The permanent vs fixed-term contract wage-gap: an empirical analysis of the Italian case.

Università di Pisa

Scuola superiore Sant’Anna

MASTER OF SCIENCE IN ECONOMICS

Department of Economics and Management

The permanent vs fixed-term contract

wage-gap: an empirical analysis of the

Italian case

Master Thesis by

Supervisors

Prof. Federico Tamagni

Valeria Cirillo

Candidate

Marco Scelzo

Contents

1 Introduction 1

2 Reforms in Italian Labour Market 3

3 The role of fixed term contracts 9

3.1 Theoretical background . . . 9

3.2 Empirical literature . . . 13

4 The Data 19 4.1 The Structure of Earnings Survey . . . 19

4.2 Definition of the Variables . . . 20

4.3 Descriptive Analysis . . . 22

5 Estimation and Decomposition Analysis 27 5.1 Regression Analysis . . . 27

5.1.1 The Empirical Model . . . 27

5.1.2 The Results . . . 28

5.2 The Decomposition . . . 43

5.2.1 Oaxaca-Blinder Method . . . 44

5.2.2 The results of Oaxaca-Blinder decomposition . . . 45

Chapter 1

Introduction

The Italian labour market, historically, has been characterized by the recruitment

through full- time and permanent contracts featuring d by a high level of protection, especially against dismissal, and a relatively generous benefits. This characteristic

is usually seen as introducing too high costs and, more generally, too high rigidities distorting the labour market. In this context, the opening up of the market to

flexible jobs is seen as the main policy tool to sustain employment dynamics. As a consequence, starting from the Nineties, several regulatory reforms have encouraged

the use of fixed term contracts and other atypical contractual forms.

Part of theoretical literature has emphasized possible negative effects that come

out after the introduction of temporary contracts. The empirical literature seems to confirm some of the critiques, especially looking at the wage gap, that arises between

workers covered by fixed term versus permanent contracts.

The aim of this thesis is to provide an empirical analysis of the wage gap between

fixed term and permanent contracts in Italy over the period 2002-2010. The analysis exploits data from the Structure of Earnings Survey (SES), released every four

year by Eurostat, allowing to follow the evolution of the wage gap in the years corresponding to the SES waves released in 2002, 2006 and 2010.

The analysis consists of two different exercises. The first exercise, via a simple regression model, addresses the existence of the wage gap over the years, and tries

to identify the factors that affect the wage differences across workers, checking also the robustness of the results via a fixed effect model. The second exercise exploits

the Oaxaca Blinder decomposition to understand which part of the observed wage

gap between contractual forms, can be explained by observed workers and firm characteristics, and the part that is not explainable. The results show a negative

wage gap against the interest of fixed term workers and, according to the Oaxaca Blinder decomposition, at least part of the gap is not explainable by observable.

The structure of the work is the following. Chapter 2 describes the major re-forms implemented in the Italian labour market, with a specific focus to the changes

regarding contractual forms. Chapter 3 provides a review of the theoretical and empirical literature. Chapter 4 presents a description of the SES dataset, of the

variable used in the analysis, and some descriptive statistics. The core empirical exercises and the results are then presented in Chapter 5. Chapter 6 discusses the

Chapter 2

Reforms in Italian Labour Market

Although the introduction of flexible contractual forms started in the mid of the

fifties of the last century, the process of flexibilization of the Italian labour market has mostly developed through a number of reforms adopted in the Nineties of the

last century and in the first decade of the 2000s. In this chapter, the focus will be on the reforms occurred between the end of nineties and the beginning of the 2000,

with a specific emphasis on the introduction of fixed term contracts and apprentice contracts, since these types of contracts are those captured in the following empirical

analysis.

Apprenticeship contracts were introduced into the legal system with the Law n.25/1955, which Di Domenico and Scarlato (2014) defined as the first structural

Law addressing “flexibility”. In the Law the contract is defined as a special rela-tionship between the employer and the worker. The main element to stipulate the

apprentice contract was the formal and practical training that the employers have to provide to the workers in order to create specific competences suitable to be specific

needs of the firm. The Law n.25 establishes the maximum duration of the contract in 5 years and the wages have to be proportionate to the length of service in the

firm. A constraint to the application was the age of the workers. In fact it was possible to hire only young persons, between 15 and 20 years old. The Law have

established also a system of economic incentives.

The other contractual form considered in the analysis is the fixed term contract, which were introduced in the Italian legal system with the Law n.230/1962. The

main characteristic of the fixed term contract is the limited length, so the

determination of the duration. The legislator imposed strict rules to the use of the new contractual form, limiting its adoption to particular circumstances, sectors and

activities, such as seasonal work, replacements of workers on sick leave or maternity leave, and other extraordinary and occasional jobs. The contractual relationship

between the workers and the employers was renewable only once and in case of violation the conversion in permanent contract was immediate. The article 5 of the

Law, specifies that the new fixed term workers are subject to the national collective contracts, and have the same benefits of employees hired with a permanent contract.

Many forms of abuse are regulated and have as effect the conversion into permanent contract.

The process of flexibilization of labour market did not continue in the seventies, which were characterized by the introduction of the “Statuto dei lavoratori” (Law

n.300/70), and some interventions regarding social security related to collaboration and the discipline of the trials.

Another important contractual form, the so called “Contratto di Formazione e

lavoro”(CFL), was introduced in the first half of the Eighties (Law n.79/1982). The new contractual form is seen as a measure to sustain the first job and entry in the

market, in fact the norm specifies that only the workers between 15 and 29 years old have the possibility to sign the new type of contract. Much as the apprenticeship, the

CFL has essentially a training scope, and cannot overcome a twelve month duration. The limit of twelve month, was derogated in 1984 by the Law n. 863 enlarging the

maximum length of the CLF contract to 24 months. The employers are obliged to produce a report about the specific training activities. The contract is subject to

the rules provided in the national contracts, and also the conversion into open ended contract is regulate.

The Law n. 28/1986 introduced a modification of the rules about temporary contracts, imposing that the percentage of temporary workers compared with the

permanent, also establishing the cases in which it is possible to overcome the re-striction. The important novelty of the reform is the introduction of public work

agencies, which are regional agencies with the aim to favoring the match between demand and supply, increasing the employability opportunities, specifically for the

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labour market.

The Nineties started with the end of fixed indexation of the wages to inflation

in 1992, while in 1993 a new collective bargaining structure was introduced. The national level bargaining, is accompained by a firm/regional level based on the

productivity pay scheme. In 1994 a reduction into the cost of the fixed term contracts was introduced and the applicability of the CFL contract was extended to a wider

rage of sectors.

In 1997 there was the promulgation of one of the reforms that have mostly

pushed toward higher flexibility of the labour market. The Law n.196/19971 _{, the}

so called “Pacchetto Treu”, introduced new contractual forms, and modified the

existing ones. In the first article of the Law there is the definition of the new temporary work contract via job agency.

The scheme is composed by a job agency which assigns one or more temporary workers to a firm that use the workers to satisfy the specific needs of the production.

The contract, in a written form, is signed by the employment agency and the firm. The content, but also the motivation, and the limits of the contract are specified

by the Law. The same article are defines the cases that allow a firm to sign the temporary contract, so in the cases provided by the national contract to specific

position and in case of illness of workers.

