 14 weeks (Cooper, 1984) and a single certification effort (with less than a 50
percent chance of succeeding – and even less if one defines success by a signed first contract) may easily take nine months.

It is our contention that Section 4.10 facilitated employee choice through three avenues that provide insightful lessons into the
potential effectiveness of various labor law reform proposals. First, the lease agreement explicitly specified that the hotel was to
remain neutral in any organizing campaign [[section] 4.10(b)] and not discriminate on the basis of union support [[section] 4.10(f)]. Of
course, this latter provision is already guaranteed by section 8(a)(3) of the NLRA, but its inclusion in the lease agreement provides an
additional penalty (the breaking of the lease) if it is violated.

Second, union access to employees was guaranteed through three provisions in the lease agreement: guaranteeing unions the
names and addresses of the employees [[section] 4.10(a)(i)] and space in the hotel for the union to access the employees [[section]
4.10(a)(iv) and (v)], and guaranteeing employees the right to access such space [[section] 4.10(c)]. This access is a drastic change
from current doctrine (see Lechmere), but is clearly a more effective method of providing for informed employee choice. Note that this
type of access provision avoids the criticisms of returning to the Bonwit Teller doctrine in that employees are not disrupted during
working periods. Locals 17 and 638 simply staffed a table in the employee cafeteria and had access to employees during non-
working time in a nonwork area.

Moreover, the access provision in the lease agreement is superior to a return to the Bonwit Teller doctrine in that the lease gives
unions the ability to respond to informal employer campaigning such as one-on-one discussions by supervisors. This type of
(potentially crucial) campaigning is too subtle to trigger a formal response mechanism such as in the Bonwit Teller doctrine. Finally,
even though the lease agreement provides for names and addresses, providing access to employees at the hotel renders the names
and addresses to secondary importance which alleviates important questions of violations of employee privacy at home (Bierman,
1985). It is our contention that these access at work provisions were instrumental in allowing the employees to exercise their rights to
choose union representation in an efficient manner.

Third, the scope for employer resistance was drastically reduced. Consistent with Weiler’s (1983) arguments for instant elections, the
voluntary certification via a card-check replaced a typical extended election campaign in which typical employers employ numerous
legal and illegal tactics to discourage unionization and to delay the process.(5) Recall that the typical election occurs 2-3 months after
filing a petition with the NLRB. During these months the employer might actively campaign against the union via captive audience
speeches, individual meetings, and flyer distributions (and potentially more threatening tactics). Even the simple employer delay tactic
of challenging the composition of the bargaining unit is prevented by the lease agreement which specifies the bargaining unit in
section 4.10(d).

We believe the fact that the employees at the Minneapolis Hilton and Towers were able to secure union certification within 32 days
starkly illustrates the potential effects of enacting such reforms at the national level. However, as is typically the case with all types of
research methodologies, we cannot prove that the lease agreement facilitated union representation. It may have been the case that
the employees would have easily secured union representation without the lease agreement. However, comparisons with not only the
aggregate national experience, but also with other experiences of Local 17 suggest that the lease provisions were quite significant.

To wit, Local 17 has spent nearly 15 years (intermittently) trying to organize the Hyatt in Minneapolis using the standard NLRB
certification process. Local 17’s organizers build up support using leaflets and letters, management responds with captive audience
speeches and informal pressure, an NLRB election is eventually held (usually), Local 17 fails to win a majority, and the process
repeats. In other words, at the Hilton, Locals 17 and 638 were able to do complete in 32 days a process generally denominated in
months or years. An additional set of events further bolsters the apparent effectiveness of the lease agreement: negotiating a first
contract.

Epilogue: Negotiating a Contract

On December 2, 1992, Locals 17 and 638 were certified as the exclusive bargaining agents of the Hilton employees. The hotel and
its developer, 717 HB Minneapolis Inc., had adhered to the organizing conditions specified in the lease agreement, but as soon as its
obligations were fulfilled, traditional resistance and antagonism followed. On December 3, the locals’ organizers were not allowed
back into the Hilton. Traditional, hard-lined bargaining over a first contract ensued. The Hilton refused to accept the same contract
that Local 17 had with other major hotels in Minneapolis and eventually suspended negotiations indefinitely.

This traditional adversarial behavior by the Hilton reinforces our contention that the provisions of access, neutrality, and card-check
certification were instrumental in allowing the Hilton employees to exercise their rights to form a union. This adversarial behavior
suggests that Hilton management would likely have undertaken a traditional election campaign or some other type of union
avoidance strategy. This is not to say that Locals 17 and 638 would not have ultimately won recognition, but the likelihood would have
been lower, and the process probably would not have been as efficient or as respectful of employee rights.

In fact, it took six months to reach an agreement. On June 18, 1993, bargaining unit workers at the Minneapolis Hilton and Towers
ratified a four-year contract by a vote of 187-9. In addition to gaining substantial wage increases throughout the life the contract for all
employees, the unions negotiated company-paid health care benefits, a retirement plan with contributions made entirely by the
company, company-paid dental benefits, life insurance and weekly disability pay.

The experiences of Locals 17 and 638 at another Minneapolis hotel further reinforce the lessons of the Minneapolis Hilton and
Towers. The Radisson Plaza VII, like the Minneapolis Hilton and Towers, was initiated as a convention center-oriented hotel, but the
project was eventually downsized and turned into a mixed-usage hotel. Nonetheless, the city still pursued union neutrality assurances
because it believed that a unionized Radisson would help set the standard for the next proposed convention center-oriented hotel
(which turned out to be the Hilton) and for other hotels in the area.

The Radisson reopened in March of 1987 after closing in 1981. The same unions were involved in organizing this hotel, and in July of
1988, they submitted a majority of signed authorization cards. The Radisson, like the Hilton, agreed to voluntarily recognize and
bargain with the unions based on a card check. The Radisson officially recognized the unions, and on July 29, 1988, the parties
began negotiation.

Since then, however, the bargaining process has been a series of unsuccessful negotiations, unfair labor practice charges and
appeals. In Radisson Plaza Minneapolis and Hotel Employees and Restaurant Employees International Union, Local 17, 307 NLRB
10 (1992), the NLRB ruled that the Radisson had, inter alia, violated section 8(a)(5) of the NLRA by engaging in surface bargaining.
The U.S. Court of Appeals upheld the NLRB’s decision in 1993 (Radisson Plaza Minneapolis v. NLRB, 987 F.2d 1376 (1993)). In the
ruling the court stated, “Radisson treated the union as irrelevant with respect to issues of vital significance, including wage and
schedule changes, and then refused to provide the unions with basic information concerning unit employees.” Thirteen bargaining
sessions took place in 1993. The Radisson’s last offer involved pay cuts for 113 of the 138 workers represented by Local 17. In
January 1994, the NLRB’s regional office in Minneapolis recommended that the Radisson be found in contempt of eight counts of the
court’s 1993 order.

