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In a recent work, F. Modigliani and T. Padoa-Schioppa presented a theoretical framework in support of the widely diffused thesis among economic commentators regarding the existence of an inverse relationship between real wages and employment. Their central thesis is that in an economy where wages are indexed 100%, for each value of the real wage only one level of real national product exists that is consistent with price stability. In the present article, the authors provide a simplified version of the model in order to highlight its main features before then demonstrating its groundlessness. They argue that not only should the attempt to give validity to the postulated inverse relationship between the level of production and the real wage supported by Modigliani and Padoa-Schioppa be rejected, so should the inclination to derive concrete policy propositions from such economic analysis. JEL: E24, E31, J31

In a recent article, F. Modigliani and T. Padoa-Schioppa argued that indexing at 100% with frequent wage adjustments rises the general rate of inflation associated with a given gap between the price level desired by businesses and that compatible with the real bargaining wage of workers. The present work compares this examination of an economy with wages indexed at 100% with an alternative situation in which indexing is absent or not effective in protecting wages. It is shown that in the presence of expectations of inflation incorporated into the determination of wage rates: 1) if there is a gap between the price level desired by businesses and that compatible with the real wage desired by workers, inflation is growing rather than stable as in the M.-P.S. model; 2) the "return" of inflation through restrictive maneuvers is accomplished with greater difficulty and involves greater time and costs than in the M.-P.S. model. JEL: E24, E31, J31

In a recent work, F. Modigliani and T. Padoa-Schioppa presented a theoretical framework in support of the widely diffused thesis among economic commentators regarding the existence of an inverse relationship between real wages and employment. Their central thesis is that in an economy where wages are indexed 100%, for each value of the real wage only one level of real national product exists that is consistent with price stability. In the present note, the author demonstrates that: A) one of the their conclusions, according to which the reduction of social contributions, financed by raising indirect taxes have no effect, can not be shared, B) the difficulties that result from an excessive level of real wages can also justifiably be attributed to an excessive volume of public spending, and unions’ position of a relatively high level of real wages can be considered a necessary condition for "waste" to be eliminated; C) the economic policy framework is radically different depending on whether the elasticity of trade with foreign countries is or is not high enough to allow, through changes in the terms of trade, the attainment of full employment in conditions of a balance of payment equilibrium. JEL: E24, E31, F13

In a recent paper F. Modigliani and T. Padoa-Schioppa analyzed the characteristics of an economy, such as Italy’s, in which wages are 100% protected against inflation through the mechanism of wage indexation to prices. These characteristics are summarized in 11 propositions. In this paper the authors address issues related to three of these propositions. More precisely, they show that, outside of the very particular hypothesis adopted by Modigliani and Padoa-Schioppa regarding the range of price adjustment, a) no level of production compatible with price stationarity exists in the context of their model; b) the inflationary process does not depend solely on the cost of production being higher than that compatible with price stationarity. JEL: E31, E24

In a recent work, F. Modigliani and T. Padoa-Schioppa presented a theoretical framework in support of the widely diffused thesis among economic commentators regarding the existence of an inverse relationship between real wages and employment. Their central thesis is that in an economy where wages are indexed 100%, for each value of the real wage only one level of real national product exists that is consistent with price stability. One of their specific propositions is that a reduction of social contributions covered by an equal tightening of indirect taxation does not produce any effect on the equilibrium level of employment, nor on the rate of inflation outside of equilibrium. It is argued that this proposition is valid for both a closed economy as well as an open one. In the present article, the author shows instead that, under the model M. PS, this proposition in general is not valid for either a closed economy or for an open economy. JEL: E24, E31, J31