All the relations that arise in that triangular contract are regulated, that is about the relation between the workers and the employment agency, and between the firm

and the employment agency. From the point of view of the workers, contract can be temporary or permanent. In case of permanent contract, the worker remains at

the dependence of the agency, while in case of temporary contract the end of the performance into the firm causes the expiration of the contract.

Moreover, specifies also the requirements of the agency in front of the workers, such as the provision of the qualification that the worker need to obtain a future

possibility to be employed.

Concerning wage, the Law is specifies that the wages have to be set at same level

of the wages dependent workers and have to respect the national contract.

1_{Following the European Council Directive NO. 199/70/ Ex of June 1999 in fixed-term}

If, after the expiration of the term, the workers still work into the firm, they have the right to be payed 20% more, and the worker is considered hired with a permanent

contract, if the relationship is still ongoing after 10 days, for the contracts that last less than 6 months, and 20 days for the contracts that last more than 6 months. In

terms of trade union rights, it is guaranteed to the workers the same standard of the other workers in application of the Law n.300/70, the “Statuto dei lavoratori”.

The “Pacchetto Treu” also includes specific prevision about the CFL contract, enlarging the application at public research organizations. Also the apprenticeship

was modified. There was the extension to all sectors, a changes in the age of eligible workers, from 15-25 to 16-24, and a modification of the duration of the contract that

goes from a minimum of 18 months and cannot exceed 4 years. The modifications of both the CFL and apprenticeship are in line with the re-organization of the

professional training, and are introduced with the attempt to favor the coexistence of work and study periods, as well as internships and stages, imposing the limit of

12 months, or 24 months in special case.

The major reforms of the first part of the 2000s are two: the Legislative Decree n.368/2001 and the Law n.30/2003.

The Legislative Decree n.368/2001 states the possibility to impose an expiring date to all the contracts of the workers when technical, productive, organisational

and replacement reasons are present. There are limitations into the renewal of the fixed term contract. In fact only once, when its length is less than three years, and

having an objective cause and referred to the same activity, in any case the contract cannot overcome the limit of the three years. When there are two or more

con-secutive renewals the contract becomes a permanent one. The temporary contract modified by the Law n.196/1997, the CFL and the apprenticeship are excluded from

the new rules, given the pre-existing specific legislation.

The Law n.30/2003, the so called “Legge Biagi” introduced different atypical

contracts with the aim to increase the possibilities to be employed for the groups usually at the margins of the labour market such as young people, those is searching

for the first occupation, and women. That attempt has been accompanied by a sys-tem of public and private services, provided by of employment agencies, that help

7

have to be authorized by the Ministero del lavoro e delle politiche sociali and credited by the Region. The agencies differ on the basis of the activity that are authorized.

They may be specialised in provision of employment opportunities, of intermedia-tion, of search and selection of employees, and support to professional reallocation.

Those services are also offered to the workers by Universities, municipalities, high school and others public authorities.

The Law n.30/2003 extended the limit and the application of the fixed term

contract, and introduced a variety of atypical contracts. The apprenticeship contract maintains the obligation of the employers to offer a professionalization to the worker.

However, a stricter collaboration between the labour market and the educational system, became prominent.2 _{The reform divided the apprenticeship based on the}

formation path of the workers. The first new form of apprenticeship is offers basic education and training,and runs in parallel to the secondary education. In fact, this

type of contract can be signed between 15 and 18 years old and at least for 3 years. Two further types of apprenticeship are provided: the professionalized ones and the

one that aims at specific formation, which is possible to sign by the workers between 18 to 29 and should last from 2 to 6 years. A novelty is the to base the wage, on a

piecework mechanism. The regulatory change regarded also the part-time contracts. That job form can be open ended or fixed term contract, in fact regards just the

reduction of the working time with respect to the full time. It can be horizontal, so that there is a reduction in the daily working time or vertical, where the daily

working time is complete but in a specified period of the week, of the month or along the year. Mixed forms are also possible. The worker hired with a part-time

contract has the same rights of the full-time workers in terms of wages and all the other benefits.

The fixed term contracts extended also to the agricultural sector, however the

core of the Law consists in the a large number of atypical contracts, have enlarged the flexibility of the labour market. The atypical contractual forms are not considered

into the empirical analysis of this dissertation, however they are presented to give the entire picture of the reform.

Starting from the contract of “Somministrazione di Lavoro”, the mechanism

is that the firm is addressed to a private subject who has the task to assign a qualified worker to the specif job. The Law presents two interesting contracts. First

the Job on call contract, it can be permanent or temporary, and the worker make himself/herself available to the employers to particular discontinuous job. For that

contractual form, some limits, and a minimum wage are prescribed. Second, under the Job sharing, contract workers, are allowed to work with more than one employer.

The Law 30/2003 introduced also the “Contratto a progetto”. The fundamental element is the existence of an activity related to the principal activity of the firm

-a project - -and it h-as to be -an intermedi-ate ph-ase of the production th-at h-as to be integrated by another phase in the firm. The Law specifies the class of workers not

allowed to sign this type of contract, and the level of the wage have to be propor-tionate to the quantity and quality of the job. Finally, the occasional work contract

was instituted with the aim to fight the black economy and favor the re-integration of some category of workers excluded from the market, such as unemployed for more

than one year. Some example of the typical activities covered by this contractual form are the housework and the private education.

While the data considered in this dissertation allow to track the Italian labour market until 2010, flexibilization emerges as central topic in policy debate also in

more recent years.

In 2012, with the “Riforma Fornero” (n.92/2012) the apprenticeship contract

assumed the value of first opportunity to enter in the labour market to the youngest and to the workers at their first experience. Moreover, the reform also contains

norms to limit the inappropriate use of flexible contracts.

The so called “Jobs Act” (183/2014), introduced in 2014, reformed both the

permanent contract and the flexible contract, and introduced a new form of open ended contract (the “Contratto a tutele crescenti”) with the aim of promote the use

of permanent contract.

In the chapter it is evident the long process that have introduced the flexibility

on the labour market, started in the fifty with moderate reform and continued into years, up to the big opening of the labour market to flexibility have done into the

nineties, the “Pacchetto Treu” in first instance and then the “legge Biagi” have overwhelmed the Italian situation.

Chapter 3

The role of fixed term contracts

In the theoretical literature temporary jobs are widely debated under different

aspects. A stream of literature has analyzed the positive effect that the fixed term contracts are able to generate, other have explained the negative aspects. This

Chap-ter introduces the general debate about the macroeconomic effects of flexibilization and the theories about the segmentation of the labour market, and it provides a

review of the empirical studies accompanying the debate

3.1

Theoretical background

The literature has widely studied the wage gap between workers and, also

be-tween different types of contract. The introduction of flexible jobs in all the possible forms - so fixed term atypical contract or apprentice - has been widely debated

and studied in the literature, especially considering the effect on labour market and the consequences on the economic system(Hagen, 2003; Nickell, 1997; Jackman and

Nickell, 1999). The reasons and effects of wages gap across workers with a different contractual form has been analyzed. Different approaches have generated different

predictions on how the labour market is expected to respond to flexibilization.

