Working on the Train? The Role of Technical Progress and Trade in Explaining Wage Differentials in Italian Firms

Abstract

This paper presents firm-level evidence on the dynamics of the relative demand for non-manual workers in Italian manufacturing during the 1990s. The analysis provides a number of interesting results. First, within-firm skill upgrading is the main determinant of the increase in the non-manual wage bill share. By contrast, demand changes associated to trade have shifted employment away from skill-intensive firms. Second, while the relative number of hours worked by skilled workers within firms has risen, the hourly wage premium has fallen. Third, within-firm skill upgrading is strongly and significantly related to investment in computers and R&D, suggesting skill-biased technical progress as the main explanation for the increase in the relative demand for non-manual workers. Finally, the paper shows that failing to disaggregate annual wages into the number of hours worked and hourly wages, leads to underestimate the skill-bias of technical progress. * We thank ISTAT for kindly providing the data for this study. We are indebted to Silvia Prina for excellent research assistance. Giorgio Basevi and Paolo Epifani provided useful comments.

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