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.
We show that geography plays only a marginal role in the determination of inequality between Italians, both in cross-section and in lifetime sense. Using social security data, we demonstrate that in spite of very large differences in average income between provinces, less than 4% of total cross-sectional inequality can be attributed to differences between provinces. When we calculate the lifetime income of a cohort of Italians (born in 1960), the share of variance explained by differences between provinces is 3.4% for the whole cohort and only 1.8% for males. For females, the number is substantially larger (10.2%). Thus, geography is a vector explaining inequality between Italians only in the sense that it affects female labor force participation. Finally, we also show that not only geography does not help predict a person’s income, but the opposite is also true: knowing the income of a person does not help much in predicting her province of birth or residence.
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"