Wage flexibility in regional labour markets: Evidence from Italy and Germany

Andreas AmmermŘller 1, Claudio Lucifora2, Federica Origo3, Thomas Zwick4
1BMAS, Germany, 2UniversitÓ Cattolica di Milano, Italy, 3UniversitÓ degli Studi di Bergamo, Italy, 4LMU, Germany

This paper investigates the functioning of regional labour markets in Italy and Germany for different employee groups and regions. We derive theoretical hypotheses on group specific correlations between regional unemployment and individual wages distinguishing between regions. Using micro data matched to local unemployment rates, we specify and empirically test wage equations. For Italy we find no evidence in favour of a relationship between wages and local unemployment. In Germany results appear to be sensitive to model specification and type of employees. In both countries, the reaction of wages to local unemployment varies significantly along the wage distribution, being more sensitive around median quantiles.

View full paper