The Pareto law and the distribution of labour income in Italy

This chapter provides an empirical examination of the distribution of labour earnings in Italy. Using data drawn from the 2005 and 2006 waves of the PLUS (See chapter 9) we find the shape of the observed distributions to be right-skewed and display a long right tail, which is adequately described by a Pareto-type model. This chapter also address the question of earnings dispersion by applying a nested decomposition procedure of the Theil inequality measure, which combines into a unified framework the standard decompositions by population subgroups and income sources. The empirical evidence obtained points to the key role played by the self-employees in shaping labour income inequality, especially at the upper extreme of the earnings distribution, and the emergence of non-standard forms of employment as an important feature of the contemporary workplace. The structure of the chapter is: after a brief introduction, data and methodological decisions are discussed; then it presents the empirical results obtained in the above analysis; finally, some concluding remarks and policy implications are drawn