Technological externalities and wages: new evidence from Italian provinces

In this paper, we investigate the relationship between local wages and the internal structure of the regional knowledge base. The purpose is to assess if the workers’ compensations are related to the peculiarities of the technological space where they supply their labor services. To test this hypothesis, we apply the concepts of related and unrelated variety to the firms’ patenting activity as to assess if wages grow more in a framework of ‘knowledge deepening’ (generated by firms innovating in related technological domains) or in one of ‘knowledge widening’ (generated by firms innovating in unrelated technological domains). The empirical analysis is carried out using a unique employer-employee dataset containing administrative data. First, using OECD-PATREG data on patent filing, we build two information entropy indexes that capture the degree of technological relatedness in the regions’ innovative activities. Second, we assess the impact of these indexes on individual wages. Our results suggest that workers employed in regions with a diversified knowledge structure earn positive wages premia, while technological specialization has a negative effect on compensation levels.