Nothing much happened in 1975 in productivity per hour, the gap remained small. I maintain my opinion that the real divergence point is 1994/5, as the authors of the piece also state. Lowering real wages cam be a cause of loss of labour productivity? Why? Because with lower wages there is less incentive to invest in productivity! At the very least it feeds into a vicious cycle. Consider the values for productivity: the gap was, in rough numbers, (32-28)/28 in 1995, versus (16-14)/16 in 1975, roughly. That's 14% and 12%. In terms of productivity the gap was stable. The result is naturally that the gap in GDP per person also remained stable. After 1975 Italy ceased closing that gap, but neither did it widen. Until the mid-90s, when it embarked in the Euro project. Italian inflation was stable, it was easy enough to manage. Prices went up, wages went up, and so on, it doesn't matter if it it 10% instead of 2% so long as it is reasonably predictable. There was not that much pressure at the time to embark on a single currency project. Less regulation = better is not necessarily true. It all depends on the regulation. If regulation is meant to enable some form of rent extraction at some stage, it will be bad.