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08.07.2016

Structure of the labour market and wage inequality: evidence from European countries

verfasst von: Rosalia Castellano, Gaetano Musella, Gennaro Punzo

Erschienen in: Quality & Quantity | Ausgabe 5/2017

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Abstract

The aim of this paper is to explore how the structural changes that have occurred in the labour market, in terms of employment composition by skill levels, affect wage inequality in three developed countries of Western Europe that are in close geographical proximity but have disparities in their labour market characteristics. More precisely, the analysis compares, from an international perspective, France, Germany—whose labour markets have been characterised in recent years by job polarization and the upgrading of occupations, respectively—and Italy, where neither of the two phenomena can be clearly identified. Using EU-SILC (European Union—Survey on Income and Living Conditions) data, in the first step, RIF-regression (Recentered Influence Function) enables an exploration on the primary factors that are likely to explain the differences in generating personal labour earnings and, in the second step, a decomposition of the change in wage inequality between 2005 and 2013 to evaluate how much of the overall gap is accounted for by the endowments in employees’ individual characteristics (composition effect) rather than the capability of labour markets to transform these characteristics into job opportunities and earnings (wage structure). Regarding France and Germany, the main results highlight how the endowment effect plays a key role in decreasing or, at least, not increasing wage inequality, whereas in Italy the rising inequality may be due to the lower efficiency of the country’s labour market in creating job opportunities, better job-related careers, and higher-salaries for employees.

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In brief, following Eurostat (2010), high-skill jobs include: (1) Legislators, senior officials, and managers; (2) Corporate managers; (3) Physical, mathematical and engineering science professionals; (4) Life science and health professionals; (5) Teaching professionals; (6) Other professionals (including business, legal, social science); (7) Physical and engineering science associate professionals; (8) Life science and health associate professionals; (9) Teaching associate professionals. Middle-skill jobs comprise: (1) Managers of small enterprises; (2) Other associate professionals; (3) Office clerks; (4) Customer service clerks; (5) Personal and protective service workers; (6) Models, salespersons, and demonstrators; (7) Building and extraction trades workers; (8) Metal, machinery and related trades workers; (9) Precision, handicraft and printing workers. Finally, low-skill jobs embrace: (1) Skilled agricultural and fishery workers; (2) Other craft and related trades workers (including food processing, textile); 3) Stationary plant and machine operators; (4) Machine operators and assemblers; (5) Drivers and mobile plant operators; 6) Sales and services elementary occupations; (7) Agricultural, fishery and related labourers; (8) Labourers in mining, construction, manufacturing and transport.

The conditions that allow one to identify the parameters of the counterfactual distribution are ignorability, which states that the distribution of the unobserved explanatory variables in the wage determination is the same across groups 1 and 0, and overlapping support, which requires that there be an overlap in observable characteristics across groups in the sense that there is no covariate such that it is only observed among individuals in group 1.

For Italy and exclusively for the year 2005, the gross wage was approximated by using the gross monthly income, considering the months during which the employee has experienced a paid employment.

In the EU-SILC framework, formal education is measured along a simplified version of the International Standard Classification of Education (ISCED-97), which has six main categories of education attainment: pre-primary (0) and primary (1) education, lower (2) and upper (3) secondary education, post-secondary non-tertiary (4) education, and first- and second-stage (5) tertiary education.

For the year 2013 the variable experience was not available, and only in that case, it was approximated as the difference between the current age and the school-leaving age.

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Titel: Structure of the labour market and wage inequality: evidence from European countries
verfasst von: Rosalia Castellano
Gaetano Musella
Gennaro Punzo
Publikationsdatum: 08.07.2016
Verlag: Springer Netherlands
Erschienen in: Quality & Quantity / Ausgabe 5/2017
Print ISSN: 0033-5177
Elektronische ISSN: 1573-7845
DOI: https://doi.org/10.1007/s11135-016-0381-7

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