The aim of this paper is to shed light on the earnings dynamics in Italy, in particularly to explain the earnings differences between South and Centre-North Italy. In our analysis we use different techniques: ordinary least squares (OLS), quantile regression models and the algorithm developed by Machado and Mata (2005) that allows us to examine the relative importance of differences in labourer characteristics and differences in the returns to these characteristics in explaining South –Centre-North earnings differences at a point in time, as well as differences in earnings across time within each macro-area. In particular, we focus on the role of differences in educational endowment and returns to education that is perhaps the most important component of human capital in the stylised literature. In summary we can say that the level of education determines the substantial disparities in terms of wage return but this would be particularly true only for the levels of education relating to compulsory education.
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