Technological externalities and wages: new evidence from Italian NUTS 3 regions

Abstract

Abstract In this paper, we investigate the relationship between local wages and the internal structure of the regional knowledge base. The purpose is to assess if the workers’ compensations are related to the peculiarities of the knowledge base of the regions in which they supply their labor services. The test of this hypothesis is based on the assessment of the impact of related vis-à-vis unrelated knowledge variety on cross-regional wage differentials. The empirical analysis is carried out by exploiting patent data and a unique employer–employee administrative dataset. First, using OECD-PATREG data on patent filing, we build information entropy indexes proxying the variety of NUTS 3 regions’ knowledge bases, and the decomposition in the related and unrelated component. Second, we assess the impact of these indexes on wages based on administrative data from the Italian National Institute of Social Security. Our results suggest that workers employed in regions with a heterogenous knowledge structure earn positive wage premia, while related variety has a negative effect on compensation levels.