Public Sector Reforms and the Evolution of Wage Inequality: Evidence from Italy

Using the SHIW-Bank of Italy data for the period 1993-2004, we show that the 90/10 inequality index increased by 11% in the Italian public sector. By applying a quantile decomposition analysis we point out that the increase of wage inequality is driven by the positive effect of the residual component in the upper tail of the wage distribution. We relate the increase of the residual-within wage inequality to the reforms in the wage setting system introduced in 1993 and 1998 that allow public employees with the same observable characteristics to be paid differently in different administrative units or even in the same units if assigned to different tasks.