Abstract
International economic integration is often blamed for the deteriorating fortunes of unskilled workers in industrial countries. We look at the labor market impact of trade and foreign direct investment in the case of Italy. Our empirical framework allows for trade, technology and factor supply effects. We find that international trade did not contribute to Italy’s labor market problems. Indeed, given that Italy holds quite a distinct pattern of trade specialization, compared to other industrialized countries, international integration as reflected in falling import prices may have boosted the demand for labor there. We also argue that the inability of the Mezzogiorno’s economy to adjust to the changing international environment is one of the main stumbling blocks in Italy’s economy. Finally, we find that greater firm’s mobility may have weakened the power of trade unions and contributed to wage moderation.