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Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces

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Listed:
  • Tito Boeri
  • Andrea Ichino
  • Enrico Moretti
  • Johanna Posch

Abstract

Italy and Germany have similar geographical differences in productivity – North more productive than South in Italy; West more productive than East in Germany – but have adopted different models of wage bargaining. Italy sets wages based on nationwide contracts that allow for limited local wage adjustments, while Germany has moved toward a more flexible system that allows for local bargaining. The Italian system has significant costs in terms of forgone aggregate earnings and employment because it generates a spatial equilibrium where workers queue for jobs in the South and remain unemployed while waiting. Our findings are relevant for other European countries.

Suggested Citation

  • Tito Boeri & Andrea Ichino & Enrico Moretti & Johanna Posch, 2019. "Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces," NBER Working Papers 25612, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25612
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    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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