The worsening of wage expectations in Italy: a study based on administrative data

Purpose - This paper aims to build on existing studies on the relationship between individual wages, age and experience, and provide new evidence on the determinants of wages in Italy. Design/methodology/approach - Wage‐age profiles, which include cohort variables to capture generational differences in wages and are characterised by a changing‐over‐time structure, are estimated by fixed and random effects panel regressions. The analysis exploits a longitudinal dataset of administrative data on wages for the period 1985‐1999. Findings - This paper shows that wage to age profiles for different cohorts of workers are not stable over time: although younger generations of Italian workers are benefiting from higher starting wages than older generations, they face the prospect of lower growth of future earnings. It also confirms the existence of a significant supply effect: the bigger the cohort relative to the active population, the smaller the cohort's gain in terms of wage levels. Finally, it captures the dependence of individual wages on aggregate labour market conditions: individual wages are shown to be negatively related to the unemployment rate and positively related to the union wage index. Research limitations/implications - Although the paper does not propose a novel theoretical approach to individual wage analysis, it demonstrates the benefits of a more integrated empirical analysis of individual wages. Practical implications - The empirical findings suggest that it would be possible and useful to integrate the changing age profiles of individual wages with the estimation and projections of Italian aggregate industry and service sector average wages. Originality/value - The paper provides new evidence on the determinants of the dynamics of individual wages through the estimation of time‐varying wage to age profiles of workers in the Italian industry and service sectors.