Regional wage and productivity in Italy: a spatio-temporal analysis

This paper analyses the empirical functioning of the regional labour market in Italy (21 Italian regions over the period 1995-2015). Starting from centralized union bargaining, it derives a micro-founded theoretical long-run relationship between the nominal wage per worker and average labour productivity. The long-run equation is then empirically verified using cointegration analysis, controlling for time and space dependence. It is found that labour productivity has a positive impact on determining the nominal wage per worker. The magnitude of the impact is, on average, 0.28 when considering both direct and indirect (spillover) effects. According to the results, regional policies aimed at reducing local disparities must foster labour productivity, particularly in the south of the country.