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Centralized Wage Determination and Regional Unemployment Differences: The Case of Italy

Vincenzo Caponi ()

No 7, Working Papers from Ryerson University, Department of Economics

Abstract: This paper presents a general equilibrium model of regional unemployment dispersion based on the Mortensen and Pissarides (1999) framework. The model economy presented here has centralized institutions, such as a single central government and central unions, but regional labor markets with differences productivity. The model assumes that unions dislike wage dispersion across regions and the government dislikes population imbalance across the regions. The set up of the model is used to interpret the economic features of the Italian economy between the mid seventies and the end of the past century. By means of calibration using Italian data collected in the year 2000 the paper shows that the model economy explains the important regional dualism between the North and the South of Italy in terms of unemployment. Moreover, the model indicates that the interaction between unions and the government also generates low wage rates in the high productivity regions accompanied by low unemployment rates, even when the Northern worker is the median worker that determines the unions policies.

Keywords: Italy; Regional Dualism; Mezzogiorno. (search for similar items in EconPapers)
JEL-codes: E24 J51 J60 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2009-11
New Economics Papers: this item is included in nep-geo, nep-lab and nep-ure
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