The increase in earnings inequality in Italy: The role and persistence of atypical contracts

Abstract

This paper investigates the factors that shape earnings inequality, using administrative matched employer‐employee data from the Italian Social Security Institute (INPS), between 1990 and 2021. It reveals that inequality in annual earnings rose steadily over time according to various measures, such as the Gini index, the interquartile ranges, and the variance. When exploring the mechanisms behind such an increase, it shows that the rise in inequality is driven by the quantity of work, which varied heterogeneously across workers, as atypical contracts (e.g., part‐time and fixed‐term) became widespread in the economy. We compare these measures based on the annual compensation of workers with those based on full‐time equivalent weekly wages, which display a much less dispersed evolution over time, except during the double‐dip recession in 2008–2012. Finally, we document a large persistence, increasing over time, in disadvantaged positions both in the short‐ and in the long‐run.