UPDATE: Italy Business Group,Unions Edge Towards Pact On Wages

(Updates with background)

ROME -(Dow Jones)- Italy's largest business organization, the Confederation of Italian Industry, or Confindustria, and its primary labor unions edged closer Friday to an agreement on a plan to overhaul the country's antiquated wage system, aimed at boosting the country's lagging labor productivity.

The new proposal attempts to modify the way wage inflation is determined. Since 1993, Italy has used programmed inflation to negotiate raises by employers and unions. According to a Confindustria document, on which two out of the country's three major unions have agreed, the index that determines raises will, in future, be based on Italy's European Union-harmonized index of consumer prices and will be stripped of price fluctuations of imported energy products. The new plan also seeks to renegotiate salary raises every three years, instead of two.

Cgil, Italy's biggest union, said that the draft was a small step forward but the group is still holding up talks.

"Today we didn't agree on the guidelines presented, but we will continue to open up the table to look for compromises," Guglielmo Epifani, leader of the Cgil union, said.

Territorial contracts, the document said, will be linked more closely to productivity and quality.

Confindustria has said that it will consider signing even without Cgil, whose leader abandoned talks earlier this month over a disagreement about Confindustria's suggestion that salaries should be linked more closely to productivity at a company level.

Italy remains one of the few countries in the world in which a centralized national wage bargaining system covers all workers and often prevents private-sector companies that are more productive from paying higher wages.

Economists warn that high wage demands could set off a so-called second round of price increases as businesses cover increased wage bills.

The Italian economy has grown more slowly than the 15-nation euro zone average for a decade, and it could fall into recession this year amid the global slowdown.

Poor labor productivity is a big part of Italy's problem: Italian workers are the least productive among the 30 developed nations included in the Organization for Economic Cooperation and Development.

Web site: www.confindustria.it

-By Sofia Celeste, Dow Jones Newswires; +39 06 69766923; sofia.celeste@dowjones.com (Elisabetta Rovis of MF-Dow Jones contributed to this article.)

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(END) Dow Jones Newswires

October 10, 2008 11:32 ET (15:32 GMT)


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