Earnings inequality and workers’ skills in Italy

Abstract

The increasing trend of earnings inequality observed in many countries is usually ascribed to a higher premium to skills, commonly proxied by education. Focusing on Italy, a country characterized by a steep rise in earnings inequality since the ‘90 s, we aim at verifying whether this trend is attributable to education. Making use of administrative data about private employees, we carry out Theil decompositions and estimate wage equations to investigate how much of this trend is linked with education and other observable worker’s and firm’s characteristics. We find that the rise in earnings inequality is explained by the “within education” component, rejecting the idea that it is due to a higher premium for the high-skilled. Furthermore, controlling for workers’ and firms’ characteristics in wage regressions – also including workers’ literacy and numeracy recorded in OCED-PIAAC – we find that level and trend of earnings inequality are not explained by these characteristics.