Abstract

This paper investigates the dynamics of wage inequality that occurred in the 90s in the Italian labour market. The microdata are drawn from the Bank of Italy Survey of Household Income and Wealth (SHIW). The evidence suggests that overall wage inequality increased during the period under observation. The aim of the analysis is to shed light on the determinants of the increasing inequality, against the background of both skill biased technological change (SBTC) and institutional changes in the labour market hypothesis. Starting from simple OLS-based decomposition I turn to quantile regressions and estimates based on panel subsamples to further investigate the role of both observable and unobservable skills. The results show that the premia structure changed across the wage distribution. Nonetheless a large part of inequality - i.e. residual inequality - still remains unexplained.