Collective Bargaining and the Evolution of Wage Inequality in Italy
| Author | Francesco Devicienti,Agata Maida,Bernardo Fanfani |
| Date | 01 June 2019 |
| Published date | 01 June 2019 |
| DOI | http://doi.org/10.1111/bjir.12444 |
British Journal of Industrial Relations doi: 10.1111/bjir.12444
57:2 June 2019 0007–1080 pp. 377–407
Collective Bargaining and the Evolution
of Wage Inequality in Italy
Francesco Devicienti, Bernardo Fanfani
and Agata Maida
Abstract
Italian male wage inequality has increased at a relatively fast pace from
the mid-1980s until the early 2000s, while it has been persistently flat since
then. We analyse this trend, focusing on the period of most rapid growth in
pay dispersion. By accounting for worker and firm fixed eects, it is shown
that workers’ heterogeneity has been a major determinant of increased wage
inequalities, while variability in firm wage policies has declined over time. We
also show that the growth in pay dispersion has entirely occurred between livelli
di inquadramento, that is, job titles defined bynational industry-wide collective
bargaining institutions, for which specific minimum wages apply. We conclude
that the underlying market forces determining wage inequality have been largely
channelled into the tight tracks set by the centralized system of industrial
relations.
1. Introduction
Wage inequalities rose in most Western countries during the last decades
of the past century. Several theories link this growth in the dispersion of
the pay structure to market forces. Katz and Murphy (1992) were among
the first to attribute the growth in US wage inequality to the demand and
supply of workers’ skills. Similarly, Acemoglu and Autor (2011) show that
several innovations in the production process may have disrupted routine-
based occupations over time, leading to a more polarized structure of
the workforce. Even if theories linking wage dispersion to market forces
highlight important mechanisms and have several merits, they do not always
accurately predict the substantial heterogeneity in wage inequality trends
Francesco Devicientiis at the University of Turin and Collegio Carlo Alberto, Bernardo Fanfani
is at the University of Turin,and Agata Maida is atthe University of Milan and LABORatorio
Revelli.
C
2018 John Wiley& Sons Ltd.
378 British Journal of Industrial Relations
observed not only between Europe and the English-speaking countries (e.g.
Blau and Kahn 1996; Koeniger et al. 2007), but also within Continental
Europe (e.g. Hip´
olito 2010). Given that many of these economies share fairly
similar characteristics in terms of trade openness, educational attainments
and production technologies, such evidence suggests that labour market
institutions could be as important as supply and demand factors in shaping
pay dierentials and that their influence on the wage structure should be
carefully considered. In this regard, several studies indicate that declining
minimum wages and union strength (e.g. Di Nardo et al. 1996), or changes
in social norms (e.g. Piketty and Saez 2003) could be the main drivers of the
observed secular rise in wage dierentials.
A more recent literature, based on matched worker–firm databases, has
suggested that a large part of the increase in wage inequality is between-
rather than within-firms (see the evidence in Barth et al. 2016 for the USA,
and in Faggio et al. 2010 for the United Kingdom). One important factor
behind the rise of the between-firm component appears to be related to
rising heterogeneity in the wage policies of observationally similar firms. In
particular, Card et al. (2013) show that firm-specific components of the wage
variance explain up to one-fourth of the inequality growth that occurred in
West Germany between the late-1980s and the beginning of the new century.
In studying the dynamics of between-plants wage dispersion, several
authors have focused on market-driven explanatory mechanisms, such as
investments in computer technology (e.g. Dunne et al. 2004), dispersion in
productivity (e.g. Barth et al. 2016; Faggio et al. 2010) and international
trade (e.g. Helpman et al. 2017). Others have instead attributed the rise in
the dispersion of firms’ wage premiums to the changes that have occurred
in wage setting institutions. In interpreting their results, Card et al. (2013)
argue that changes that have occurred in the wage bargaining system since
the early-1990s, namely the possibility for German firms of opting-out from
national contractual agreements, may have driven up between-plants wage
dierentials. Dustmann et al. (2014) argue that this decentralization in the
wage setting process has made it possible to cut unit labour costs and
to improve international competitiveness, fostering the German economic
growth observed in the last decade.
The aim of our article is to show the importance of collective bargaining in
driving the developments of wage inequality in another large manufacturing
and export-oriented EU economy: Italy. It also seeks to draw comparisons
with (West) Germany, a country similar to Italy in many respects. Although
both countries havebeen exposed to similar forces related to globalization and
technological change,we show that developments in wageinequality have been
dierent in important respects (e.g. the role of firm wage policies). We then
argue that the specificities of Italian institutions have a close bearing on these
results.
To conduct our comparative analysis, we apply the methodology of Card
et al. (2013) and rely on similar matched employer–employee data. The
main dataset used covers the entire population of private-sector workers
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2018 John Wiley& SonsLtd.
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