The trials and tribulations of Italy’s labour market in 8 charts

The trials and tribulations of Italy’s labour market in 8 charts

Valentina Romei

• Daily emailImmediate email

 | Apr 28 15:26 | 4 comments | Share

Last year things were looking up in Italy. Employment, a sore subject after the international crisis, was growing and the unemployment rate began to fall in 2015 .

But in the last few months this progress flattened. What’s happened?

In 2015 Italy introduced incentives to hire and a major labour reform generally referred to as the Job Act. The overarching goal of the reform included was to reduce the uncertainty and the cost of labour dismissal, overhaul the ‘dual system’ – whereby employees with permanent contracts enjoy very high protection while everyone else is in precarious work – and increase women’s participation in the workforce. The aim was to improve labour reallocation and boost productivity.

The unemployment rate dropped to 11.5 per cent in August 2015, down from its November 2014 peak of 13.1 per cent. But expectations cooled down after the positive trend was interrupted.

Other indicators began to disappoint.

The employment rate had risen in 2015, as job seekers and the economically inactive (including those studying or providing care for the family) found work. But this trend also plateaued in 2016.

According to the Bank of Italy, labour reforms and the various incentives that were implemented last year boosted employment growth. The Bank estimated that “around 40 per cent of new total gross hires with permanent job contracts occurred because of the incentives, whereas five per cent can be attributed to the new firing regulations”. But other factors impact the longer-term employment performance.

Lack of economic growth

“The lack of substantial employment growth is not surprising given the sluggish economic growth” says Andrea Garnero, labour economist at the OECD in an interview with the Financial Times.

Italian economic growth was stronger in the first quarter of 2015 with a 0.4 per cent increase over the previous quarter, but it then slowed down with nearly no expansion in the last quarter of 2015. And chances are that it will be subdued also in the first quarter of this year.

Dashed hopes of narrowing the regional gap…

The prolonged and multiple-dipped Italian economic crisis hit the young and those living in Southern Italy the most. And the the interruption of the employment recovery is making their hopes fading.

In the last quarter of 2015 the unemployment rates reached nearly 20 per cent in the south- higher than in the previous quarter- compared to eight per cent in the north.

Indeed more than one in five people are unemployed in the southern regions of Puglia, Calabria and Sicily, compared to less than one in ten in the Northern regions of Veneto, Trentino and Friuli.

All the top regions in the chart below up to ‘Abruzzo’ are located in the south.

…the gender gap…

If we focus on the gender gap in the labour market, the regional differences become even more dramatic.

Not only do southern regions – seen below under ‘Liguria’ – present much lower activity rates among men, they also present much larger gender gaps.

Fewer than 40 per cent of working-age women in the southern regions are part of the labour force, a low proportion not seen elsewhere in Western Europe.

…and finally, the generational gap

The young are also facing a fairly adverse labour market.

The net gain in employment of the last two years was concentrated among older workers largely because of the extension of the retirement age.

While the number of jobs among those aged above 55 continued to expand throughout multiple economic contractions, employment for workers under 55 has been shrinking since 2009.

About 37 per cent of people aged 20 to 24 across Italy are unemployed, 50 percent in the south.

Italy has the second highest share of NEETs in Europe, these are people aged 15 to 34 who not in employment, education or training. The highest is found in Greece.

But when it comes to young women not in employment, education or training, no country in Western Europe can surpass Italy.

No jobs without growth

Renzi’s government will soon feel the consequences of rising discontent, if employment does not start growing again especially among the most vulnerable groups.

And while there might be scope for further policy activity – tax burden on labour remains comparatively high in Italy- the key issue is that “much higher economic growth is needed to bring down unemployment” as the IMF put it.

“Ultimately” Dr. Garnero tells the Financial Times, “firms are not going to employ new people if they do not expect to sell more” .