More standard frameworks have highlighted the direct relation between flexibil-ity and the probabilflexibil-ity to move out from unemployment or to obtain a first job.

However A series of studies, has criticized the possibility to have a substitution of the permanent with temporary contract (Kahn, 2010, 2016; Barbieri and Scherer,

2009). Blanchard and Landier (2002) and Cahuc and Postel-Vinay (2002) have cast

doubts about the positive macroeconomic effects of flexibility. In fact, the increase in the turnover due to flexibilization could increase,instead of decrease, the

unem-ployment rate. Another point debated is the reduction of the rigidities caused by the institutions regulating the economic system. In a seminal paper, Bentolila and

Bertola (1990) show that strict rules about lay-offs affect negatively the decision by the firms to hire, so has a negative effect on the employment. Mortensen and

Pissarides (1999) have analyzed labour market flows and job security. According to their paper, a strict regulation on the firing should have a negative effect, starting

from the assumption that a newly-created job has a better remuneration on the market.

In terms of economic growth, Belot et al. (2007) suggest that the relation be-tween growth and the employment protection follows an inverse U-shape relation.

Overcoming the optimal level of dismissal protection may decrease the growth per-formance of the economy.

Investment decisions are also influenced by the degree of flexibilization of the

labour market. According to Saint-Paul (2002), innovative activities are limited when the degree of rigidities of labour market is higher because, with respect to

revenues, they are associated on higher level of risk.

Boeri and Garibaldi (2007) raise doubts about the effect of the introduction of

flexibility, and the creation of a two tier labour market, where the untouched level of protection of the permanent contracts is opposed to the low level imposed via new

flexible contracts. This should be dangerous also in the business cycle, in fact the effect of hire fixed term workers in time of expansion is mitigated by the rigidities

that are still present on the market due to the oldest contractual form and, joint with the fall in average productivity due to the decreasing marginal returns cause

the so called “Honeymoon effect”.

The segmentation of the labour market is a specific problem analyzed by different

scholars. Rebitzer and Taylor (1991) define the segmentation of the market as a situation where the market is divided into a “primary” and “contingent” part.

Workers have different levels of wages but also of job’s condition, and firms need to hire both type of contracts in order to maximize profits. Gash (2008) talking

3.1. THEORETICAL BACKGROUND 11

regarding temporary job there is a “good-job” and “bad-job” scenario. The literature on the topic presents the temporary jobs as of inferior quality in terms of wages,

benefits and provided training.

Gash in an exhaustive literature review, introduce the concepts of “Bridge” rel-ative to permanent contract and “Trap” to fixed term.

The term “Bridge” is used to explain the transition from a temporary to a permanent contract. The bridge has explained by different theories. Temporary

contracts, in the probationary contract theory, is sees as a screening tool to be be able to weigth the ability of the workers before offering them a permanent contract,

implication of the theory is the flow of workers that have to pass from temporary to permanent. This device is used mostly in the market where there is a bigger level of

asymmetric information and as state also by Jovanovic (1982) the increase into the uncertainty of the selection, in the Jovanovic case is about skilled workers, needs to

be solved with the instrument. A theory that tries to explain the bridge effect is the “The integration scenario” exposed by Giesecke and Groß (2003),that explicates

a situation of win-to-win for employers and employees. The employers have all the instrument to screen the market and find the more productive workers to a specific

job. Employees are employed even for a brief period and gain advantages from the increase in efficiency of the market.

The “Trap” is a situation in which the workers have a small probability to move to permanent contracts and it is easy for the temporary workers to stuck in that

situation(Polavieja, 2003; Giesecke and Groß, 2003).

Houseman et al. (2003) discusses some possible causes the trap, mostly related to the nature of the temporary contract. Given the short term nature of the contract,

the business cycle may be a cause of trap. In fact, the firms should reduce the workforce in the negative phase of the cycle and this occurs at the expanse of the

temporary workers.1 _{The principle of seasonality and adjustment to the market}

fluctuations is proposed by Olsen and Kalleberg (2004) as rule.

Damiani et al. (2016) explain the “Buffer stock theory” related to the changes of the numbers of the workers. The temporary contracts are useful to restore the

equilibrium in case of negative shocks, and serve also as a screening device to evaluate

the abilities of the workers in order to select the more efficient ones, that affected the low-skilled jobs (Mertens et al., 2007).

The differences in wages between permanent and fixed-term have been studied also in a theoretical point of view. Compensating wage theory (Mincer, 1958) and

Equalizing wage difference theory, (Rosen, 1986), conclude that the workers with disadvantaged situation have to earn more. Sattinger (1977) emphasized the role of

the non monetary factors into the formation of the wages, especially into the worst condition jobs, and state the existence of the premium for those jobs.

In the compensating wage theory the focus is on the return of education however

it is possible to extend also to the unpleasant job, as have done Rosen. The compen-sate wage theory predicts a wage premium for those workers who accept to study

for a longer period and bears uncertainty into this period. The decision to study, a non-economic factors, influence the formation of the wages. In parallel, accepting

a major degree of risk, naturally joint to the fixed term have to be compensated in the wage. The Equalizing wage difference theory is based on the assumption of

perfect competition of the market. The market mechanisms are also able to assign the best job to the best workers considering both the characteristics of firms and of

the employees. The wage is composed by two different transaction, the monetary part, based on the productivity and the intrinsic capabilities of the workers, and

the part that represent a premium to accept an unpleasant job, determined by non monetary factors, that varies on the work activity.

Rosen identifies four job attributes that have to be compensated one of the four is the composition of pay packages, of the vacations and the pension and all the

other fringe benefits. The other three attribute regard the degree of risk associated to the job, the costs to move from a city to another and the last one regard the

practical aspects of the job. The atypical contracts bear the risk for the workers to be unemployed when the contract expires, so the equalizing wage theory predicts a

positive premium to the flexible workers. However, Daniel and Sofer (1998) highlight the trade-off between wages and working condition that have to be applied also to

the firms, in fact firms that supply an unpleasant job have to increase the cost of work to attract workers. In equilibrium there will be a matching between demanded

3.2. EMPIRICAL LITERATURE 13

Amuedo-Dorantes and Serrano-Padial (2007) have suggested that the gap should be in favour of the fixed-term workers when the job offered is not giving opportunities

of advancement in career. The workers in this situation should have the incentive to move to another job raising their wages.

Overall, the debate about the theoretical impact of the introduction of the fixed-term contract is still on going. Many scholars are focused on how the economic

system have changed and how will react in terms of macroeconomic performances. Many other scholars have exposed the differences of the contract into the contractual

form, the reason of their existence of discrepancy that should be cause of inequality. As showed, the literature is focused also on the wages gap between contract.

3.2

Empirical literature

While the debate on the theoretical impact of introducing fixed-term contracts

is open, a large empirical literature has focused on the wage gap between permanent and fixed-term workers. This section presents cross-countries studies to

contextu-alize the empirical evidence on wage gaps, and then presents specific country level analysis, with a particular focus on those addressing the Italian case.

