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

  • Vincenzo Caponi

    ()

    (Department of Economics, Ryerson University, Toronto, Canada)

This paper presents a general equilibrium model of regional unemployment dispersion based on the Mortensen and Pissarides (1999) framework. The model economy presented here has centralized institutions, such as a single central government and central unions, but regional labor markets with differences productivity. The model assumes that unions dislike wage dispersion across regions and the government dislikes population imbalance across the regions. The set up of the model is used to interpret the economic features of the Italian economy between the mid seventies and the end of the past century. By means of calibration using Italian data collected in the year 2000 the paper shows that the model economy explains the important regional dualism between the North and the South of Italy in terms of unemployment. Moreover, the model indicates that the interaction between unions and the government also generates low wage rates in the high productivity regions accompanied by low unemployment rates, even when the Northern worker is the median worker that determines the unions policies.

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File URL: http://economics.ryerson.ca/workingpapers/wp007.pdf
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Paper provided by Ryerson University, Department of Economics in its series Working Papers with number 007.

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Length: 42 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:rye:wpaper:wp007
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Web page: http://www.ryerson.ca/economics/

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  1. 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.
  2. 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.
  3. 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.
  4. Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Temi di discussione (Economic working papers) 350, Bank of Italy, Economic Research and International Relations Area.
  5. 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.
  6. 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.
  7. Faini, Riccardo, 1999. "Trade unions and regional development," European Economic Review, Elsevier, vol. 43(2), pages 457-474, February.
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