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Rising wage inequality: Is there a role for financial development?

Author

Listed:
  • Antonio Martuscelli

    (LUMSA University)

Abstract

This paper analyzes the impact of financial development on wage inequality using Italian administrative data on the universe of private, non-agricultural sector employees between 1991 and 2016. The findings show that, in the Italian case, financial development appears not to have had a substantial impact on the general wage distribution. However, taking into account heterogeneous effects on large as opposed to small firms shows that financial development has raised wages for high-paid jobs within larger firms and low-paid jobs within smaller firms. This effect is coherent with differing capital-skill complementarities among firms of different sizes. The interaction of financial development with the 2008–2011 financial crisis indicates that, during the crisis, wages in local markets more financially developed suffered relatively more. These results seem to suggest that the beneficial effects of financial development in good times are counterbalanced by a more severe contraction in bad times.

Suggested Citation

  • Antonio Martuscelli, 2025. "Rising wage inequality: Is there a role for financial development?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 72(2), pages 1-24, December.
    • Handle: RePEc:spr:inrvec:v:72:y:2025:i:2:d:10.1007_s12232-025-00504-y
    DOI: 10.1007/s12232-025-00504-y
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    Keywords

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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