Stancanelli (2002) has analyzed data from the European Community Household

Panel (ECHP), into two waves 1996 and 1998. The analysis is conducted on 12 countries: Austria, Denmark, Belgium, France, Germany, Greece, Ireland, Italy, the

Netherlands , Portugal, Spain and the UK. The gross Monthly wages is used as dependent variable divided by the gender of the workers , and consider the worker

characteristics. The difference in wage between temporary and permanent contract into the countries vary from the 4% in Denmark to the 19% in Spain from the

woman, and again from the 5% in Portugal to the 18% of the France2_{, and the}

wages of temporary goes down especially for workers with a lower level of education

and younger than 25 years old.

Kahn (2016) uses the same data-set used by Stancanelli, the European

Commu-nity Household Panel (ECHP) over the 1995-2001 period, on the countries: Belgium, Denmark, Finland, France, Italy, the Netherlands, Portugal and Spain. Using the

logarithmic form of the hourly wages, in a fixed effects model, as controls are taken personal characteristics of the workers and different interaction of the variable. The

fixed effects model shows a positive gap for permanent workers in all the countries considered. Among men the wage gap is lower considering the oldest, instead the

wage gap is smaller for the women with more tenure. They investigate also the gap between immigrants in the European Union, and the data shows that the

immi-grants coming from outside the border suffer a big gap compared to the European immigrant. In a second paper Kahn (2012), has extended the analysis adding some

other countries (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, and the United Kingdom).

In their paper da Silva et al. (2015), using European Structure of Earnings

Survey(SES) in 2010, analyze 26 countries of the European Union. The analysis conducted have been done stratifying data in three ways, by age group, by

educa-tion and the by occupaeduca-tion. As in the other paper the dependent variable is the logarithmic form of the hourly wage, and the authors use a dummy variable to the

fixed term contract, and two set of control one for the employees and the second employer characteristics. The Mincerian equation of the entire set of countries shows

that be a permanent workers earn 14% more than fixed contract. Looking at the data in specific to the countries the gap is always in favour of the permanent, and

goes from the 20% of the Lithuania to the 7,5% of the France. The stratification give useful informations about the reason of the wage premium, more educated and

be older implies a premium for the permanent workers.

A different approach is used by Comi and Grasseni (2012). As first step

Min-cerian wage equation is exploited, including educational dummies, age and age squared, a gender dummy and a part-time dummy, controls for occupation and

industry are added. The data-set is the 2006 of EU-SILC, considering nine coun-tries: Austria, Greece, Hungary, Ireland, Italy, Poland, Portugal, Spain and the UK.

The authors used a semi parametric approach and study the impact of the different contract across the wage distribution it is used the Quantile regressions (QR). The

results show that in certain sectors it is easier to have a temporary contract espe-cially for the youngest. In the Mediterranean countries the wage gap is wider, and

3.2. EMPIRICAL LITERATURE 15

increases in the 80th and 90th is increase in Greece. Considering Italy, the gap is 19% at the 10th percentile and reduces reaching the 11% in the last percentile. In

UK, the gap is very wide at the 10th percentile (24%), and it became positive at the 70th percentile (permanent workers are paid 5%less). In the other countries

the gap ranges between 12% and 19% into the 10th percentile, and decrease along the distribution. Poland shows a different path. The wage is around 18% at the

10th percentile and increases alongside the distribution reaching the 23% in the last percentile.

The work presented by Brown and Sessions (2003) shows results about the labour

market in the United Kingdom, and compares it with the major economies. The authors analyze not only the wage but also the satisfaction of permanent against

fixed term workers. The author use two data sets the British Social Attitudes Survey (BSAS), and the International Social Survey Programme (ISSP), both in

1997. A probit model is used as a first step to investigate the characteristics of workers considering both kind of contracts , while in a second step the authors

analyze the earnings differentials with a focus on the education and the labour force experience. The results show that fixed term contract employees earn 14% less than

their colleagues with permanent contracts. The analysis is repeated using data from other countries: the negative gap against fixed term is confirmed. However, in some

countries - such as Japan, Norway and Denmark and also Italy - the gap is in favour of the fixed term contracts.

Booth et al. (2002),also focusing on the UK, They use a different data-set the British Household Panel Survey (BHPS), in seven waves from 1991 to 1997. The

authors distinguish two groups of temporary workers. In the first group they consider the seasonal or casual contracts, while and in the second group includes the fixed

term contracts. The estimation are based in ordinary least squares and fixed-effects wage regression specified by women and men. The wage is measured as the natural

logarithm of the hourly wages, controlling for jobs and individual characteristics, separately by the gender of the employee. The results of the OLS specification

shows a negative gap for male workers with an atypical contract of 16%, and a gap of 17% for males with a fixed term contract. The gap is smaller for women. In fact

Fixed-Effects regression the gap is smaller 11% for men in seasonal-casual jobs and women in a fixed term contract, and 7% for woman in seasonal-casual jobs and men

in fixed term contracts.

Brown and Sessions (2003) find that in Germany the wage gap is against fixed

term workers amounting to about 25% which is in line with the results of Hagen (2002) present similar results for Germany. The data set used is the German

Socio-Economic Panel (GSOEP) on the 1999 wave, and taking selection on observable the gap against fixed term is around 6 and 10 per cent, however introducing selection

on the unobservable the gap became of 23%.

Blanchard and Landier (2002) have compared the wages of permanent and fixed term workers, from 1983 to 2000 in France, of a standard wage regression, using the

logarithm of the monthly wages as dependent variable and a dummy variable for fixed term and a set of control. The results starts from 12% in 1983, increased to

29% in 1993 and reduced in 22,5% in 2000.

De la Rica (2004) have analyzed Spanish situation using the Survey of

Earn-ings Structure in the 1995 wave. The paper presents three exercise, a two stage least square estimation of logarithmic form of and other job characteristics, a fixed

effect model in order to remove the potential unobserved firm effects and the last model have introduced unobserved effect within firms. The raw wage gap between

permanent and fixed term workers is around 22%.

Since this dissertation analyse the Italian case, we conclude with this literature

review with a specific focus to studies on Italy. Picchio et al. (2006) execute an analysis, in 2000 and in 2002, based Survey of Italian Household’s Income and

Wealth(SHIW). Using a Pooled OLS and random effects. Moreover to control if unoboservables affect the result it is run a Fixed effects model, and a particular

specification that controls for increase of the interactions between individual and job characteristics. The variable to detect the gap is the natural logarithm of the

average net hourly wage and as regressors are used characteristics of the employers and of the employees. The gap is also controlled for the interaction of the variables.

3.2. EMPIRICAL LITERATURE 17

similar. In fact the wage gap is 10% and, as main determinant of the gap are the size of the firm, there are age and the Occupation of the workers. Fixed effects

model shows a bigger gap between temporary and permanent workers, compared with the other two model. The gap in this case increase at 11% and it is noticeable

that, the size of the firm is no more positive. In the second specification of the Fixed term model the wage gap is increased reaching the 12%.