The case of the Radisson further illustrates the potential effectiveness of the extension of union access and card check certification.
Given that the Radisson’s behavior after certification has been so resistant as to merit recommendation of contempt charges, it
seems logical to infer that strong union avoidance tactics would have been employed during an organizing drive in which employees
and unions did not have voluntary recognition rights similar to those provided for in Section 4.10 of the Hilton lease agreement. The
fact that the unions were able to obtain representation in spite of this probable anti-union stance strengthens the argument that this
type of union representation election reform would be effective.

Finally, these cases reinforce why reform should not be limited to the union organization stage. Though the City of Minneapolis
expected the Hilton and the Radisson to bargain in good faith, it is apparent that assurances to remain neutral in an organizing
campaign do not necessarily extend to the first contract negotiations arena. While these cases illustrate how rights of access and
simplified certification procedures can aid employee rights in certification, these rights are ineffective in obtaining a signed first
contract. Thus, these reforms are very important, but are only a first step. Reforms to facilitate obtaining a first contract are also
necessary for workers’ rights to be truly protected.

Conclusions

There have been numerous proposals for reforming many aspects of U.S. labor and employment law. However, the actual effects of
such proposals, while widely speculated upon, are not known. The experiences of Locals 17 and 638 in organizing the Minneapolis
Hilton and Towers illustrate the potential power of several reforms of the union certification process. By providing labor organizations
with access to employees at work during nonwork time, by obtaining the employer’s pledge of neutrality, and by avoiding the lengthy
NLRB election process, the lease agreement at the Hilton appears to have allowed the employees to obtain union representation in
32 days. While any link between the lease agreement and the organizing outcome cannot be proven, comparisons with typical
organizing campaigns (lasting months or even years) and with Local 17’s attempts at organizing another major Minneapolis hotel, the
Hyatt, suggest that these straightforward reforms appear quite effective. The Hilton’s and Radisson’s resistant behavior in negotiating
contracts further reinforce the likelihood of a typical organizing campaign in the absence of these additional rights. Thus, in illustrating
the potential effectiveness of such rights, the Minneapolis Hilton experience contains important lessons for labor law reform
proposals.

On the other hand, the success of the campaign should not be attributed exclusively to the terms of the lease agreement. It is unlikely
that Section 4.10 of the lease agreement created a demand for unionism where none would have existed otherwise. It is also unlikely
that the local unions would have been successful if they pursued organizing strategies unrelated to the conditions and preferences of
the employees. However, the rights specified in the lease facilitated employee choice about whether or not to choose union
representation. And this is exactly the point of labor law reform: to allow workers to exercise their rights guaranteed in section 7 of the
Wagner Act.(6)

In closing, we emphasize two important recommendations for reforming the union certification process. First, the length of the
campaign for recognition should be drastically shortened. The card check method contained in Section 4.10 of the lease agreement
accomplishes this goal. However, the card check method is often criticized for being a questionable representation of workers’
preferences and for being unconvincing to employers (see Weiler, 1983). Since the main benefit of the card-check recognition
provision in the Minneapolis Hilton case appears to have been the prevention of a lengthy election campaign, an instant election
(Weiler, 1983) or instant ballot (Murphy, 1988) in which a secret ballot election is held within five days of a union filing a certification
petition would provide the same benefits. Second, access to employees by union organizers needs to be increased. The provisions in
the lease agreement with the Minneapolis Hilton provide a good model for accomplishing this goal: labor organizations are
guaranteed access to employees during nonworking time in a nonwork location. This is less disruptive and less costly to the employer
than granting unions a right to reply to captive audience speeches and does not invade employee privacy as do Excelsior lists.

Finally, absent reform of the certification process, Section 4.10 of the lease agreement provides a good model for local unions to
follow in situations where it is feasible to get such language included in a similar document. However, only with national reform of the
certification process will employees be able to exercise their 60-year-old rights “to self-organization, to form, join, or assist labor
organizations, [and] to bargain collectively through representatives of their own choosing” (The Wagner Act, [section]7).

1. For overviews of the organizing process, see Gagala (1983), Getman (1986), and Schlossberg and Scott (1991).

2. Other dimensions of the union certification process have also received a lot of attention, especially the lack of punitive damages for
discriminatory actions against union supporters (section 8(a)(3) unfair labor practices), but these other dimensions are not as relevant
for the Minneapolis Hilton case which is the focus of this paper. The interested reader is referred to Friedman, Hurd, Oswald, and

Seeber (1994), Becker (1993), Gould (1993), and Weiler (1983, 1990).

3. The descriptive material in this section and the subsequent section is based on interviews with Martin Goff and Dan Kuschke of
Local 17 and Phil Handy of the MCDA. Additional accounts can be found in the Star Tribune (Minneapolis, MN) (October 31, 1992,
May 15, 1993, June 20, 1993, January 25, 1994) and the Catering Industry Employee (Washington, DC) (September/October, 1993).
Interpretations of the events are those of the authors.

4. Locals 17 and 638 jointly represent the single bargaining unit at the Hilton with front desk and shipping employees belonging to
Local 638 and food, bar, and housekeeping employees belonging to Local 17.

5. The UAW’s experience organizing General Motors’ southern plants further illustrates the effectiveness of such provisions. After six
years of unsuccessful organizing attempts by the UAW within the traditional NLRB framework, in 1982 the UAW-GM contract
contained a provision to recognize the UAW at the nonunion southern plants based on a majority of signed authorization cards. Three
of the four plants were then certified within six months (Labor Relations Reference Manual (Washington, DC: Bureau of National
Affairs), September 13, 1982.

6. Although going one step further, it merits remembering that section 1 of the Wagner Act declares that “encouraging the practice
and procedure of collective bargaining” is the policy of the United States (emphasis added).

References

Becker, Craig (1993) “Democracy in the Workplace: Union Representation Elections and Federal Labor Law,” Minnesota Law
Review, 77(3): 495-603.

Bierman, Leonard (1985) “Toward a New Model for Union Organizing: The Home Visits Doctrine and Beyond,” Boston College Law
Review, 27(1: 1-35).

Block, Richard N., Benjamin W. Wolkinson, and James W. Kuhn (1988) “Some are More Equal Than Others: The Relative Status of
Employers, Unions and Employees in the Law of Union Organizing,” Industrial Relations Law Journal, 10(2): 220-240.

