Low-pay persistence in the early stage of the career in Italy

Abstract:

This paper investigates the persistence of low pay during the early stages of workers’ careers in Italy, a labour market characterized by wage stagnation, low employment rates, and rising job insecurity. Using rich administrative data from the Istituto Nazionale di Previdenza Sociale (INPS), we construct a balanced panel of labour market entrants from 1995 to 2012 and estimate a dynamic random-effects probit model to assess year-to-year transitions in low-wage employment. Results reveal a marked increase in low-pay persistence over time, with the estimated state dependence parameter rising from 0.46 for the 1995 cohort to 0.58 for the 2012 cohort. Persistence remains significant even when the analysis is restricted to employees, though at lower levels. These findings suggest growing difficulties in escaping low-wage conditions among young Italian workers. The period’s coincidence with major labour market deregulation reforms raises questions about the effectiveness of flexibility-enhancing policies in mitigating wage insecurity.