Bosio (2014) use, to perform the analysis, the same data set of Picchio et. all

namely SHIW constructed by the Bank of Italy, in the wave from 2002 to 2010. The analysis considers as the dependent variable the logarithm of the net hourly wage

and as regressors a dummy variable for the type of contract and a treatment dummy that has the aim of capturing the exposure of individuals to the reforms. In the study

He considers the education and the age of workers, what is called Experience, the variable part-time for the employees, the region, the size and the type of control

for the firms. The paper analyzes the data with the unconditional quantile partial effect and to control for endogenous selection, an unconditional IVQTE model is

used. The results of both analysis show a negative gap at the expanse of fixed term workers until the eighth quantile. In the last two quantiles of the wage distribution

instead there is a positive gap in favour of the fixed term. The different settings of the model, are presented by the author: the first one considering the gender,

the second one excluding the part-time workers and the last one including only the cohort of worker aged between 15 and 40. The gap at bottom of the distribution

is 22% in first and second settings, while it is 15% in the last approach, where it remains negative for the entire distribution, instead in the two first approaches the

gap changes the sign and it is 3% in favor of the fixed term workers.

Elia (2010) has adopted SHIW data-set in three years, namely 2002, 2004 and

2006. The paper compares the change in the monthly wage of workers employed with fixed-term contracts, using the difference-in-differences estimator, in order to

evaluate the impact of the reforms. Elia uses the age, the quadratic form of age, dummies for gender, marital status, macro-areas, educational level, firm size, firm

sector, type of degree, and a continuous variable for marks of the highest degree attained. The difference between the workers range from 8% of the short run and

The paper by Naddeo (2015) is analyze the Structure of Earnings(SES) data set in 2010. The author have used both the logarithm form of the monthly and hourly

wages and the two set of controls that represent the characteristics of the employees and of the local unit. In the paper it is presented a brief description of the wage gap

across Europe, however the focus is on the Italian labour market. The results show a negative premium of the fixed term, in the monthly data the wage gap is around

30%, instead the gap is reducing at 25% considering the hourly wages. Naddeo presents also an example Oaxaca Blinder decomposition. In the monthly data the

unexplained part is almost 50% however the same data about the 30% of the total. The econometric analysis exposed by literature have denied some of the theory

exposed before, especially the theory predicting some premium in favor of tempo-rary contracts. Data shows that there are differences that reward the permanent

contracts. The econometric literature it is evident that there is a wage premium, in favour of permanent, in all the countries analyzed. In Europe and in the major

economies around the world. The literature referred to the Italian labour market have highlighted, as in the other countries, the presence of a negative gap into flexible

Chapter 4

The Data

This chapter provides an introduction to the data used in the empirical analysis of the Italian labour market. It first presents the data source and the definition of

the main variable used. It next, provides descriptive statistics about the wage gaps.

4.1

The Structure of Earnings Survey

The data-set used to develop the empirical analysis is the Structure of Earnings

Survey (SES). SES is a survey released every four years, containing microdata about both employers and employees. The waves used in the Thesis are three: 2002, 2006

and 2010.1 Data are provided by the National Institutes of Statistics under the overview of Eurostat2 _{with the purpose of create an harmonized picture of the}

Eu-ropean earnings of EU Member States, EFTA countries3 and Candidate Countries.

The process of data collection follows two steps. The first step is to collect a stratified random sample of firms - local units - based on sector of the economic

activity, number of employees and the region that the local unit belongs.4 _The

second step is a simple random sample of employees of each selected local unit.

The information about employees include gender, type of contract, occupation and other variables characterizing both personal and job characteristics. Data are

col-1_{The first SES version has been released in 1995 and regard a limited number of Countries} 2_{The guideline are the Council Regulation 530/1999 and the Commission Regulation 1916/2000}

amended by Commission regulation 1728/2005 to 2006 and 2010 waves.

3_{Iceland, Leichtenstein, Norway, Switzerland}

4_{Data are collected at local level unit to be coherent to the regional level NUTS 1.}

lected using a tailored questionnaires, others surveys, administrative sources and the combination of the previous sources that provide the same information.

The workers represented into the collection are those receiving a wage into the

reference month certified by an employment contract for their first job. The reference month is October for almost all the countries.5

4.2

Definition of the Variables

As the measure of wage, this dissertation takes the logarithm of the hourly deflated wage. The data report the average gross hourly earning in the reference

month, constructed dividing the average gross earnings for the reference month by the hours payed in the month considered. The logarithm of this variable is taken,

after dividing by the deflator index, in order to obtain data which are comparable in the three waves used in the analysis. The deflator index is provided by Eurostat,

the base year is 2010.

To capture the differences between permanent and fixed-term contracts, the data set offers the variable “Type of employment contract”. This is not a numeric variable,

and identifies three classes: Permanent duration, temporary/fixed duration and apprentice. The last two types of contracts (temporary and apprentice) have been

joined to built a Fixed Term dummy variable.6 _{Based on the above procedure,}

the dummy variable, Fixed term , takes the value 1 for workers with a fixed term

contract (for both fixed term/temporary and apprentice) and 0 if the worker is hired with a permanent contract.

The analysis also consider two set of control variables. The first one refers to

personal workers’ characteristics. These include information on gender, tenure, age, education and occupation.

The gender dummy, Male, assigns the value 1 to the male workers and 0 to

female workers. Tenure capture the length of service (in years) in the firm. The

5_{The selection of the month is not random, October is the month less affected by public holidays,}

the choice of another month have to be justified in the name of representativeness.

6_{In 2002, the variable “Type of contract” contains a fourth class (Others) which has been}

dropped, given the very limited case reported and the in-existence of the class into the other two waves.

4.2. DEFINITION OF THE VARIABLES 21

variable Age (Year of Birth) has 6 classes distinguish workers from 14 years old to 60 years old, which are: 14-19, 20-29, 30-39, 40-49, 50-59, 60+. The variable education

attained by the employees, namely Education, is constructed on the International Classification of Education(ISCED), version 1997. Given small differences on the

different waves, it has been necessary to align the different classifications, changing the codification into the 2002 wave. It is built four groups: Primary education

including workers pre-primary and primary level education; Secondary Education encompassing workers that have attained the Lower secondary education, Upper

secondary and post-secondary non-tertiary education, Tertiary Education covers workers with Tertiary education Post-Tertiary Education.

The variable Occupation is grouped according the International Standard Clas-sification of Occupations (ISCO), at 1-digit level. The occupational groups are

nine: managers, professionals, technicians and associate professionals, clerical sup-port workers, service and sales workers, skilled agricultural, forestry and fishery

workers, craft and related trades workers, plant and machine operators and as-semblers, Elementary occupations. The Job characteristics contain the Full Time

dummy, is assigned 1 to full-time and 0 to part-time.

The second control set is composed by firm characteristics. The variable referred

to the firms characteristics are, the form of economic and financial control, firm size, the type of the collective pay agreement, the geographical location and the principal

economic activity of the local unit. Two dummy variables were created. The first dummy is referred to the Form of economic and financial control, and it has been

called P rivate. This variable assumes values 0 in case of public control, while it assume value 1 in case of private control.7 _{The second dummy variable, that regards}

the Collective pay agreement, has been called Agree and takes value 0 if the firm is without the collective agreement while value 1 if the firms signs a national contract.

