The institutional wage adjustment to import competition: evidence from the Italian collective bargaining system

Abstract

A growing body of research has contributed to understanding the labour market and political effects of globalization. This article explores an overlooked feature of trade-induced adjustments in the labour market: the institutional aspect. We take advantage of the Italian collectively bargained minimum wage system, which is based on a two-tier structure, whereby the first tier entails setting minimum wages at the national contract level. Using an instrumental variable strategy and exploiting variations in contract-level exposure to trade, we find for the 1995–2003 period that, on average, the surge in imports decreased contractual minimum wages by 1.5%. This impact increases in the share of unskilled workers employed in the contract. This negative institutional effect contrasts with a non-significant effect of trade on total wages, with the latter becoming positive and large only for highly skilled workers.

Employer associations in Italy: Trends and economic outcomes

“…According to our results, the dynamics of negotiated wages seem to respond only weakly to business cycle conditions and productivity, while they tend to adjust more than proportionally to the cost of living. The former evidence seems to be overall coherent with previous evidence on Italy (Rosolia, 2015; Matano et al., 2022) and other European countries (e.g. Martins, 2021).…”

“…The dynamics of productivity and business cycle conditions within contracts have even smaller or not significant effects on contractual wages, a result consistent with previous evidence showing a quantitatively small sensitivity of wages to product market and unemployment dynamics at the Italian and European level (e.g. Rosolia, 2015; Matano et al., 2022; Martins, 2021, and Card & Cardoso, 2022). The consumer price index was the only variable exerting a strong influence on contractual wages, for which we found an elasticity above 1, implying that bargained pay levels were more than proportionally adjusted for the cost of living during the study period.…”

“…Avouyi‐Dovi et al., 2013). On this respect, some studies on Italy have found a negative relationship of unemployment and the exposure to international competition with contractual wages set through collective bargaining, even if these associations were quantitatively small (Rosolia, 2015; Matano et al., 2022).…”