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Alberto Alesina is Professor of Economics at Harvard University. Stephan Danninger is an Economist in the Fiscal Affairs Department of the International Monetary Fund. Massimo Rostagno is an Economist at the European Central Bank. We thank Silvia Ardagna, Joerg Decressin, Daniele Franco, Luigi Guiso, Larry Katz, Thomas Krueger, Sandro Momigliano, an anonymous referee, and the Editor of this journal for useful suggestions. Mr. Alesina’s research is supported by a National Science Foundation grant to the National Bureau of Economic Research. He is grateful to both organizations for their support. Mr. Danninger was an intern at the International Monetary Fund and Mr. Rostagno was a member of the IMF staff when the project was initiated.
See Raffa and Zollo (1993) for a discussion of the difficulties of small private innovative business ventures in the South.
A related problem concerns the use of disability pensions in Italy. These pensions have been largely used especially in the South as permanent unemployment subsidy, with the obvious distortionary effects on incentives. See Boeri (2000).
For a review of the literature on public unions, see Gregory and Borland (1999) and Freeman and Ichniowski (1988).
Recent pension reforms have changed these age limits.
Regions are composed as follows: North—Piedmont, Valle d’Aosta, Lombardy, Trentino, Alto Adige-South Tyrol, Veneto, Friuli-Venezia Giulia, Liguria, and Emilia-Romagna; Center—Tuscany, Umbria, Marche, and Lazio; South—Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria, Sicily, and Sardinia.
Regional differences are so large that it seems surprising that there is no significant labor mobility from South to North. Cannari, Nucci, and Sestito (2000) show that mobility costs (i.e., housing cost of relocation) are very large and make geographical relocation too costly despite large differences in income.
7We measure production of postal services in terms of the number of letters and parcels sent locally. If we were to include the number of withdrawals from and payments into postal checking and savings accounts, the productivity differentials would be even larger.
The post office and the railways used to be administrations with the general government. The railway company became a stock company in 1992 and the post office was turned into an independent public agency in 1994. As a result the employees of both these entities are no longer employees of the general government.
These questions were not asked in 1995.
The comparison between private and public sector wages may be slightly affected by the fact that overtime may be more widespread in the private sector.
A wage premium on being married is commonly found in the labor literature; see, for instance, Polachek and Siebert (1993). The labor literature has discussed various alternative explanations of this finding.
This result is consistent with the findings of Gregory and Borland (1999).
This calculation is based on average marginal effect derived from Logit estimates.
The sample is restricted to fully employed workers.
We have also explored whether the type of education of the workers—business or more business—affected their search effort. We did not find significant effects.
An OECD study (1995) reports that Italy has a large number of small- and medium-sized firms in its core industries. About 36.8 percent of all employees in Italy work in firms with less than 200 employees compared with 20.8 percent in Germany, 25.8 percent in France, and 34.1 percent in Japan.
The sample is limited to heads of households older than age 20.
When calculatingTR, we multiply the excess wage payment(WC -WB) by the base employment levelEB and not byEC. We leave out the amount(EC -EB)(WC -WB) from this computation, since this part of the transfer payment is already accounted for in the first term(EC -EB)WC
There is a rich empirical literature testing the time-series implications of this proposition. Relatively little research has been conducted using cross sectional information. One exception is Eberts and Gronberg (1992).
Among these provinces, 43 are part of the North and 35 are part of the South. The number of provinces in each region varies from 1 to 10.
Since the 1993 and the 1995 surveys contain the same questions, we do not need to modify the variables of interest.
In the next section we provide estimates of the difference in cost of living, which are consistent with the range of these adjustments.
Cost of living data are available for the following cities: North: Turin (Piedmont), Genoa (Liguria), Trento (Trentino), Triest (Friuli), Bologna (Emilia-Romagna), and Venezia (Veneto); South: Campo Basso (Molise), Napoli (Campania), Bari (Puglia), Potenza (Basilicata), Reggio Calabria (Calabria), Palermo, and Catania (Sicily).