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Title: Wage compression within the firm

Author(s): Marco Leonardi, Michele Pellizzari and Domenico Tabasso

Publication Date: August 2015

Keyword(s): inequality, intra-firm bargaining, labor market institutions and wage indexation

Programme Area(s): Labour Economics

Abstract: We study the distributional effect of a wage indexation mechanism - the \textit{Scala Mobile} (SM) - that heavily compressed the distribution of Italian wages during the 1970s and 1980s. The SM imposed large real wage increases at the bottom of the distribution and was essentially irrelevant for high-wage workers. We document that this mechanism triggered a strong redistribution within the firm. Skilled workers received lower wage adjustments when employed at firms with many unskilled workers and they tended to move towards more skill-intensive firms. We rationalize these findings with a simplified model of intra-firm bargaining with on-the-job search.

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Bibliographic Reference

Leonardi, M, Pellizzari, M and Tabasso, D. 2015. 'Wage compression within the firm'. London, Centre for Economic Policy Research. http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10770