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

  • Caponi, Vincenzo

    ()

    (Ryerson University)

This paper addresses the problem of the dualism of the Italian economy, particularly of its labor market. Although the Italian labor market is considered to be the most highly regulated among OECD countries, the unemployment rate in the North, which represents two thirds of the whole economy, is one of the lowest in Europe. In contrast, the South faces an unemployment rate between two to five times higher than the North. GDP per capita is also twice in the North than in the South, while nominal wages do not differ substantially across regions. Finally internal migration is the lowest among European countries since the middle seventies. This paper argues that the uniform wage is the result of the centralized wage setting carried on by unions, and that the absence of migration is the result of the proactive role of the government, which in the seventies stopped the mass internal migration from the South to the North and since then is acting to prevent the reappearance of such phenomenon. Uniform wage across regions, the active role of the government to prevent internal mass migration and a structural productivity divide between North and South are the institutional features that, within a general equilibrium matching model, explain the high unemployment rate in the South and, perhaps more interestingly, the low unemployment rate accompanied by low wages in the North even when compared to other western European countries.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3592.

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Length: 47 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:iza:izadps:dp3592
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  1. Faini, Riccardo & Galli, Giampaolo & Gennari, Pietro & Rossi, Fulvio, 1997. "An empirical puzzle: Falling migration and growing unemployment differentials among Italian regions," European Economic Review, Elsevier, vol. 41(3-5), pages 571-579, April.
  2. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
  3. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  4. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  5. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
  6. Marco Manacorda & Barbara Petrongolo, 2005. "Regional Mismatch and Unemployment: Theory and Evidence from Italy, 1977-1998," CELPE Discussion Papers 90, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
  7. Eliana Viviano, 2002. "Un�analisi critica delle definizioni di disoccupazione e partecipazione in Italia," Temi di discussione (Economic working papers) 450, Bank of Italy, Economic Research and International Relations Area.
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