Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces

Regional Wage Disparities and Migration

Tito Boeri, Andrea Ichino, Enrico Moretti and Johanna Posch

Journal of the European Economic Association, 2021, vol. 19, issue 6, 3249-3292

Abstract: Italy and Germany have similar geographical differences in firm productivity—with the North more productive than the South in Italy and the West more productive than the East in Germany—but have adopted different models of wage bargaining. Italy sets wages based on nationwide contracts that allow for limited local wage adjustments, while Germany has moved toward a more flexible system that allows for local bargaining. We find that Italy exhibits limited geographical wage differences in nominal terms and almost no relationship between local productivity and local nominal wages, while Germany has larger geographic wage differences and a tighter link between local wages and local productivity. As a consequence, in Italy, low-productivity provinces have higher non-employment rates than high-productivity provinces, because employers cannot lower wages, while in Germany the relationship between non-employment and productivity is significantly weaker. We conclude that the Italian system has significant costs in terms of forgone aggregate earnings and employment because it generates a spatial equilibrium where workers queue for jobs in the South and remain unemployed while waiting. If Italy adopted the German system, aggregate employment and earnings would increase by 11.04% and 7.45%, respectively. Our findings are relevant for other European countries.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (50)

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvab019 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces (2019)
Working Paper: Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces (2019)
Working Paper: Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:19:y:2021:i:6:p:3249-3292.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press ().