Next, in the analysis I use the record about the region in which the local unit

belongs. Data is collected in terms of NUTS-1 thus Italy is divided in five macro-regions. The macro region are: North-west (ITC), North-east(ITD), Centre(ITE),

7_{In 2002 there were some observations collected as mixed control: those observations have been}

South (ITF) and Insular Italy(ITG). 8 9

About the size of the firms, local unit with less than 9 employees are excluded, by construction of the data-set. The classes are not homogeneous in the three waves,

and to compare the results three classes were created representing the small local units (10-49 employees), medium local units (49-250 employees) and the large local

units (≥ 250).10

The last variable considered the Principal economic activity of the local unit, so the sector in which the firms is operating. The variable is classified on the NACE

classification, the three waves have different revision of the classification, and there are some modification that has been done.

4.3

Descriptive Analysis

This section presents some initial evidence about wages across workers’ types.

The bar graph in Figure 4.1 presents the mean values of the hourly deflated wages organized by type of contract and in the years of the waves. For sake of

clarity wages are not considered in the logarithmic form. In the left graph, the results for the permanent workers are presented while the right graph shows results

for the Fixed term contracts.

The graphs show that the mean wages of the permanent workers is higher than the fixed term workers. Considering the three waves and the permanent contract,

it is possible to observe that there is an increase into the level of the wages, and the biggest increase is founded between the 2002 and 2006. The increasing trend is

confirmed also in the graph for the fixed term contract.

The box plot in Figure 4.2, presents the logarithm of hourly wages, by type of contracts and SES wave. The box plot shows that there are several outliers,

8_{In parenthesis the code of the macro regions}

9_{The region are distributed into the macro region as follow: North-west Italy (ITC): Piemonte,}

Valle d’Aosta, Liguria and Lombardia. North-east Italy (ITD):Trentino-Alto Adige/Südtirol, Veneto, Friuli-Venezia Giulia and Emilia-Romagna. Central Italy (ITE): Toscana, Umbria, Marche and Lazio. Southern Italy (ITF): Abruzzo, Molise, Campania, Puglia, Basilicata and Calabria. In-sular Italy (ITG): Sicilia and Sardegna

4.3. DESCRIPTIVE ANALYSIS 23

0

5

10

15

Hourly wages deflated

Permanent Fixed Term

2002 2006 2010 2002 2006 2010

Figure 4.1: Bar Graph of the hourly wage by year and type of contract

especially in the upper part of the distribution.11

Outliers are more dispersed in the observations of the permanent contract.

How-ever, this is not true for fixed term contract in 2010. The three distributions have long right hand side tails.

The median line of the wages of the permanent worker is higher with respect of

the fixed term contract in the three waves. The distance between the third and the first quartile (the blue area of the box plot) is bigger for the permanent contracts.

In Table 4.1 some descriptive statistics of the whole data distribution are presents.

It is evident the increase on the number of observations in the three waves, so the size of the sample is increased, always in absolute number the permanent contracts

are the most used contract.

The mean of the wages is increased in the three years, which is coherent with

11_{The upper adjacent line is defined as the 75}th_{percentile plus the two-third of the interquartile}

differences betweent the 75th _{and 25}th _{quantile, instead the lower adjacent line is defined as the}

25th _{percentile minus the two-third of the inter quartile differences between the 75}th _{and 25}th

1

2

3

4

5

Permanent Fixed Term

Log of hourly wage in 2002

Graphs by dummy 1 Fixed−term 0 Permanent

1 2 3 4 5 6

Permanent Fixed Term

Log of hourly wage in 2006

Graphs by dummy 1 Fixed−term 0 Permanent

1 2 3 4 5 6

Permanent Fixed Term

Log of hourly wage in 2010

Graphs by dummy 1 Fixed−term 0 Permanent

Figure 4.2: Box plot of the hourly wage by year and contract

the Graph 4.1. From 2002 to 2006 there is the biggest change into the mean value of the hourly wage. A smaller increase is present also in 2010, which registers the

biggest level of wage across the three waves.

(Hourly wage)

Count

Mean

sd

Min

Max

2002

77539

12.52301

7.259164

3.528249

189.7375

2006

122910

13.63682

8.11673

2.226899

263.979

2010

199823

13.811

9.621358

3

468.75

Total

400272

13.50801

8.768653

2.226899

468.75

Table 4.1: Descriptive statistics hourly wage

The standard deviation is very high and increase in the years, which is confirmed

4.3. DESCRIPTIVE ANALYSIS 25

(Hourly wage deflated and Fixed Term dummy 2002)

Count

Mean

sd

Min

Max

Permanent

73940

12.6708

7.335099

3.575292

189.7375

Fixed Term

3599

9.486786

4.501783

3.528249

77.79788

Total

77539

12.52301

7.259164

3.528249

189.7375

Table 4.2: Descriptive statistics hourly wage by type of contract in 2002

of the increase of the differences into the values of the wage gap.

Comparing the mean it is easy to see that, workers with permanent contract

earn more with respect of the fixed term contract. The standard deviation is high for both the kind of contracts. The minimum values of wage is similar between

the different contract instead the maximum values is almost three times greater for permanent contract with respect of the fixed contract.

Looking at the numbers of the workers with permanent and fixed term contract,

as expected from the theoretical literature, youngest workers (the classes 14-19 and 20-29) are more subject to be hired with a temporary contract 12 _{and it is also}

confirmed for the others waves.

In the 2006 wave, the number of observation is increased and also the percentage of workers with a fixed term increases, reaching the 5,88% of the observations. 13

The gap against the fixed term contract is confirmed and there is a big standard

deviation. In 2006 there is the biggest variation in the average level of the wages of the permanent contract. Comparing mean values, in 2006 the data show the biggest

gap between the two kind of contracts considered.

The minimum values are lower with respect of the 2002, while the maximum increase, reflecting the path of the mean wage, thus a so an higher increase of the

wages for the permanent workers.

The last descriptive part is referred to the 2010 wave, in which the increasing shape is confirmed. Starting from the absolute numbers, it is possible to see an

augmentation of the observation and of the relative numbers of the fixed term, The

12_{In the 14-19 classes the percentage of fixed term is 63.63%, the second class 20-29 is at 17.65%,}

the other classes the percentage varies between 2% to 5%.

(Hourly wage deflated and Fixed Term dummy 2006)

Count

Mean

sd

Min

Max

Permanent

115681

13.87968

8.2013

2.904651

263.979

Fixed Term

7229

9.750591

5.268315

2.226899

86.41875

Total

122910

13.63682

8.11673

2.226899

263.979

Table 4.3: Descriptive statistics hourly wage by type of contract in 2006

percentage of fixed term in 2010 is 6.62. 14

Also the mean values are augmented, less than the increase between 2006 and 2002, but still is augmented. In 2010 the maximum values is greater into the fixed

term contracts, the standard deviation as before is high for both type of contracts, that is in line with the distribution that the box plot shows.

The Data confirm the increase of the wages in the 2010, which is also the waves with more observations. The standard deviation is increased for both the kind of

contracts and especially for the fixed term, even though the minimum level of the 2010 is stuck in 3.

In the minumum level of the other waves is possible to observe a minimum level of 2 euro per hour, and the waves of 2006 present the lowest level of the minimum

wages per hour payed.

