Household income inequality in Italy is high in comparative terms. Using data from the Survey on Household Income and Wealth, we study how regional disparities in average household income and its dispersion in the South and in Centre and North help to explain national income inequality. By means of counterfactual exercises we quantify the fraction of inequality explained by Southern residents' low employment rate.
Not only income is lower on average in the South, but it is also more dispersed. This is mostly due to the low employment rate in the area, rather than to differences in both average hourly wages and their dispersion. Since the recession, household income dispersion has grown within the two areas, while, in 2016, the average gap between Southern Italy and the Centre and North was similar to that observed before 2008.