Still a long way to go: decomposing income inequality across Italy’s regions, 1871 – 2011

This article is the first study to explore to what extent labour productivity, structural change,
participation rates and the age structure of the population contributed to the pattern of Italy’s regional
economic inequality over the long run (1871-2011). We provide brand new regional estimates of
participation rates and age structures, as well as the most updated figures on per capita GDP, per worker
GDP and the employment rate (at ten-year intervals spanning from 1871 to 2011). First, regional
inequality in per capita GDP (Y/N) is split into labour productivity (Y/L) and labour-market features
(L/N). Then, the Caselli-Tenreyro decomposition is used to explore whether labour-productivity
convergence (or divergence) at the NUTS-1 level was determined within or between sectors, and by
labour reallocation. While labour productivity was central to the pattern of Italy’s regional development
until the 1970s, since then the key factor of North-South divergence has been the participation rate. The
results confirm the central role of national and local policies, influencing per capita GDP via
productivity, employment, and participation rates.