Territorial disparities in labour productivity, wages and prices in Italy: What does the data show?

In Italy, both at the regional and sub-regional levels, labour productivity and average wages are strongly correlated. Overall, in industry and services, the gap (about 30%) in productivity between Southern and Central-Northern regions is almost offset by that in the average wage: unit labour costs are similar. Since, in Italy, in each sector, nominal wages are set through national collective agreements – and therefore are the same throughout the country – regional differences in wage per employee depend solely on the composition of the occupational structures. The small difference in the unit labour cost suggests that also the North–South disparity in labour productivity is largely due to the characteristics of the respective productive structures. Across Italian regions, average wages and price levels are positively correlated. Spatial price differentials mainly depend on the prices of services and housing. In turn, prices influence regional nominal productivity in sectors producing non-tradable goods. The North–South difference in price levels substantially equalises the average real wage in the two areas. Nevertheless, thanks to the lower prices and the equality in nominal wages, in the South employees enjoy a greater purchasing power than their colleagues in the rest of the country with analogous job positions. The Italian case suggests that, at the regional level, labour productivity, average wages and prices are interrelated. The analysis of their mutual relationships is of great importance for regional policies.