The Unassuming Economist

From a paper by Giuseppe Pio Dachille, Antonio Dalla Zuanna, Monica Paiella, and Eliana Viviano:

“We quantify how the employment expansion accompanying Italy’s post-pandemic recovery mitigated the distributional consequences of the contemporaneous surge in prices, which disproportionately affected households at the bottom of the expenditure distribution. Using linked administrative employment records and household survey and expenditure data, we examine labour income dynamics, employment transitions, differential inflation exposure, and the redistributive role of the tax–benefit system for Italian households without pension or self-employment income over 2018–2023. Despite elevated inflation, households in the lowest expenditure quintile experienced gains in real labour income, whereas those higher in the distribution did not. The decline in inequality is driven primarily by employment entry among previously non-employed household members, while adjustments among continuously employed workers played a limited role. Extensive-margin gains reflect stronger demand for low-skilled labour rather than differential labour-supply responses to inflation. Microsimulations indicate that fiscal measures cushioned disposable incomes at the bottom but did not alter the central role of employment growth in shaping distributional outcomes.”