Composition Bias and Italian Wage Rigidities over the Business Cycle

I estimate the cyclicality of Italian real wages over the period 1985-2003 controlling for the so-called "composition bias". Aggregate real wage statistics, commonly used to measure real wage elasticity, are affected by the bias arising from the cyclical change in the skill-composition of the labor force. An analysis on WHIP longitudinal data shows that the degree of Italian real wage procyclicality significantly increases after controlling for composition bias: this result is robust to several checks and it is consistent with Solon, Barsky and Parker's 1994 seminal paper on the US. Finally, I discuss the effects of the the 90's labor market's reforms on Italian real wage cyclicality.