Divergence in the End? Decomposing Income Inequality across Italy’s Regions, 1871-2011

Abstract

This article examines to what extent labour productivity, structural change, participation rates and the age structure of the population contributed to Italy’s regional economic inequality over the long run (1871-2011). First, regional inequality in per capita GDP is split into labour productivity and the activity rate. Then, the Caselli- Tenreyro decomposition is used to explore whether labour-productivity convergence (or divergence) at NUTS-1 level was determined within or between sectors, and by labour reallocation. While labour productivity was central to the pattern of Italy’s regional development until the 1970s, from that moment on, the main driver of North-South divergence has been the participation rate.