Bronfenbrenner, Kate L. (1994) “Employer Behavior in Certification Elections and First-Contract Campaigns: Implications for Labor
Law Reform,” in Restoring the Promise of American Labor Law, Sheldon Friedman, Richard W. Hurd, Rudolph A. Oswald, and
Ronald L. Seeber, eds., Ithaca, NY: ILR Press.

Commission on the Future of Worker-Management Relations (1994) Report and Recommendations, Washington, D.C.: U.S.
Department of Labor and U.S. Department of Commerce.

Cooper, Laura (1984) “Authorization Cards and Union Representation Election Outcome: An Empirical Assessment of the
Assumption Underlying the Supreme Court’s Gissel Decision,” Northwestern University Law Review, 79(1): 87-141.

Craver, Charles B. (1993) Can Unions Survive? The Rejuvenation of the American Labor Movement, New York: New York University
Press.

Dickens, William T. (1983) “The Effect of Company Campaigns on Certification Elections: Law and Reality Once Again,” Industrial
and Labor Relations Review, 36(4): 560-575.

Estlund, Cynthia L. (1994) “Labor, Property, and Sovereignty After Lechmere,” Stanford Law Review, 46(2): 305-359.

Estreicher, Samuel (1993) “Labor Law Reform in a World of Competitive Product Markets,” Chicago-Kent Law Review, 69(1): 3-46.

Friedman, Sheldon, Richard W. Hurd, Rudolph A. Oswald, and Ronald L. Seeber, eds. (1994) Restoring the Promise of American
Labor Law, Ithaca, NY: ILR Press.

Gagala, Ken (1983) Union Organizing and Staying Organized, Reston, VA: Reston Publishing Company.

Getman, Julius (1986) “Ruminations on Union Organizing in the Private Sector,” University of Chicago Law Review, 53(1): 45-77.

Getman, Julius G., Stephen B. Goldberg, and Jeanne Herman (1976) Union Representation Elections: Law and Reality, New York:
Russell Sage Foundation.

Gould, William B. (1993) Agenda for Reform: The Future of Employment Relationships and the Law, Cambridge: The MIT Press.

Klare, Karl E. (1988) “Workplace Democracy and Market Reconstruction: An Agenda for Legal Reform,” Catholic University Law
Review, 38(1): 1-68.

Korn, Sarah (1984) “Property Rights and Job Security: Workplace Solicitation by Nonemployee Union Organizers,” Yale Law Journal,
94(2): 374-393.

LaLonde, Robert J. and Bernard D. Meltzer (1991) “Hard Times for Unions: Another Look at the Significance of Employer Illegalities,”
University of Chicago Law Review, 58(3): 953-1014.

Lawler, John J. (1990) Unionization and Deunionization: Strategy, Tactics, and Outcomes, Columbia, SC: University of South
Carolina Press.

Murphy, Sheila (1988) “A Comparison of the Selection of Bargaining Representatives in the United States and Canada: Linden
Lumber, Gissel, and the Right to Challenge Majority Status,” Comparative Labor Law Journal, 10(1): 65-97.

Rosen, Gerald E. (1979) “Labor Law Reform: Dead or Alive?” University of Detroit Journal of Urban Law, 57(1): 1-40.

Schlossberg, Stephen I. and Judith A. Scott (1991) Organizing and the Law, Fourth Edition, Washington, DC: The Bureau of National
Affairs.

Townley, Barbara (1986) Labor Law Reform in US Industrial Relations, Aldershot, England: Gower Publishing.

Troy, Leo and Neil Sheflin (1985) U.S. Union Sourcebook, West Orange, NJ: Industrial Relations Data and Information Services.

U.S. Department of Labor (1994) Employment and Earnings, Washington, D.C.: Bureau of Labor Statistics, January.

Weiler, Paul (1983) “Promises to Keep: Securing Workers’ Rights to Self-Organization Under the NLRA,” Harvard Law Review, 96(8):
1769-1827.

Weiler, Paul C. (1990) Governing the Workplace: The Future of Labor and Employment Law, Cambridge: Harvard University Press.

Weiler, Paul C. (1991) “Hard Times for Unions: Challenging Times for Scholars,” University of Chicago Law Review, 58(3):
1015-1032.

White, Randall J. (1991) “Union Representation Election Reform: Equal Access and the Excelsior Rule,” Indiana Law Journal, 67(1):
129-167.

EXHIBIT 1 Chronology of the Minneapolis Hilton and Towers Project

1985

The Minneapolis City Council chooses Hilton to establish a new 800 room hotel to be the primary convention center hotel.

1988

With input from local unions, the Minneapolis Community Development Agency and its legal consultants develop a legal section
pertaining to union organizing rights to be included in the development and lease agreements between the city and the hotel’s
developer.

1989

February

The Minneapolis City Council approves 717 HB Minneapolis Inc. as the hotel’s developer and approves a preliminary financial plan.

July

The Minneapolis City Council approves the final financial plan which includes $40 million to acquire and clear the land for the hotel
and build an underground parking garage. The plan also includes a $44.5 million loan to 717 HB Minneapolis Inc. to help build the
$93 million hotel.

October

The development agreement is completed.

1992

November 1

The Minneapolis Hilton and Towers opens in downtown Minneapolis.

November

An unimpeded organizational campaign is conducted by the Hotel Employees and Restaurant Employees Local 17 and Teamsters
Local 638.

December 2

Locals 17 and 638 submit signed authorization cards from 80 percent of the bargaining unit and are certified as the representatives of
the Hilton employees by the Minnesota Bureau of Mediation Services.

1993

January

Negotiations begin for a collective bargaining agreement between Locals 17 and 638 and the Minneapolis Hilton and Towers.

May 17

Locals 17 and 638 announce a June 12 deadline for a negotiated contract.

June 12

A tentative agreement is reached.

June 18

Locals 17 and 638 Hilton employees ratify the contract 187-9.

EXHIBIT 2 Section 4.10 of the Lease between the Minneapolis Community Development Agency and 717 HB Minneapolis Inc.

4.10 Labor.

(a) To accommodate a free and informed decision of the employees of the hotel operated in the Project respecting joining or
representation by a labor organization, Tenant and Tenant’s hotel management company shall, upon request by any labor
organization:

(i) provide such organization with a complete and accurate list of the names and addresses of the employees of the hotel working in
the jobs set forth in subsection (d) of this Section;

(ii) immediately comply with such organization’s request under clause (i) even if the hotel that the employees will work in has not yet
actually opened for business. The Tenant and Tenant’s hotel management company shall not withhold names pending the actual
opening for business of any or all of the Project;

(iii) allow such organization to refer applicants for employment at the hotel consistent with the Minneapolis Affirmative Action
Program;

(iv) at such time as the hotel begins seeking, accepting, or interviewing applicants for employment, provide to such organization’s
members and representatives timely and reasonable access to the hotel for the purpose of providing employees with information
about the labor organization; and

(v) provide adequate space in the Improvements to conduct the activities in clause (iv).

