Working on the Train? The Role of Technical Progress and Trade in Explaining Wage Differentials in Italian Firms

This paper presents firm-level evidence on the dynamics of the relative demand for non-manual workers in Italian manufacturing during the 1990s. The analysis provides a number of interesting results. First, within-firm skill upgrading is the main determinant of the increase in the non-manual wage bill share. By contrast, demand changes associated to trade have shifted employment away from skill-intensive firms. Second, while the relative number of hours worked by skilled workers within firms has risen, the hourly wage premium has fallen. Third, within-firm skill upgrading is strongly and significantly related to investment in computers and R&D, suggesting skill-biased technical progress as the main explanation for the increase in the relative demand for non-manual workers. Finally, the paper shows that failing to disaggregate annual wages into the number of hours worked and hourly wages, leads to underestimate the skill-bias of technical progress. ∗We thank ISTAT for kindly providing the data for this study. We are indebted to Silvia Prina for excellent research assistance. Giorgio Basevi and Paolo Epifani provided useful comments. †Corresponding author. Department of Economics, University of Bologna, Strada Maggiore 45, 40100, Bologna, Italy. Telephone: #39 51 209 2613. E-mail: [email protected] ‡University of Milan-Bicocca. Piazza dell’Ateneo Nuovo 1, 20126 Milano, Italy. Telephone: #39 2 6448 6655. E-mail: [email protected]