An Offer You Can’t Refuse: New Hire Real Wage Rigidities in the Northern Italian Labour Market

This project has been published by UPF in their e-repository.

In the standard search-and-matching model, new hire wages are a major driver for job creation. Using the Veneto Workers History dataset, we present evidence that new hire total compensation exhibits rigidity in real terms, especially in the form of bunching. This is substantially more pronounced for low- and less for high-income levels, which is consistent with the prevalence of binding wage pegging and flexible payment. In addition, we observe rigidity for continuing workers - albeit along a different employment margin resulting in asymmetric wage changes. Controlling for job composition, we find that new hire wages are weakly cyclical; a weaker effect for low income workers supports previous results. In a final theoretical exercise, we link the aforementioned back to a simple DMP model extended with rigidities.

Some code for this project will become available shortly.