Wages and competencies. An Econometric Investigation in the Italian manufacturing industry

The main purpose of this thesis is to analyse the interaction between wages and competencies in the Italian manufacturing industry. Many problems of the Italian economy are related with a stationary, if not decreasing, productivity. The level of wages affects not only the efficiency of the economic system, but also equity between several social groups, unemployment, inflation rate and consumption levels. In the ‘new-economy’, ‘competency-based’ wage-setting systems have beneficial effects on employees, employers, and the overall economic system. Nonetheless, only few firms in Italy formally adopt ‘pay-for-competence’ wage-setting mechanisms, and little is known regarding the most productive competencies and the ones most paid by the market.
The international literature has widely discussed the cause-effect relationships among education, ‘on-the-job’ training, ‘hard’ and ‘soft’ competencies, ICT competencies, ‘key’ competencies, managerial quality, organizational innovation, and wages. And many other variables affecting wages contribute to develop a theoretical framework that allows to study wages and their determinants. The Italian labour market and its contracts have some country-specific peculiarities mainly due to the national and decentralized bargaining process between employers and unions. A study of wages in the Italian manufacturing industry must take into account these institutional peculiarities.
This thesis employs an innovative database encompassing information regarding ‘expressed’ and ICT workers’ competencies. Cross-section data belong to a national survey realized by the Italian institute for the development of vocational training of workers (ISFOL) in 2004. The hedonic wage function allows controlling for several features (characteristics of the company, of the respondent, and of the job position), and it is estimated with weighted OLS, checking for heteroscedasticity. Endogeneity is tested with 2SLS and GMM estimators. The purpose of the econometric investigation is to understand whether more skilled workers are more rewarded within the same industry and occupation, and other factors being equal.
Results suggest that employers pay higher wages to workers with a positive competency differential; and, at the same time, they pay lower wages to those with a negative competency differential, even though this wage heterogeneity is not formally recognized by labour contracts. In particular, it is not the absolute level of competencies to be rewarded, but the difference between the competencies of single workers and the average level of competencies of their competitors.
Moreover, ICT competencies are likely to require time before becoming productive and paid by the market. Or, vice versa, they are gradually loosing their wage premium during the evolution of the ‘new economy’. Another possible explanation is that some ‘expressed’ competencies might hide the remuneration of ICT ones. However, only panel data would allow studying ICT competencies over time, and to find a final solution to endogeneity problems.
Some implications of economic policy follow from empirical results. Firstly, wage-setting systems should increasingly consider the role of competencies. Secondly, the educational system should focus on the development of the most productive competencies. And results of this investigation seem to support the idea that overall ‘expressed’ competencies are the most productive, rather than ICT ones.