The project will focus on features, trends and drivers of market income inequality, where we consider all incomes from market sources before tax and transfers redistribution. Actually, empirical evidence shows that in all countries the bulk of personal inequality is imputable to gross earnings and capital incomes and market income inequality has increased at a much faster pace than disposable income inequality. Likewise, available data show a worrying decreasing pattern of the wage share, the usual indicator of functional distribution.
The project contributes to the literature about economic inequality pursuing two main broad objectives, each developed in a research line (RL) with various papers as deliverables:
i) provide original evidence on personal and functional market income inequality levels, characteristics and trends over a large set of countries - according to different inequality measures and income concepts, and investigating heterogenous effects within and between various population subgroups - also considering the effects of the COVID-19 emergency (RL1);
ii) analyse the role played by main drivers of inequality, also distinguishing structural and institutional/policy drivers, thus providing an overarching picture of the mechanisms behind market income inequality (RL2). In more detail, this RL will inquire the role of major structural drivers - linked to technological change, globalisation, and discrimination against some groups of individuals - and institutional/policy drivers, related to product market competition and macroeconomic policies.
The many papers which will be developed in the project will mostly follow an empirical approach, using several different survey and administrative datasets. Some analyses will concentrate on the case of Italy, while others, according to data availability, will follow an international comparative perspective.
As clarified in the previous section, the project will extensively contribute to the international economic literature on inequality levels, trends and determinants from several perspectives.
First, no exhaustive studies on main trends of market income inequality across EU countries have been carried out so far, especially in the post 2009-2011 crisis period, focusing on various income concepts and providing detailed factor and subgroup decompositions to interpret major drivers behind these trends. Noteworthy, no studies have so far quantified how much of inequality gaps among EU countries are due to different household compositions or to different returns to individual skills across countries.
Second, a set of papers - using original data developed merging administrative and survey data which allow to add crucial characteristics (e.g. education and family background) which are not recorded in INPS administrative archives - will significantly improve the knowledge about long-run trends of earnings inequality in Italy and about the evolution of inequality of permanent incomes across different cohorts and skill groups.
Third, the use of a detailed tax-benefit static microsimulation model will allow us to provide original evidence about the impact of the Covid-19 outbreak on Italian workers and households. By aligning the microsimulation to observed labour market dynamics, this strand of research will also show the effect on inequality within workers who differ by some features (e.g. tele-workability, degree of routinisation of their job) which might significantly affect their capacity not to loose from the post-Covid recovery.
Using high-dimension administrative INPS micro-data, we will inquire some issues never investigated so far in Italy (and studied only in the very few countries where proper administrative data are available) as the income dynamics of top-earners and the connection between market competition and concentration and, on the one hand, workers prospects and, on the other hand, firms¿ performances and personal and functional inequality within the firm.
The crucial issue of the link between robotisation and workers prospects will be also analysed for the first time in Italy by using an innovative dataset developed merging administrative workers histories with data on the time-varying use of robots in the various NACE sectors.
Administrative workers histories will also provide the basis to examine how workers employment and earnings patterns evolve overtime according to their parental background. Coupling this evolution with labour market characteristics and reform will allow us to contribute to the economic literature providing an empirical setting proper to identify the source (i.e. unobserved abilities vs social connections) of a possible wage premium for those coming from a better background, an issue very difficult to analyse because of conceptual and data limits.
Finally, the project will innovate with respect to the current state of the art by investigating - through proper and frontier empirical techniques - the determinants of the wage share in major developed countries, devoting a specific attention to the identification of the effect of fiscal and monetary policy stances on the wage share.
Therefore, the multifaceted results of the project will provide robust scientific evidence for researchers, policymakers and stakeholders - at local, national and EU level - interested in trends and determinants market income inequality. The research objectives we will pursue are expected to generate significant impact, encompassing:
1. The assessment of patterns and characteristics of functional inequality and personal market income inequality in Italy and major EU and developed countries.
2. The investigation of the role played by major structural drivers which may affect market income inequality, i.e. technological change, globalisation, workers discrimination.
3. The identification of the role played by institutional and policy factors which may affect market income inequality by changing market equilibria, i.e. product market liberalisations, macroeconomic fiscal and monetary stabilisation policies.
4. The analytical results are expected to provide a consistent framework to interpret trends of functional and personal market income inequality in major developed countries and to indicate main policy implications of these results, thus providing suggestions about the most proper policy mix which, taking into account the other economic policy targets, may help deal with the increase in market income inequality.