Francesco Vona on Competition, Firm Size and Returns to Skills: quasi-experimental evidence for Italy

Speaker:  Francesco Vona - Sciences Po
  Monday, May 5, 2014 at 12:30 PM Aula H, Palazzo di Economia

We assess the impact of three quasi-natural experiments on returns to several types of skills, i.e. the 1993 Lira devaluation, the pre-euro 1997 Lira revaluation and of the process of market liberalization of the late 90s-early00s. We follow Guadalupe (2007) by assuming that the impact of the first two shocks is mediated by the sectoral trade exposure. For the liberalization shock, we follow Bassanini and Brunello (2011) by maintaining that competition increases only in three sectors: transport, energy and communication. Both types of experiments show that post-shock returns to skill increase in sectors that are more exposed to competition. In turn, the devaluation of the Lira in 1993 decreases returns to skills consistently with complementary evidence in Bugamelli et al. (2010). On average, instead, real wage premia decrease in sectors more exposed to competition. Finally, the increase in the skill premia occurs in large and especially medium-sized firms. This novel result appears as the combination of two contrasting forces: 1. medium firms compete to attract the best workers and so pay higher skill premia, 2. large firms are forced to pay higher skill premia, but are also characterized by rent sharing with unions reducing returns to skills.

Programme Director
Andrea Roventini

Publication date
February 5, 2014