(b) Tenant and Tenant’s hotel management company shall at all times maintain neutrality with respect to any organizing campaign or
to any decision by the hotel employees whether to join or to be represented by any labor organization.

(c) Tenant and Tenant’s hotel management company shall allow employees of the hotel during non-working periods reasonable
access to the facilities and information available via clauses (iv) and (v) of subsection (a) of this Section.

(d) Tenant and Tenant’s hotel management company shall agree that the following bargaining unit is appropriate for purposes of
collective bargaining: all employees of the hotel including food, steward, beverage, service, housekeeping, hotel maintenance, and
front office departments, and including the classifications of waiter, waitress, busperson, cook, bartender, room service, housekeeper,
valet parking, limousine services, front desk, audit, doormen, banquet setup, engineers, laundry, or such other classifications as may
fall within the foregoing departments, but excluding all clerical employees, supervisors as defined by the National Labor Relations
Act, sales employees, managerial employees, guards and professional employees.

(e) Tenant and Tenant’s hotel management company shall agree to voluntary recognition, based upon a card check, of one or more
labor organizations demonstrating that it or they represent a majority of the employees in the bargaining unit set forth in subsection
(d) of this Section. Said card check shall be conducted by the Minnesota Bureau of Mediation Services.

(f) Tenant further agrees that any interest demonstrated by employees of the hotel in joining a labor organization or membership with
a labor organization shall not constitute grounds for discriminatory or disparate treatment nor adversely impact a potential employee’s
ability to be hired.

John W. Budd is an assistant professor of industrial relations at the University of Minnesota. Paul K. Heinz received a Master of Arts
degree in industrial relations from the University of Minnesota. The authors are grateful to Martin Goff and Dan Kuschke of Local 17
and to Phil Handy of the MCDA for their aid in this project and to Chuck Davis, Ken Gagala, and Morrie Kleiner for helpful comments.
All views expressed herein, however, are solely those of the authors.

Copyright: COPYRIGHT 1996 Transaction Publishers, Inc.
http://www.transactionpub.com/cgi-bin/transactionpublishers.storefront
Source Citation (MLA 9th Edition)

Budd, John W., and Paul K. Heinz. “Union representation elections and labor law reform: lessons from the Minneapolis Hilton.” Labor
Studies Journal, vol. 20, no. 4, winter 1996, pp. 3+. Gale OneFile: Business,
link.gale.com/apps/doc/A18742647/ITBC?u=oran95108&sid=bookmark-ITBC&xid=70165d8b. Accessed 25 Oct. 2021.

Gale Document Number: GALE|A18742647

© 2018 International Monetary Fund WP/18/60

IMF Working Paper

European Department

Italy: Quantifying the Benefits of a Comprehensive Reform Package1

Prepared by Michal Andrle, Alvar Kangur, and Mehdi Raissi

Authorized for distribution by Rishi Goyal

March 2018

Abstract

This paper seeks to quantify the net benefits of a comprehensive reform package aimed
at addressing Italy’s inter-related challenges. Specifically, it simulates the growth and
competitiveness effects of a package of fiscal, financial, wage bargaining, and other
structural reforms. Credible implementation of such a package yields substantial medium-
term dividends at negligible near-term growth costs. Real GDP growth is estimated to be
substantially higher over the medium term, while the real effective exchange rate
depreciates notably.

JEL Classification Numbers: C53, C54, E27, E61, E62, J30, J52, L11, O43

Keywords: Italy, growth, competitiveness, fiscal policy, wage bargaining, labor market
reforms, product market reforms, banking sector, DSGE models.

Author’s E-Mail Address: [email protected]; [email protected]; [email protected].

1 Comments from the Italian authorities, Romain Duval, and the IMF Research Department are gratefully
acknowledged. This paper first appeared as Chapter 3 in the IMF Country Report No. 17/238.

IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board,
or IMF management.

©International Monetary Fund. Not for Redistribution

2

TABLE OF CONTENTS

CONTENT PAGE

ABSTRACT _________________________________________________________________1 

I. BACKGROUND ____________________________________________________________3 

II. REFORM PROGRAM _______________________________________________________3

III. RESULTS AND POLICY DISCUSSION __________________________________________6

IV. CONCLUSION ___________________________________________________________7

REFERENCES ______________________________________________________________15 

BOX
1. The Global Integrated Monetary and Fiscal Model (GIMF) ________________________8

FIGURES
1. Fiscal Reform ____________________________________________________________9
2. Wage Bargaining ________________________________________________________10
3. Other Structural Reforms: Product Markets, Public Sector Efficiency, Guaranteed
Minimum Income, ALMPs, and Child Care ______________________________________11
4. NPL Reduction __________________________________________________________12
5. Total Reform Package_____________________________________________________13

TABLE
1. GIMF Simulation Strategy _________________________________________________14

©International Monetary Fund. Not for Redistribution

Underline

3

I. BACKGROUND

Italy is struggling with modest growth, high public debt, and a banking system
burdened with high nonperforming loans and weak profitability. The economic recovery
is being weighed down by long-standing structural problems, imbalances, and strained
balance sheets. At the same time, restoration of balance sheet health is being hindered in
important part by the slow economic recovery. On current projections, growth remains too
modest to decisively reverse imbalances and lower debt, leaving the economy vulnerable to
adverse developments.

Relatedly, Italy’s competitiveness is assessed to be moderately weaker than suggested
by medium-term fundamentals and desirable policy settings. The current account surplus
that emerged since 2013 has mostly been the result of import compression caused by a
decline in investment and large commodity terms of trade gains. The recovery of exports has
lagged, while desirable policy settings to reduce high public debt and medium-term
fundamentals, including Italy’s rapidly aging society, imply a higher equilibrium current
account balance. Unit labor costs that rose notably in the years following euro accession
remain elevated, as wage gains have outstripped productivity. The real exchange rate is
estimated to be overvalued on the order of 10 percent.2

Fostering growth and competitiveness and addressing imbalances requires a
comprehensive and timely policy response. Such a response would not only address
underlying rigidities and imbalances and, thus, unlock growth, but also ensure that public
debt and bank nonperforming loans (NPLs) are placed on a firm downward trajectory over
the medium term. It could include (i) fiscal consolidation, underpinned by growth-friendly
and inclusive measures (see Andrle and others, 2017); (ii) wage bargaining reforms to ensure
wages are aligned with productivity at the firm level (see Kangur, 2017); (iii) other structural
reforms (e.g., product market, other supportive labor market reforms, and public
administration reforms); and (iv) financial sector measures to hasten the cleanup of bank
balance sheets and corporate restructuring.

