"The Role of Industries in Rising Inequality" (Job Market Paper)
Using data on the universe of private sector employment, we investigate the features of the rise in earnings inequality in Italy between 1985 and 2018. We document that the majority of the increase (55%) took place between industries and was concentrated within a small number of low-paid service sectors. Workers with low earnings ability became more likely to work in industries with low average firm premium (sorting) together with other low-earning workers (segregation). The growth in inequality was driven by the increased dispersion of wage rates and by the increased positive association between the wage rates and labour supply. Despite very large institutional differences, the comparable patterns of increasing inequality in Italy, akin to those identified in the USA, suggest that similar underlying forces are driving the phenomenon.
We find that regional disparities play a marginal role in determining inequality between individuals, both in cross-section and in a lifetime sense. We demonstrate this for Italy, a country stereotypical for regional disparities. In spite of large differences in average income between provinces, less than 4% of cross-sectional inequality can be attributed to between-province differences. In contrast, information on industry of similar level of detail can explain roughly a quarter of earnings and wage inequality. The share of between-province variance in lifetime income is 3.4% for the whole cohort and only 1.8% for males. Differences between rich and poor within provinces are orders of magnitude larger than average differences across them. While tackling regional disparities may have beneficial effects, it will not significantly reduce the level of inequality.
Other versions: CEPR Working Paper
This paper investigates the prevalence of industry wage premiums in 27 European countries and finds that their size varies enormously, especially between Eastern and Western Europe. The East-West differential can be explained by differences in job mobility and in the nature of wage setting. Countries with greater expenditure on active labour market policies and with more widespread and more coordinated collective bargaining have smaller inter-industry wage differentials. The existing literature has focused on the role of collective bargaining, but it has neglected the other part of the institutional mix which are policies promoting worker mobility.
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"