(Hourly wage deflated and Fixed Term dummy 2010)

Count

Mean

sd

Min

Max

Permanent

186595

14.06653

9.610554

3

392.5217

Fixed Term

13228

10.20652

9.032955

3

468.75

Total

199823

13.811

9.621358

3

468.75

Table 4.4: Descriptive statistics hourly wage by type of contract in 2010

Chapter 5

Estimation and Decomposition

Analysis

The descriptive statistics, shown above, suggest the presence of a wage gap

between the contractual forms (permanent versus Fixed term contracts).

This chapter presents two different econometric exercises, with the aim to provide

more robust evidence on the existence and the determinants of wage gap.

5.1

Regression Analysis

The first empirical exercise addresses the sources of differences in the wage pre-mium of permanent contract via a regression model, considering the characteristics

of the employees and of the employers (da Silva et al., 2015). The same regression is repeated separately on each SES wave, to grasp evolution of results over time.

5.1.1

The Empirical Model

The equation of the model is the following:

wij = α + β1F ixed term + β2Xi+ β3Zj+  (5.1)

The dependent variable is the logarithm of the hourly wage of the worker i in

firm j.

The right hand side contains a constant term and the regressors of major interest,

Fixed Term, representing the type of contract that the employee have signed. The

two control sets Xi and Zj represent the characteristics of the local units and of the

employee that affect the wage premium.

The set X includes the dummy variables Male and Full Time, and the variable

Length of service in enterprise expressed in years, It is considered as the Tenure of the employee and also its quadratic form has used. Belongs to the control sets also

the categorical variables: Age of employees, the Educationand Occupation of the workers. In each of the categorical variable it has been considered a base class, the

youngest cohort of workers, 14-19 years old, primary education and managers are chosen as base class respectively for the variable Age, Education and Occupation.

The controls set of the local unit’s characteristics Z is formed by the dummies

Agree, Private and Collective bargaining, the proxy for size of the local unit, region

of activity and the principal sector of activity.

The model is estimated via OLS and also via local unit fixed-effect to control for

unobserved heterogeneity.

5.1.2

The Results

The results, are presented by year and four different specifications are investi-gated in the tables presented below. The first model presents the regression run

with the Fixed-term dummy variable as the unique regressor. 1 _{The second}

re-gression includes only the personal characteristics of the employees. 2 _{The third}

regression contains all the control variable explained above. Lastly, we also add firm fixed-effects.

Looking at the results for 2002, Table 5.1, the regression with just the dummy

variable Fixed Term shows a negative gap of 26% it is significant however the R square is really low. Going ahead and adding the control set containing the personal

characteristics the negative gap is confirmed, however the coefficient is reduced. In the complete model, so with the two sets of controls, the differences between the

contractual form is higher compared to the second model 6,15%, and in the fixed effect model the gap against fixed term contract increase reaching the 7,7%.

Male earn more compared to women, the magnitude is reducing in the two simple

1_{The equation is w}

ij = α + β1F ixed term 2_{The model is w}

5.1. REGRESSION ANALYSIS 29

regression and again reduce in the fixed effect. Full time workers earn less than the Part time workers, which should be in line with the theory of equalizing wages, in

the complete model the gap increase and is reduced into the fixed effect.

The age shows an increasing in the wage when the workers get old, in line with

the prevision of the literature, the oldest class earn 32% more than the youngest class. Moreover, the tenure is a positive factor, with a decreasing return given the

negative sign of its square. 3 _{In the fixed effect model the age has a smoother effect}

on the wages and of the tenure.

The education attained by the workers have effect on the wages. It is interesting to see that there is a big gap between the workers who have attained the tertiary

level of education and the post tertiary compared to the first two classes 4 _and,

again, the trend of the education in the fixed effect model is the same of the OLS

however the magnitude is smaller.

The last employee’s characteristics is the occupation, the omitted class is Man-agers, that earn more than all other classes, and the differences are consistent. In

fact the managers earn 105.4% more than the workers with elementary occupation, the smallest gap is with the Professionals class, the other classes have a negative

difference that goes from 76% of the Technicians to 104% of the Plant and machine operators. The workers occupied in the category Plant and machine operators and

assemblers, in fixed effect, suffer the biggest gap against the Managers(109%) fol-lowed by the elementary occupation(106%). The Professionals suffer the lowest gap,

which is around 16%. The gap of the other class against Manager ranges between the 76% of the Technicians and associate professionals workers and the 105% of the

Craft and related trades workers.

A surprising data comes from the type of control of the firm, that is public

Employees earn more than their colleagues in the private firms and in 2002 public workers earn more alongside the whole distribution.

The literature has explained these differences. Depalo et al. (2015) have justified that with the wage-settings of the public employers the differences is influenced by

political constraints, instead the wage-settings of the private sector is market driven,

3_{The oldest class is 60+, instead the youngest class, omitted from the regression, is 14-19} 4_{Workers with second level of education earn 7% more than the workers with primary level, but}

so the public is more likely to pay more the bottom part of the wage distribution instead of the top of the distribution. Another possible explanation is that public

local unit are more careful to the right pay of their workers. In the opinion of Ghinetti and Lucifora (2013) the difference of two-regimes of wage bargaining, where

usually private sector have a more decentralised regime and public a more centralised regime, is the cause of a positive gap (in favour) of the public workers especially in

the bottom of the distribution.

Moving to the characteristics of the firms, the collective Agreement have a really

small impact in favor of workers subject to the collective negotiation but it is not significant, and bigger firms pay more their workers with respect of the smallest and

to the medium firms. However, the difference between medium and big firm is really small and is just the 0,3%.

A really interesting point that come out from the regression is that the Southern region and the Insular region have a better coefficient with respect of the Central

and Northeastern regions, all that regions suffer a negative gap with respect to Northwestern Region. A possible explanation should come from the fact that fixed

term and part time contracts in the Central and Northeastern region are numerically superior and that should affect the mean.

The R-squared values of the first regressions is very low, introducing the control set it is evident the increase of its value, and the fixed effect model shows the higher

level of the R-Squared.

VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. Employees characteristics Type of contract Fixed Term -0.260*** (0.00582) -0.0462*** (0.00530) -0.0615*** (0.00485) -0.0770*** (0.00687) Gender Male 0.170*** (0.00242) 0.150*** (0.00232) 0.124*** (0.00295)

5.1. REGRESSION ANALYSIS 31 VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. Full-time or part-time Full time -0.0359*** (0.00395) -0.0466*** (0.00369) -0.0382*** (0.00503) Tenure 0.0177*** (0.000387) 0.0122*** (0.000361) 0.0109*** (0.000479) T enure2 -0.000386*** (1.12e-05) -0.000285*** (1.03e-05) -0.000250*** (1.29e-05) Age of employees 20-29 0.136*** (0.0167) 0.112*** (0.0154) 0.0926*** (0.0168) 30-39 0.224*** (0.0168) 0.206*** (0.0155) 0.177*** (0.0169) 40-49 0.282*** (0.0169) 0.264*** (0.0156) 0.232*** (0.0170) 50-59 0.309*** (0.0172) 0.299*** (0.0159) 0.264*** (0.0174) 60+ 0.322*** (0.0215) 0.329*** (0.0197) 0.299*** (0.0205) Level of education Secondary Education 0.0834*** (0.00377) 0.0704*** (0.00346) 0.0627*** (0.00427) Tertiary Education 0.282*** (0.00644) 0.210*** (0.00608) 0.163*** (0.00827) Post-Tertiary Education 0.328*** (0.0215) 0.285*** (0.0191) 0.217*** (0.0269) Occupation (ISCO-88) Professionals -0.141*** (0.0337) -0.159*** (0.0323) -0.164*** (0.0409)

VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E.

