Annalisa Cristini

The theoretical result according to which the wage is higher when bargaining and efficiency wages interact, is tested by estimating a formally derived wage equation on an Italian firm-level panel from 1990 to 1999. The 1993 July Agreement, which fostered the adoption of decentralised incentive mechanisms, is used as a natural experiment. The main results are the following: a) Subsequent the adoption of the 1993 Agreement, the elasticity of wages to firm profits increases from 2.6 to 3.6%; the corresponding estimated wage premium is equal to 3.6% of the average wage; b) Relative to the whole sample of firms, those that signed the decentralised contract show higher wages, more persist- ent wage dynamics but lower variable wage premia; c) For the same firms, a significant increase of the rent sharing is obtained through the diffusion of individual incentives and productivity evaluation procedures; d) a considerable bias is introduced if are not profit endogeneity and unobservable fixed effects are not accounted for.