II. REFORM PROGRAM

This note uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to
simulate the impact of key fiscal and structural reforms on output and competitiveness
(Box 1). As the GIMF incorporates monopolistic competition and a rich set of structural
rigidities, it can be used to assess the effectiveness of structural reforms. In doing so, this
paper relies on the distance-to-frontier approach whereby the gap between Italy and the euro
area frontier is assumed to be narrowed over the medium term.3 GIMF also has a well-
developed fiscal block allowing for the analysis of fiscal instruments. All other structural
policies are phased in over a 5–10-year horizon in a step-wise manner, becoming fully
implemented and credible at the fifth year.

2 IMF (2017), “2017 External Sector Report,” IMF Policy Paper (Washington: IMF).

3 Lusinyan and Muir (2013) conduct a similar exercise while quantifying the impact of the authorities’ structural
reform program at the time. Annicchiarico and others (2015, 2013) provide simulations by the Italian Ministry
of Finance of a package of product market, labor market, and fiscal devaluation reforms.

©International Monetary Fund. Not for Redistribution

4

Several research papers over the past few years provide guidance on mapping reforms
to GIMF. While the fiscal block in GIMF allows a direct relation to fiscal policies,
simulating structural and financial reforms requires mapping reform intentions to changes in
GIMF structural parameters (such as wage and price markups, labor supply, total factor
productivity or TFP, etc.). A growing body of literature on macro-structural and macro-
financial interlinkages provides quantitative guidance for such mappings. Table 1
summarizes all shocks, instruments and sources for mapping.

The proposed policy package is as follows:

 Fiscal adjustment and rebalancing. To achieve a small structural surplus, which for
simplicity is modeled as a fiscal consolidation of 2 percent of GDP over four years, a
growth-friendly and inclusive policy mix is envisaged. This is assumed to comprise a
revenue-neutral and less distortionary tax reform to reduce the labor tax wedge by
1½ percent of GDP, financed by lower VAT gaps, both compliance and policy, (1 percent
of GDP); a property tax on primary residences (½ percent of GDP); current primary
spending cuts, achieved by reducing large social benefits and spending on goods and
services, both by 1¼ percent of GDP; and increasing spending on public capital by
½ percent of GDP (see Andrle and others, 2017).

 Wage bargaining. To facilitate the alignment of wages with productivity at the firm level,
a move from the current sectoral-level to firm-level wage setting is assumed (see Kangur,
2017). By aligning the wage distribution closer with the productivity distribution of
firms, decentralized bargaining could save (create) jobs that otherwise would be
destroyed (or not created). As shown in Kangur (2017), simulations of such a reform
calibrated to the Italian labor market point to an increase in steady-state employment of
about 4 percent from such a reform. This result is replicated in GIMF via a reduction in
the wage markup by about 15 p.p.

 Other structural reforms.

o Labor market reforms. Measures to incentivize labor force participation and improve
targeting of social spending in a fiscally-neutral manner include (i) scaling up active
labor market policies (ALMPs, 0.4 percent of GDP); (ii) increasing spending on
childcare (0.2 percent of GDP); and (iii) broadening the social safety net to cover all
those below the poverty line (0.5 percent of GDP). These reforms are modelled as a
neutral spending reallocation from general (untargeted) to targeted transfers phased in
over five years. The effect of these reforms on labor supply is derived from estimates
developed by the OECD, including for the IMF’s contribution to the G-20 Mutual
Assessment process (see IMF, 2011; Barnes, 2014).

o Product market reforms. The reform envisages further easing of regulatory barriers to
competition in sectors such as retail trade, professionals, and select network sectors
(e.g., road and local transport services) that remain more highly regulated than the
euro area frontier, defined as an average of the five best OECD Energy, Transport,
and Communications Regulation (ETCR) scores. It is assumed that the distance-to-
frontier is closed by one-half, resulting in an equivalent improvement in a non-
tradable product market regulation (PMR) score by about 17 percent, and phased in

©International Monetary Fund. Not for Redistribution

5

over 5–10 years. The phasing as well as mapping into a non-tradable TFP shock4
follows OECD estimates of the reform impact (see Barnes, 2014).

o Public administration reforms. Public sector efficiency and firm productivity vary
widely across Italian provinces (OECD, 2017). Giordano and others (2015) calculate
public sector efficiency as a distance to the efficiency frontier in five key public
service sectors—health, education, civil justice, child care, and waste collection—
across 103 Italian provinces, using non-parametric Data Envelopment Analysis. They
find that an increase in public sector efficiency in all provinces to the frontier would
expand output for an average firm by 3 percent. Given that public-sector efficiency—
as institutions—are slow to change, it is assumed that about one-half of the distance
to frontier will be closed, by means of an economy-wide TFP shock.

 Banking sector clean-up. High NPLs are a drag on bank profitability and economic
activity by requiring greater loan-loss provisions, which reduce the resources available
for lending, and diverting resources and attention away from extending new credit to
internal consolidation and asset quality (see Peek and Rosengren, 2005; and Caballero
and others, 2008).

o Using a newly constructed dataset on NPL reduction episodes, Balgova and others
(2016) illustrate that a reduction in NPL ratios leads to faster GDP growth, higher
credit growth and investment, and better labor market outcomes. Following
Mohaddes and others (2017), the impact of a change in the NPL ratio on long-term
real GDP growth is estimated—mean reverting the NPL ratio to normal levels
(around 5–6 percent) would lead to a 3 percent higher real GDP in the long run
(see text table). All the estimates are negative (about –0.08) and statistically
significant at the 1 percent level, suggesting that a 5 percent persistent increase in the
NPL ratio per year (observed in Italy since 2000 on average) is associated with
0.4 percentage points lower annual GDP growth in the long run, on average.

o Correspondingly, reducing the NPL ratio to normal levels in five years and sustaining
them at that level should imply higher real GDP by about 2 percent in five years and
around 3 percent in steady state. This finding is mapped into GIMF—to allow for
cumulating the effects of the reform package in a single framework—via a TFP shock
that is distributed about ¾ into the non-tradable and ¼ into the tradable sector. In
practice, this modeling assumption within the GIMF framework (which does not have
banks) can be thought of as recovering value from existing stock of NPLs, e.g.,
through accelerated insolvency and workout procedures, rather than through higher
upfront provisioning or capital costs.

4 TFP shock has quantitatively similar properties compared to a price-markup shock.

Estimation method:
Lag order: 1 2 3 0 1 2 3

-0.087 -0.079 -0.080 -0.092 -0.087 -0.083 -0.082
(0.0111) (0.0136) (0.0137) (0.0087) (0.0081) (0.0108) (0.0132)

Notes: Standard errors are provided in parentheses. All estimates are statistically significant at the 1% level.