Technicians and associate

professionals workers -0.732*** (0.0170) -0.762*** (0.0162) -0.764*** (0.0257)

Clerical support workers -0.786***

(0.0167)

-0.834***

(0.0159)

-0.871***

(0.0251)

Service and sales workers -0.989***

(0.0170) -0.933*** (0.0163) -0.886*** (0.0269) Skilled agricultural, forestry and fishery workers -1.004*** (0.0175) -0.989*** (0.0167) -1.031*** (0.0285)

Craft and related

trades workers -1.062*** (0.0167) -1.025*** (0.0160) -1.050*** (0.0252) Plant and machine operators and assemblers -1.039*** (0.0168) -1.040*** (0.0162) -1.092*** (0.0249) Elementary occupations -1.085*** (0.0169) -1.054*** (0.0161) -1.069*** (0.0257) Employer’s characteristics Control Private -0.0537*** (0.00486) Collective Negotiation Collective Agreement 0.00484 (0.00510) Enterprise’s size

5.1. REGRESSION ANALYSIS 33 VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. 50-249 0.0832*** (0.00289) ≥ 250 0.121*** (0.00259) Region Northeast Italy -0.110*** (0.00335) Central Italy -0.113*** (0.00481) Southern Italy -0.0172*** (0.00251) Insular Italy -0.0496*** (0.00288) Constant 2.772*** (0.0239) 2.998*** (0.0312) Observations 77,539 77,539 77,539 77,539 R-squared 0.019 0.453 0.546 0.730 Sectors of economic activity of firms NO NO YES YES

Robust standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

Omitted categories: Age: 15-19; Occupation: Managers

Education: primary education; Region: Nothern West; Size: 10-49

Table 5.1: Results Econometric analysis in 2002

The results reported in Table 5.2 refer to 2006 data.

gap between the permanent and the fixed term, but the magnitude of the gap is increased.

There is a reduction of the gap between male and female, and there is a positive gap in favour of full time workers. The tenure is still a positive factor in the

de-termination of the wages, it has a relative impact especially in the complete model and the same happens with its square, instead the age of the workers is important

into the determination of the wage. The cohort with more than 60 years receive 46% more than the youngest cohort. In the regression with only personal workers’

characteristics s is higher and reaches 52%.

The education presents a big gap between the graduated and non graduated

workers, the gap is around 20%. Looking at the occupation of the workers, there is a negative gap between all the eight classes and the Managers. It is interesting that

the Skilled agriculture, forestry and fishery workers suffer the biggest negative gap overcoming the elementary workers, in general the gap has becames wider.

As it concern the results in the fixed effect model.

In fixed effect model the gap between fixed term and permanent, which is 8% is smaller compared to the OLS model with the same controls.

The impact of the Gender gap is 10%, and the differences in the type of contract is around 2% in favour of the full time, both are smaller compared to the OLS.

An increase into the tenure have a limited impact, becoming older means means an increase of the wage, for the class 60+ of 39% and the differences in the wages have

a differences from the 14%, the class 20-29, to the 33,8% for the class 50-59. More education means an increase in the wages, the post tertiary education gain 20 per

cent more than the primary educated. At least the Occupation have an impact in the creation of the wages, there is a big wage differences being a managers and being

employed as elementary occupation. The differences is in terms of one hundred per cent.

The Private employers pays a lower wage than the Public sector and also collec-tive agreement have a negacollec-tive impact on the wages still not significant, again the

size is an important positive factor to the determination of the wages. The Location of the local unit have an impact on the wages, the local unit in the Northwestern

5.1. REGRESSION ANALYSIS 35

in the Center and Northeastern earn less than the workers in the South and in the Insular region, the reason should be the same of before.

The values of the R-square is, as before and as expected, very small in the first regression, and increases its value expanded the regression and moving to the Fixed

effect model. VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. Employees characteristics Type of contract Fixed Term -0.327*** (0.00448) -0.0926*** (0.00438) -0.0912*** (0.00405) -0.0848*** (0.00575) Gender Male 0.143*** (0.00217) 0.126*** (0.00209) 0.105*** (0.00261) Full-time or part-time Full time 0.0954*** (0.00349) 0.0706*** (0.00326) 0.0239*** (0.00414) Tenure 0.0133*** (0.000375) 0.00966*** (0.000347) 0.0104*** (0.000448) T enure2 -0.000184*** (1.18e-05) -0.000165*** (1.07e-05) -0.000193*** (1.31e-05) Age of employees 20-29 0.211*** (0.0160) 0.168*** (0.0152) 0.147*** (0.0162) 30-39 0.330*** (0.0160) 0.277*** (0.0152) 0.237*** (0.0164) 40-49 0.400*** (0.0161) 0.347*** (0.0152) 0.301*** (0.0165)

VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. 50-59 0.443*** (0.0162) 0.391*** (0.0154) 0.338*** (0.0167) 60+ 0.522*** (0.0188) 0.462*** (0.0178) 0.390*** (0.0187) Level of education Secondary Education 0.0613*** (0.00376) 0.0496*** (0.00347) 0.0621*** (0.00443) Tertiary Education 0.246*** (0.00551) 0.181*** (0.00519) 0.155*** (0.00737) Post-Tertiary Education 0.244*** (0.0139) 0.215*** (0.0133) 0.251*** (0.0209) Occupation (ISCO-88) Professionals -0.598*** (0.0134) -0.585*** (0.0132) -0.611*** (0.0226) Technicians and associate professionals workers -0.670*** (0.0130) -0.689*** (0.0126) -0.719*** (0.0227) Clerical support workers -0.759*** (0.0128) -0.786*** (0.0125) -0.851*** (0.0232)

Service and sales workers -0.949*** (0.0132) -0.868*** (0.0133) -0.864*** (0.0246) Skilled agricultural, forestry and fishery workers -1.250*** (0.0347) -1.239*** (0.0372) -1.078*** (0.0399)

Craft and related trades workers -1.044*** (0.0128) -0.952*** (0.0125) -0.981*** (0.0234)

5.1. REGRESSION ANALYSIS 37 VARIABLES OLS Contract Model OLS Personal Model OLS All Model F.E. Plant and machine operators and assemblers -0.998*** (0.0128) -0.956*** (0.0125) -1.005*** (0.0230) Elementary occupations -1.126*** (0.0131) -1.081*** (0.0128) -1.065*** (0.0240) Employer’s characteristics Control Private -0.0302*** (0.00418) Collective Negotiation Collective Agreement -0.0163 (0.0224) Enterprise’s size 50-249 0.0860*** (0.00242) ≥ 250 0.149*** (0.00222) Region Northeast Italy -0.0923*** (0.00290) Central Italy -0.0825*** (0.00364) Southern Italy -0.0188*** (0.00216) Insular Italy -0.0405*** (0.00249)