Using Italian social security data, we demonstrate that in spite of very large differences in average income between provinces, less than 4% of both cross-sectional and lifetime income inequality can be attributed to differences between provinces. Thus geography plays only a marginal role in accounting for inequality between Italians. In contrast, information on industry of similar level of detail can explain roughly a quarter of earnings and wage inequality. Moreover, not only the level is quantitatively significant: sector of occupation is a critical component to explain the evolution of inequality. We find that majority of the rise in earnings and wage inequality in Italy between 1985 and 2018 took place between firms and that this was mainly driven by the divergence of pay between firms in different industries. Finally, the growth in inequality was extremely concentrated with just 5% of industries accounting for all of the increase in between-industry variance.
Does it matter whether wage bargaining takes place at the industry or firm level? I study output, employment and inequality in a labour search model with collective bargaining. I find that firm-level bargaining -- whether individual or collective -- leads to wage dispersion across firms for identical workers. More productive and larger firms pay higher wages. Young firms pay higher wages, so fewer firms enter. Each firm can lower its wages by hiring more workers, so firms grow to be too large. In the model, industry level bargaining helps with these problems. It reduces wage dispersion, which leads to more output and employment.
Work in progress:
”Globalisation, Firm-level Volatility and the Erosion of Collective Bargaining ”
joint with Sarah Schroeder
"Lifetime Income Inequality Within and Between Provinces in Italy"