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This paper provides an empirical examination of the distribution of labour earnings in Italy. Using data drawn from the 2005 and 2006 waves of the Participation Labour Unemployment Survey, a database of information on the Italian labour market supply, 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. We 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 Pareto Law and the Distribution of Labour Income in Italy