The demand-side of wage determination. Firm heterogeneity as a possible driver of earnings inequality
Evidence that standard demographic characteristics and human capital variables explain at most one-third of wage variance in Mincerian earnings equations opens to the possibility that the earnings distribution resulting from the labour market does not simply mirror differences in skill endowments. After a descriptive analysis of the evolution of
inequality among private employees in Italy between 1990 and 2016, we explore the possibility that the time pattern of wage dispersion can be explained not only through changes in the heterogeneity of workers (in terms of socio-demographic characteristics and of skill endowments) but also looking at the demand side of the labour market.
Exploiting the linked employer-employee nature of a panel of Italian administrative data, we apply the AKM (Abowd, Kramarz and Margolis (1999)) methodology and conclude that a non-negligible part of wage variance can be explained by unobservable differences between the firms in which the workers are employed.