Wage Differentials in Italy: Market Forces, Institutions, and Inflation

45 Pages Posted: 30 Aug 2000

See all articles by Christopher L. Erickson

Christopher L. Erickson

University of California, Los Angeles (UCLA) - Human Resources & Organizational Behavior (HROB) Area

Andrea Ichino

University of Bologna

Date Written: November 1994

Abstract

During the 1970s, Italy experienced an extreme compression of wage differentials, similar to the better-known situation in Sweden. Most evidence suggests that this compression came to a stop around 1982-83, coincident with a major institutional change (in the form of the escalator clause in Italian union contracts), a major economic change (the slowdown in inflation), a major technological change (industrial restructuring and the computer revolution), and a major political change (the loss of support for unions and their egalitarian pay policies). While we cannot definitively distinguish among the relative influences of institutions, market forces, technology and politics on the evolution of earnings inequality in Italy, our analysis of skill level wage differentials and our comparisons at the individual level with the more laissez-faire system of the United States suggest that both inflation and egalitarian wage-setting institutions have importantly influenced Italian wage compression in the regular sector of the economy. Yet, this very compression may well have contributed to the flight away from the regular sector of the economy at both ends of the skill distribution, plausibly leading to a greater overall degree of inequality for the whole economy than is apparent from our analysis of wage differentials in the regular sector.

Suggested Citation

Erickson, Christopher L. and Ichino, Andrea, Wage Differentials in Italy: Market Forces, Institutions, and Inflation (November 1994). NBER Working Paper No. w4922. Available at SSRN: https://ssrn.com/abstract=238459

Christopher L. Erickson (Contact Author)

University of California, Los Angeles (UCLA) - Human Resources & Organizational Behavior (HROB) Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1697 (Phone)
310-825-0218 (Fax)

Andrea Ichino

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy
+39 349 5965919 (Phone)

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