The institutional wage adjustment to import competition. Evidence from the italian collective bargaining system

A growing body of research has contributed to understanding the labor market and political effects of globalization. This paper explores an overlooked feature of trade-induced adjustments in the labor market: the institutional aspect. We take advantage of the Italian collectively-bargained minimum wage system, which is based on a two-tier structure, whereby the first tier entails setting minimum wages at the national contract level. Using an instrumental variable strategy and exploiting variations in contract-level exposure to trade, we find for the 1995-2003 period that, on average, the surge in imports decreased contractual minimum wages by 1.5%. This impact increases in the share of unskilled workers employed in the contract. This negative institutional effect contrasts with a nonsignificant effect of trade on total wages, with the latter becoming positive and large only for highly skilled workers.