Wage flexibility in regional labour markets: evidence from Germany and Italy

Wage flexibility in regional labour markets: evidence from Italy and Germany, Regional Studies. This paper investigates the functioning of regional labour markets in Italy and Germany for different employee groups and regions. It derives theoretical hypotheses on group-specific correlations between regional unemployment and individual wages distinguishing between regions. Using micro-data matched to local unemployment rates, wage equations are specified and empirically tested. For Italy, no evidence is found in favour of a relationship between wages and local unemployment. In Germany, results appear to be sensitive to model specification and type of employees. In both countries, the reaction of wages to local unemployment varies significantly along the wage distribution, being more sensitive around median quantiles.