Skill upgrading and wage gap: a decomposition analysis for Italian manufacturing firms

The paper investigates the evolution of the employment and wage structure of Italian manufacturing firms in the early 2000s. It implements a decomposition analysis that breaks the variation in the skilled-wage bill ratio down into employment and wage movements and further disentangles these movements into shifts between or within sectors, and within sectors, between, or within firms. The study provides a methodological framework which consistently combines the industry-level analysis with the firm-level one, and which simultaneously takes account of changes in skill intensity and the wage gap. The results suggest that most of the changes are reported within firms, where one observes a skill-upgrading effect not followed by a price adjustment. The increase in the relative employment of skilled workers and the decrease in the wage gap between high- skilled and low-skilled workers can be substantially attributed to changes in exporters and importers and in more productive firms. Finally, the paper further accounts for changes in the hourly wage premium and skill intensity, and it shows that the annual wage gap is induced by a substantial fall in the hourly wage premium and by an increase in the numbers of hours worked by the skilled factor.