Public Sector Reforms and the Evolution of Wage Inequality: Evidence from Italy

In the Italian public sector the process to make the job conditions and wage bargaining system more similar to those prevailing in the private sector has taken place since the early 1990s. In particular the 1993 civil service reform introduced a two-level collective bargaining system, according to which the national collective agreements set the basic pay while the local administrative units define the wage increases depending on their own financial constraints and productive performances. In the same period the severe limitations to hire additional workers on a permanent contractual regime - the so-called «block of turnover » - favoured the increase of the share of experienced workers in the public sector. In this paper we relate these institutional reforms occurred in Italy over the nineties to the evolution of public sector wage inequality. Actually we show that the 90/10 inequality index increased by 11% in the Italian public sector by using the SHIW-Bank of Italy data for the period 1993-2004. Further a quantile decomposition analysis allows us to verify that this increase of wage inequality is driven by the positive effect of the residual component in the upper tail of the wage distribution. Then we relate the increase of the residual-within wage inequality to the reforms in the wage setting system introduced in 1993 and 1998 that allow public employees with the same observable characteristics to be paid differently in different administrative units or even in the same units if assigned to different tasks.