Trade-off between labor productivity and capital accumulation in Italian energy sector

This work provides an explanation for the puzzling trade-off between labor productivity and capital accumulation, occurred in Italian energy sector from the late 1980s onwards. By using a vector autoregressive model, we decompose labor productivity into technological and non technological shocks. We find that: (1) labor productivity responds positively to technological shocks, leading to a transition from one equilibrium to another; (2) capital accumulation shows a persistent decline in response to a positive technological shock, revealing that, in energy sector, technology and capital stock are substitutes. From our analysis we get some policy lessons. The obtained results point out the importance of a comprehensive strategy aimed at increasing technological progress through research, innovation and human capital investment in energy sector. Conversely, our findings state that institutional reforms and changes in regulation can only have a transitory effect on labor productivity in energy sector, without permanent gains in the future.