What’s behind increasing wage inequality? Explaining the Italian case using RIF-OLS

This paper aims to identify how and to what extent the Italian labour market structure, in terms of job composition and institutional changes, shaped the dynamics of wages and wage inequality in the decade between 2007 and 2017. We investigate the main determinants behind the rise in wage inequality in Italy by using Recentered Influence Function (RIF) regressions. This econometric approach allows—on the one hand—to directly assess the effects on the unconditional distribution and on “beyond the mean” statistics, like the Gini coefficient. On the other, it decomposes inequality into endowment and wage effects, following the standard Oaxaca-Blinder technique. We observe that working structures and institutional changes—contractual arrangements (permanent vs temporary contracts) and working hours (fulltime vs part-time)—are the main factors in explaining the deterioration in wages at the bottom of the income distribution scale, and the consequent increase in wage inequality.