Urban Wage Premia, Cost of Living, and Collective Bargaining

Abstract

In this paper, we estimate the urban wage premia (UWP) in Italy, with its economy characterized by the interplay between collective bargaining and spatial heterogeneity in the cost of living. We implement a reduced-form regression analysis using both nominal and real (in temporal and spatial terms) wages. Our dataset for the 2005-2015 period includes, for workers’ characteristics, unique administrative data provided by Italian Social Security Institute and, for the local CPI computation, housing prices collected by Italian Revenue Agency. For employees covered by collective bargaining, we find a zero UWP in nominal terms and a negative and non-negligible UWP in real terms (-2.6% when all controls are included). To capture the role played by centralized wage settings, we also consider various groups of self-employed workers, who are not covered by national labour agreements, while living in the same locations and enjoying the same amenities as employees. We find that, differently from employees, self-employed workers enjoy a positive UWP in nominal terms, and do not suffer from urban real wage penalties. Results hold under a large array of robustness checks.