Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy

We study the evolution of the wage differentials between skilled and unskilled workers in Italy from 1977 to 2004. In this period, the differentials do not show a clear trend (save for a feeble increasing trend in the very last years), but they fluctuate widely around a fairly stable mean. There are four possible factors that influence the evolution of those differentials. The first is the relative supply of skilled workers, as an increase in their supply reduces their relative wage. The second is technological change, which could be skill-biased and could increase the gap. The third is international commerce, which increases the competition from less developed country, possibly reducing the wage of the less skilled. The last is related to the institutions in the labour market, which could affect the distribution of earnings and the way in which wages respond to changes in the relative labour supply. After discussing these theoretical aspects, we perform an econometrical analysis for the Italian case with the SUR estimation technique, and we test which of these factors are important in explaining the evolution of the differentials.