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

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Abstract ............................................................................................................................ i!
1. Introduction ................................................................................................................ 1!
2. Economic policy and wage-setting systems in the ‘new economy’ ......................... 5!
2.1 Introduction ....................................................................................................................... 5!
2.2 The importance of wages, a systemic view ...................................................................... 6!
2.2.1 Wages within the macroeconomic system ................................................................... 6!
2.2.2 Equity and efficiency ................................................................................................... 7!
2.2.3 Unemployment and wages: the missing link to productivity ...................................... 9!
2.2.4 Inflation rate .............................................................................................................. 11!
2.2.5 Consumption levels ................................................................................................... 12!
2.3 Drivers of the ‘new economy’ ........................................................................................ 12!
2.3.1 Within the company, from macro to micro ............................................................... 12!
2.3.2 Profits and ICT adoption ........................................................................................... 13!
2.3.3 Complementarity between ICT and organizational innovation. ................................ 15!
2.3.4 From micro to macro ................................................................................................. 16!
2.4 Wage-setting systems ...................................................................................................... 18!
2.4.1 Incentive schemes ...................................................................................................... 20!
2.4.2 Effective and efficient wage parameters ................................................................... 24!
2.4.3 Other dimensions to be considered ............................................................................ 26!
2.4.5 Concluding remarks ................................................................................................... 27!
2.5 Economic policy implications ......................................................................................... 28!
2.5.1 Efficiency and productivity ....................................................................................... 28!
2.5.2 Equity and consumption ............................................................................................ 29!
2.5.3 Unemployment, occupability and education ............................................................. 30!
2.5.4 Inflation and consumption ......................................................................................... 31!
2.6 Other implications and recommendations .................................................................... 31!
2.6.1 Implications and recommendations for workers and unions ..................................... 32!
2.6.2 Implications and recommendations for companies, from strategy to tactic .............. 32!
2.6.3 Converging interests through HPWO ........................................................................ 33!
2.7 Conclusion ....................................................................................................................... 36!
3. Literature review ...................................................................................................... 39!
3.1 Introduction ..................................................................................................................... 39!
3.2 The wage according to different theoretical frameworks ........................................... 40!

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3.3 Wage determinants ......................................................................................................... 41!
3.3.1 Sources of information .............................................................................................. 41!
3.3.2 Education and training ............................................................................................... 42!
3.3.3 Hard and soft competencies ....................................................................................... 43!
3.3.4 ICT competencies ...................................................................................................... 43!
3.3.5 ‘Expressed’ competencies ......................................................................................... 46!
3.3.6 Managerial quality and organizational innovation .................................................... 46!
3.3.7 The complementarity between competencies and organizational innovation ........... 47!
3.3.8 Other determinants .................................................................................................... 48!
3.4 The Italian case ............................................................................................................... 51!
3.4.1 The current situation .................................................................................................. 52!
3.4.2 The EPL index ........................................................................................................... 54!
3.5 Research question and hypothesis ................................................................................. 59!
3.6 Conclusion ....................................................................................................................... 61!
4. Econometric investigation ........................................................................................ 65!
4.1 Introduction ..................................................................................................................... 65!
4.2 Empirical model .............................................................................................................. 66!
4.3 The database .................................................................................................................... 66!
4.3 Dependent variable and sample size ............................................................................. 68!
4.4 Control variables ............................................................................................................. 69!
4.4.1 Industry ...................................................................................................................... 69!
4.4.2 Union ......................................................................................................................... 72!
4.4.3 Size ............................................................................................................................ 72!
4.4.4 Ownership .................................................................................................................. 73!
4.4.5 Gender ....................................................................................................................... 74!
4.4.6 Experience and seniority ........................................................................................... 74!
4.4.7 Occupation ................................................................................................................. 75!
4.4.8 Working time, part-time and shifts ............................................................................ 75!
4.4.9 Geographical area ...................................................................................................... 76!
4.4.10 Education ................................................................................................................. 77!
4.4.11 Training ................................................................................................................... 79!
4.4.12 Temporary contracts ................................................................................................ 79!
4.5 Preliminary model ........................................................................................................... 80!
4.5.1 Preliminary hedonic wage function ........................................................................... 80!

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4.5.2 Preliminary empirical results and discussion ............................................................ 82!
4.6 Core variables .................................................................................................................. 87!
4.6.1 ‘Expressed’ competencies ......................................................................................... 87!
4.6.2 Discretion, commitment and responsibility ............................................................... 88!
4.6.3 ICT competencies ...................................................................................................... 89!
4.7 Models including core variables .................................................................................... 91!
4.7.1 Hedonic wage function .............................................................................................. 91!
4.7.2 ‘Expressed’ competencies ......................................................................................... 91!
4.7.3 Discretion, commitment and responsibility ............................................................... 94!
4.7.4 ICT competencies ...................................................................................................... 95!
4.7.5 Competency differentials ........................................................................................... 97!
4.8 Further estimates ............................................................................................................ 98!
4.8.1 Endogeneity ............................................................................................................... 98!
4.8.2 IV method and instrumental variables ....................................................................... 99!
4.8.3 Empirical results ...................................................................................................... 101!
4.9 Discussion and implications ......................................................................................... 104!
4.10 Econometric investigation limitations ....................................................................... 107!
4.11 Advices for future research ........................................................................................ 108!
4.12 Conclusion ................................................................................................................... 109!
5. Conclusion ............................................................................................................... 111!
6. Bibliography ............................................................................................................ 117!
Appendix ...................................................................................................................... 123!
A. Weighted OLS regression, log monthly wage .............................................................. 123!
B. Weighted GMM regression, log monthly wage ........................................................... 124!