Estimates of (Mean) Long-run Effects of Changes in the NPL Ratio on Real GDP Growth (1997–2014)

Auto-Regressive Distributed Lag (ARDL) Distributed Lag (DL)

©International Monetary Fund. Not for Redistribution

6

III. RESULTS AND POLICY DISCUSSION

The reform package potentially increases
output by 6–13 percent above the baseline
and delivers a notable REER depreciation.
Figures 1–4 show individual simulation results
for the above-mentioned reform blocks. The
cumulative results are shown in Figure 5.
About one-half of the competitiveness gains
over the medium-term stem from structural
reforms and, in particular, wage bargaining.
This is consistent with the finding that
increases in the hourly wage rate accounts for
a large part of the ULC-gap against euro area
peers (see Kangur, 2017). The other half
comes from growth-enhancing fiscal
devaluation, spending rebalancing, and the cleanup of bank balance sheets.

The medium-term output gains are
substantial, while the short-term output
losses are very limited. Upfront
implementation of structural reforms is
supportive of growth in the near and medium
terms and helps offset the relatively small
initial output losses associated with the fiscal
consolidation. By itself, fiscal consolidation
results in lower real GDP that, at its peak, is
about ½ percent below baseline after three
years. However, taken together with upfront
implementation of structural reforms and bank
balance sheet cleanup, these costs are offset.

In practice, the yields from the comprehensive reform package outlined above may be
smaller. Model uncertainty, measurement error, interim economic shocks, implementation
challenges, and the like may reduce the yields of the above comprehensive policy package.5
Thus, it may be more prudent to conclude that growth over the medium term would increase
at best by the amounts estimated above.

5 The mapping of reforms into the structural parameters of a general equilibrium macro-model such as GIMF
can be imperfect. For example, while it is accepted that decentralizing wage bargaining would lead to lower
markups, the simulations here match outcomes from a specialized search-and-matching unemployment model
with no other rigidities with those achieved in a general equilibrium model. The reduction in NPLs can work
also through other channels than only TFP. Similarly, macro models are not equipped to capture
implementation challenges that can arise, for example, from legislative complexities or coordination failures at
different levels of government. Nevertheless, as the potential scale of several reforms cannot be assessed
otherwise (e.g., regarding institutional changes in the wage bargaining), the strategy exploited in this paper is
generally accepted in the literature and also necessary for assessing the macroeconomic impact of a
comprehensive reform package (see Annicchiarico and others (2015, 2013) and Lusinyan and Muir (2013) for
similar expositions for Italy using a variety of macro models such as IGEM, QUEST III and GIMF).

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Lines are
stacked so that blue shows also total impact.

-9.0
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Fiscal
Wage bargaining
Structural
Financial

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

-2.0
0.0
2.0
4.0
6.0
8.0

10.0
12.0
14.0
16.0

0 1 2 3 4 5 6 7 8 9 10 SS

Financial
Structural
Wage bargaining
Fiscal

Real GDP
(Percent deviation from baseline)

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Lines are
stacked so that blue shows also total impact.

©International Monetary Fund. Not for Redistribution

7

Complementary judicial, labor protection, and innovation policies could help to ensure
that the gains from comprehensive reforms materialize in full.

 Italy’s inefficient judicial system is an important factor behind difficult business
environment (see Esposito and others, 2014), includes a regional dimension, and is
closely associated with many elements of the reform package through administrative
inefficiencies, higher cost of credit, slow NPL workouts, as well as smaller firm size and
inefficiencies in the labor markets.

 Notwithstanding the important Jobs Act reform, employment protection legislation could
be accelerated and further eased, including possibly in the public sector, to facilitate an
efficient allocation of labor and the speed of adjustment of employment.6 This in turn
would reinforce the expected gains from the wage bargaining reform, facilitate
restructuring, and foster innovative activity as a low job turnover is more burdensome in
the event of faster technological progress (OECD, 2015).

 In terms of innovation, Italy has fallen substantially behind other OECD countries.
OECD (2017) shows that private R&D business spending is almost 1 percent of GDP
below the OECD average. GIMF simulations based on the OECD (2017) mapping
indicate that increasing R&D spending by about 1 percent of GDP, phased in gradually
over five years in a sequentially credible manner, could in ten years increase real output
by 1¼ percent and improve competitiveness by 0.3 percent, whereas in the long run
output and competitiveness gains could reach 1.9 and 0.6 percent, respectively.

IV. CONCLUSION

Italy’s growth and exports have picked up recently, although they continue to lag Italy’s
European peers. The real exchange rate is assessed to be moderately overvalued. Further
fiscal, financial, wage bargaining, and other complementary structural reforms would raise
Italy’s growth rates and unwind remaining imbalances. This paper has quantified a package
of reforms to that end, building on the details outlined in two close companion papers
(Andrle and others, 2017, and Kangur, 2017) as well as research conducted over previous
years. The results point to sizeable gains in output and competitiveness over the medium
term, and to very limited short-term losses if implemented comprehensively and decisively.

6 Caballero and others (2013) find evidence of strict employment protection leading to lower adjustment in
employment and consequently lower productivity. Specifically for Italy, Boeri and Jimeno (2005) in an earlier
paper showed that stricter employment protection above the protection threshold decreases dismissal rates and
provided indicative evidence also of lower hiring.

©International Monetary Fund. Not for Redistribution

8

Box 1. The Global Integrated Monetary and Fiscal Model (GIMF)

The IMF’s Global Integrated Monetary and Fiscal (GIMF) model is used to quantify the effects of
reforms—see Kumhof and others (2010) and Anderson and others (2013) for more details.

GIMF is a multi-country structural dynamic general equilibrium model featuring Italy, the rest of the euro
area, and the rest of the world. It links the behavior of households, firms, and government sector within and
among countries. The model has a consistent system of national accounting and stock-flow budget
constraints for all sectors, including the government. The model belongs to exogenous-growth types of
models, meaning that the long-term growth of output is exogenous. Hence, all fiscal or structural measures
may change only the structure of the economy, possibly increasing permanently the level of real output per
capita; never long-term growth.

The household sector consists of forward-looking optimizing households, as well as liquidity-constrained
households who spend all their available income every period. The forward-looking households are
modeled as overlapping generations (OLG) with finite lives, following the Blanchard-Weil-Yaari
framework. The presence of OLG households breaks the Ricardian equivalence and is important for
realistic results of fiscal policy in both the short and long run. Households gain utility from consumption
and disutility from labor effort, they consume traded and non-traded services and goods, receive labor
income, transfers from the government, dividends from corporations, and pay taxes—income, consumption,
and lump-sum taxes.

