Urban Wage Premia, Cost of Living, and Collective Bargaining

In this paper, we estimate the urban wage premia (UWP) in Italy, with its economy characterized by the interplay between collective bargaining and spatial heterogeneity in the cost of living. We implement a reduced-form regression analysis using both nominal and real (in temporalandspatialterms)wages. Ourdatasetforthe2005-2015periodincludes,forworkers’ characteristics,uniqueadministrativedataprovidedbyItalianSocialSecurityInstituteand, for the local CPI computation, housing prices collected by Italian Revenue Agency. For employees covered by collective bargaining, we find a zero UWP in nominal terms and a negative and non-negligible UWP in real terms (-5%). To capture the role played by centralized wage settings, we also consider various groups of self-employed workers, who are not covered by nationallabouragreements,whilelivinginthesamelocationsandenjoyingthesameamenities as employees. We find that the UWP for self-employed workers are up to 25 times greater thanforemployees. Moreover,sortingprovesmorenotableinthecaseofself-employedworkers, i.e. the larger UWP provide the higher incentives for high-skilled individuals and better firms to locate in cities. Our findings are confirmed on extending the analysis along the wage distribution.