Abstract
Abstract This paper analyses wage dynamics in Italy in the last 25 years with a special focus on the recent recession. Despite the rather rigid Italian institutional setting, using linked employer-employee data we find that wage rigidities, albeit always present, have been subdued during the recessionary years. Using complementary data, we verify that, although we only observe daily and not hourly wages, overtime hours are not the main mechanism behind this enhanced wage flexibility. We document the presence of a trade-off between wage and employment adjustments: firms historically displaying higher levels of wage rigidities were less able to modify wages but exhibited higher turnover. A higher share of temporary workers, whose contractual relationship may be costlessly terminated and whose wages are therefore more frequently negotiated, served instead as a significant wage flexibility enhancing margin. More broadly, we find that firms of larger dimension, with a higher share of blue collar workers, or belonging to a sector where bonuses represent a large part of annual earnings were the ones displaying a higher level of wage flexibility. JEL Classification J31, J33
Highlights
Understanding what drives wage dynamics is important in order to explain why aggregate wages tend to be much less volatile over time than what standard macroeconomic models predict (Fig. 1)
We find that firms of larger dimension, with a higher share of blue collar workers, or belonging to a sector where bonuses represent a large part of annual earnings were the ones displaying a higher level of wage flexibility
7 Conclusions In this paper, we document the evolution of wage rigidities over time in Italy and we find that during the recent recession wage flexibility has increased
Summary
Understanding what drives wage dynamics is important in order to explain why aggregate wages tend to be much less volatile over time than what standard macroeconomic models predict (Fig. 1). We study whether firms that are historically characterized by high wage rigidities adjusted employment more during the recent recession and whether in this way they managed to contain their average wage per employee.
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