The evolution of wage inequality in Italy

Abstract

This paper analyses the evolution of inequality in yearly and daily wages between and within groups of blue and white collar, using the INPS-ISFOL database for the period 1985-1999 in Italy. Between-group inequality increased in the '90s as clerical wages grew slowly whereas blue collars wages remained nearly constant. Within-group inequality increased only if measured by daily wages. The covariance structure analysis shows that inequality comes from persistent differentials among older workers and from high income volatility for younger cohorts. Within inequalities in office and manual workers are driven by the growth of permanency for the older cohorts (individual abilities, say experience, matter more) and by the growth of income volatility for the younger cohorts (luck in the labor market). Within each group, low paid workers during their career acquire earning gains for their abilities and reduce differentials with respect to high paid workers.