Firms produce intermediate and final goods using labor and capital inputs, accumulate capital, and import
or export their production. Firms pay taxes from corporate income. Monetary policy in the euro area and
rest of the world regions follows an inflation-forecast targeting rule to set policy interest rates. Italy is a
member of the euro area.

Government collects tax revenues (consumption, labor income, capital income, and lump-sum taxes) and
spends them on government consumption, investment, and transfers to households. Governments target
specific debt-to-GDP (and thus deficit-to-GDP) ratios and use a mix of instruments to achieve it. The
government’s commitment to sustainable public finance is credible for firms and households, who hold the
stock of government bonds.

©International Monetary Fund. Not for Redistribution

9

Figure 1. Italy: Fiscal Reform

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Red: revenue rebalancing. Blue: total impact.

-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5

0 1 2 3 4 5 6 7 8 9 10 SS

Real GDP
(Percent deviation from baseline)

-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0

0 1 2 3 4 5 6 7 8 9 10 SS

Consumption
(Percent deviation from baseline)

-2.0
-1.0

0.0
1.0
2.0
3.0
4.0

0 1 2 3 4 5 6 7 8 9 10 SS

Investment
(Percent deviation from baseline)

0.0

0.5

1.0

1.5

2.0

2.5

0 1 2 3 4 5 6 7 8 9 10 SS

Current Account/GDP
(Difference from baseline)

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

0 1 2 3 4 5 6 7 8 9 10 SS

Primary Surplus/GDP
(Difference from baseline)

-40
-35
-30
-25
-20
-15
-10
-5
0
5

0 1 2 3 4 5 6 7 8 9 10 SS

Debt/GDP
(Difference from baseline)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

0 1 2 3 4 5 6 7 8 9 10 SS

Interest Expenditure/GDP
(Difference from baseline)

©International Monetary Fund. Not for Redistribution

10

Figure 2. Italy: Wage Bargaining

 

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Blue: total impact.

-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real GDP
(Percent deviation from baseline)

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

0 1 2 3 4 5 6 7 8 9 10 SS

Consumption
(Percent deviation from baseline)

-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0

0 1 2 3 4 5 6 7 8 9 10 SS

Investment
(Percent deviation from baseline)

0.0
0.2
0.4
0.6
0.8
1.0
1.2

0 1 2 3 4 5 6 7 8 9 10 SS

Current Account/GDP
(Difference from baseline)

-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

-0.2
-0.2
-0.1
-0.1
0.0
0.1
0.1
0.2
0.2
0.3

0 1 2 3 4 5 6 7 8 9 10 SS

Primary Surplus/GDP
(Difference from baseline)

-2

-2

-1

-1

0

1

1

0 1 2 3 4 5 6 7 8 9 10 SS

Debt/GDP
(Difference from baseline)

-0.1
-0.1
-0.1
0.0
0.0
0.0
0.0
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Interest Expenditure/GDP
(Difference from baseline)

©International Monetary Fund. Not for Redistribution

11

Figure 3. Italy: Other Structural Reforms: Product Markets, Public Sector Efficiency,
Guaranteed Minimum Income, ALMPs, and Child Care

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Blue: total impact.

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5

0 1 2 3 4 5 6 7 8 9 10 SS

Real GDP
(Percent deviation from baseline)

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0

0 1 2 3 4 5 6 7 8 9 10 SS

Consumption
(Percent deviation from baseline)

0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0

0 1 2 3 4 5 6 7 8 9 10 SS

Investment
(Percent deviation from baseline)

-0.2
-0.2
-0.1
-0.1
0.0
0.1
0.1

0 1 2 3 4 5 6 7 8 9 10 SS

Current Account/GDP
(Difference from baseline)

-1.8
-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0 1 2 3 4 5 6 7 8 9 10 SS

Primary Surplus/GDP
(Difference from baseline)

-2.0

-1.5

-1.0

-0.5

0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Debt/GDP
(Difference from baseline)

-0.1
-0.1
-0.1
0.0
0.0
0.0
0.0
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Interest Expenditure/GDP
(Difference from baseline)

©International Monetary Fund. Not for Redistribution

12

Figure 4. Italy: NPL Reduction

 

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Blue: total impact.

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5

0 1 2 3 4 5 6 7 8 9 10 SS

Real GDP
(Percent deviation from baseline)

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0

0 1 2 3 4 5 6 7 8 9 10 SS

Consumption
(Percent deviation from baseline)

0.0

1.0

2.0

3.0

4.0

5.0

0 1 2 3 4 5 6 7 8 9 10 SS

Investment
(Percent deviation from baseline)

-0.2

-0.2

-0.1

-0.1

0.0

0.1

0 1 2 3 4 5 6 7 8 9 10 SS

Current Account/GDP
(Difference from baseline)

-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.1
0.1
0.1

0 1 2 3 4 5 6 7 8 9 10 SS

Primary Surplus/GDP
(Difference from baseline)

-1.6
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Debt/GDP
(Difference from baseline)

-0.1
-0.1
-0.1
0.0
0.0
0.0
0.0
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Interest Expenditure/GDP
(Difference from baseline)

©International Monetary Fund. Not for Redistribution

13

Figure 5. Italy: Total Reform Package

   

Source: IMF staff estimates.
Notes: Horizontal axis=years, and SS=steady state. Blue: total impact.

0
2
4
6
8

10
12
14
16

0 1 2 3 4 5 6 7 8 9 10 SS

Real GDP
(Percent deviation from baseline)

-2
0
2
4
6
8

10
12
14
16

0 1 2 3 4 5 6 7 8 9 10 SS

Consumption
(Percent deviation from baseline)

-5

0
5

10

15
20

25

0 1 2 3 4 5 6 7 8 9 10 SS

Investment
(Percent deviation from baseline)

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5

0 1 2 3 4 5 6 7 8 9 10 SS

Current Account/GDP
(Difference from baseline)

-9.0
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0

0 1 2 3 4 5 6 7 8 9 10 SS

Real Effective Exchange Rate
(Percent deviation from baseline; “+”=appreciation)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0 1 2 3 4 5 6 7 8 9 10 SS

Primary Surplus/GDP
(Difference from baseline)

-40
-35
-30
-25
-20
-15
-10
-5
0

0 1 2 3 4 5 6 7 8 9 10 SS

Debt/GDP
(Difference from baseline)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

0 1 2 3 4 5 6 7 8 9 10 SS

Interest Expenditure/GDP
(Difference from baseline)

©International Monetary Fund. Not for Redistribution

14

Table 1. Italy: GIMF Simulation Strategy

 

