Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.In many European countries, wages are determined by collective bargaining agreements intended to improve wages and reduce inequality. We study the local and aggregate effects of collective bargaining in Italy and Germany. The two countries have similar geographical differences in firm productivity -with the North more productive than the South in Italy and the West more productive than the East in Germany -but have adopted different models of wage bargaining. Italy sets wages based on nationwide contracts that allow for limited local wage adjustments, while Germany has moved toward a more flexible system that allows for local bargaining. We find that, as a consequence, Italy exhibits limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, while Germany has larger geographic wage differences and a tighter link between local wages and local productivity. While the Italian system is successful at reducing nominal wage inequality, it also creates costly geographic imbalances. In Italy, low productivity provinces have significantly higher non-employment rates than high productivity provinces, because employers cannot lower wages, while in Germany the relationship between nonemployment and productivity is significantly weaker. In Italy, the relationship between real wages and productivity is negative, with lower real wages in the North compared to the South, since the latter has low housing costs but similar nominal wages. Thus, conditional on having a job, Italian workers have higher purchasing power in the South, but the probability of having a job is higher in the North. We conclude that the Italian system has significant costs in terms of forgone aggregate earnings and employment because it generates a spatial equilibrium where workers queue for jobs in the South and remain unemployed while waiting. If Italy adopted the German system, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively. Our findings are relevant for several other European countries with systems similar to Italy's. JEL Classification:local labor markets

Labor Costs and Corporate Investment in Italy

“…The estimation uses Orbis firm-level data and data on wage growth by sector for 2005-2017 from the Italian National Statistical Institute (IStat). Sectoral wage growth in Italy, which is determined by national contracts, seems to be unrelated to sectoral productivity growth, consistent with the findings of Boeri et al (2019), but is negatively associated with investment. Firm-level data permit a better identification of the effects of an increase in wages.…”

“…The evolution of labor costs in Italy is tied to the characteristics of its wage bargaining system. More than 97 percent of Italian dependent workers are subject to wage contracts negotiated between trade and labor unions at the national level (Contratti Collettivi Nazionale di Lavoro or CCNLs), and thus not determined by individual firms (Boeri et al, 2019). CCNLs set minimum wages for different professional categories (managers, bluecollar workers, etc.)…”

Buy flexible, pay more: The role of temporary contracts on wage inequality

“…Much theoretical and empirical research in the economic literature has tried to identify numerous sources of wage inequality, such as discrimination related to individual characteristics, e.g. gender, ethnicity (Barth et al, 2012;Goldin et al, 2017;Barth et al, 2017); globalisation (Helpman, 2017); collective bargaining and unionisation (Lemieux, 2008;Devicienti et al, 2019); education and labour productivity (Iranzo et al, 2008;Faggio et al, 2010;Barth et al, 2016); price levels (Autor et al, 2005;Boeri et al, 2019); and working hours (Checchi et al, 2018;Ciani and Torrini, 2019). A further source of wage inequality may be related to the heterogeneity of job contracts existing in a labour market (Cazes and Laiglesia, 2015), and in particular, to the duality between temporary and permanent workers.…”

Lost in Deflation: Why Italy’s Woes Are a Warning to the Whole Eurozone

“…Italy's permanent crisis is a self-inflicted wound, a story of ruin from within. For one, Italy has too many delusional economists favoring stringent fiscal austerity, thinking that this would somehow prove "expansionary" (e.g., Alesina et al 2015;Cottarelli 2018aCottarelli , 2018bTerzi 2018;Alesina, Favero, and Giavazzi 2019) or favoring even more drastic labor market deregulation in the belief that this would miraculously help to revive employment, investment, and the economy (Hijzen, Mondauto, and Scarpetta 2017;Boeri et al 2019). Italy's structural crisis is an instance of iatrogenesis-a disease caused by the doctors themselves, as Ivan Illich famously argued.…”