Measure GIMF instrument / shock Scale Mapping

Fiscal Adjustment and Rebalancing

Lower untargeted social transfers General untargeted transfers 1¼ percent of GDP
Lower spending on goods and services Government consumption 1¼ percent of GDP
Higher spending on public investment Government investment ½ percent of GDP
Lower tax wedge on labor Taxes on labor 1½ percent of GDP
Higher VAT revenue Taxes on consumption 1 percent of GDP
Higher revenue from property tax Lump-sum tax ½ percent of GDP

Wage Bargaining

Move to firm-level wage bargaining Wage mark-ups 15 pp reduction Kangur (2017)

Other Structural Reforms

Higher spending on ALMPs (fiscally
neutral)

Higher targeted and lower
untargeted social transfers

0.36 percent of GDP Barnes (2014)

Higher spending on child care (fiscally
neutral)

Higher targeted and lower
untargeted social transfers

0.2 percent of GDP Barnes (2014)

Universal anti-poverty program (fiscally
neutral)

Higher targeted and lower
untargeted social transfers

½ percent of GDP Anderson and
others (2013)

Product market reforms Non-tradables TFP
(equivalently price mark-ups)

17 percent decline
in ETCR / PMR

Barnes (2014)

Public administration reforms Aggregate TFP 1½ percent
increase in steady-
state real GDP

Giordano and
others (2015)

Banking Sector Clean-up

Reduction in NPLs TFP shock: ¾ non-tradables
and ¼ to tradables

2 percent increase
in real GDP over 5
years

Mohaddes
and others
(2017)

Anderson and
others (2013),
Kumhof and
others (2010)

©International Monetary Fund. Not for Redistribution

15

REFERENCES

Anderson, D., Hunt, B., Kortelainen, M., Kumhof, M., Laxton, D., Muir, D., Mursula, S. and
S. Snudden, 2013, “Getting to Know GIMF: The Simulation Properties of the Global
Integrated Monetary and Fiscal Model,” IMF Working Paper WP/13/55 (Washington:
IMF).

Andrle, M., Hebous, S., Kangur, A., and M. Raissi, 2018, “Italy: Toward a Growth-Friendly

Fiscal Reform,” IMF Working Paper (forthcoming). 

Annicchiarico, B., Di Dio, F. and F. Felici, 2015, “Fiscal Devaluation Scenarios:

A Quantitative Assessment for the Italian Economy,” Open Economies Review,
Vol. 26(4), pp. 731–785.

Annicchiarico, B., Di Dio, F. and F. Felici, 2013, “Structural Reforms and the Potential

Effects on the Italian Economy,” Journal of Policy Modeling, Vol. 35(1), pp. 88–109.

Balgova, M., M. Nies, and A. Plekhanov, 2016, “The Economic Impact of Reducing

Nonperforming Loans,” EBRD Working Paper Number 193.

Barnes, S., 2014, “Reforms and Growth: A Quantification Exercise,” OECD, Nero Meeting.

Boeri, T. and J.F. Jimeno, 2005, “The effects of employment protection: Learning from

variable enforcement,” European Economic Review, Vol. 49(8), pp. 2057–2077.

Caballero, R.J., Cowan, K.N., Engel, E.M.R.A. and A. Micco, 2013, “Effective labor
regulation and microeconomic flexibility,” Journal of Development Economics, Vol.
101, pp. 92–104.

Caballero, R. J., T. Hoshi, and A. K. Kashyap, 2008, “Zombie Lending and Depressed
Restructuring in Japan,” American Economic Review, Vol. 98(5), pp. 1943–77.

Égert, B. and P. Gal, 2017, “The quantification of structural reforms in OECD countries:
A new framework,” OECD Economics Department Working Papers, No. 1354, OECD
Publishing, Paris. http://dx.doi.org/10.1787/2d887027-en

Esposito, G., Lanau, S. and S. Pompe, 2014, “Judicial System Reform in Italy—A Key to

Growth,” IMF Working Paper WP/14/32 (Washington: IMF).

Giordano, R., Lanau, S., Tommasino, P. and P. Topalova, 2015, “Does Public Sector

Inefficiency Constrain Firm Productivity: Evidence from Italian Provinces,” IMF
Working Paper No. 15/168 (Washington: IMF).

IMF, 2011, “G-20 Mutual Assessment Process: From Pittsburgh to Cannes—IMF Umbrella

Report” (Washington).

———, 2017, “2017 External Sector Report,” IMF Policy Paper (Washington: IMF).

©International Monetary Fund. Not for Redistribution

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Jimeno, F.J. and C. Thomas, 2013, “Collective Bargaining, Firm Heterogeneity and
Unemployment,” European Economic Review, Vol. 59, pp. 63–79.

Jin, Y. and P. Lenain ,2015, “Labour market reform for more and better quality jobs in Italy,”

OECD Economics Department Working Papers, No. 1266, OECD Publishing, Paris.
http://dx.doi.org/10.1787/5jrqhrw7rfzq-en

Kangur, A., 2018, “Competitiveness and Wage Bargaining Reform in Italy,” IMF Working

Paper (forthcoming).

Kumhof, M., Laxton, D., Muir, D. and S. Mursula, 2010, “The Global Integrated Monetary

and Fiscal Model (GIMF)–Theoretical Structure,” IMF Working Paper No. 10/34
(Washington: IMF).

Lusinyan, L. and D. Muir, 2013, “Assessing the Macroeconomic Impact of Structural

Reforms: The Case of Italy,” IMF Working Paper No. 13/22 (Washington: IMF).

Mohaddes, K., Raissi, M. and A. Weber, 2017, “Can Italy Grow Out of Its NPL Overhang?

A Panel Threshold Analysis,” Economics Letters 159, pp. 185-189.

OECD, 2017, “OECD Economic Surveys: Italy 2017” (OECD Publishing: Paris).

http://dx.doi.org/10.1787/eco_surveys-ita-2017-en

Peek, J. and E. S. Rosengren, 2005, “Unnatural Selection: Perverse Incentives and the

Misallocation of Credit in Japan,” American Economic Review, Vol. 95(4),
pp. 1144–1166. 

©International Monetary Fund. Not for Redistribution

  • Cover
  • TABLE OF CONTENTS
  • ABSTRACT
  • I. BACKGROUND
  • II. REFORM PROGRAM
  • III. RESULTS AND POLICY DISCUSSION
  • IV. CONCLUSION
  • REFERENCES
  • BOX
    • 1. The Global Integrated Monetary and Fiscal Model (GIMF)
  • FIGURES
    • 1. Fiscal Reform
    • 2. Wage Bargaining
    • 3. Other Structural Reforms: Product Markets, Public Sector Efficiency, Guaranteed Minimum Income, ALMPs, and Child Care
    • 4. NPL Reduction
    • 5. Total Reform Package
  • TABLE
    • 1. GIMF Simulation Strategy
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