Employment and Unemployment in Italy

Italy's unemployment rate fell to a record low in the third quarter of 2007, as more flexible job labour contracts and above trend growth continued to fuel hiring. The jobless rate fell to 5.9 percent from 6 percent in the second quarter, the Rome-based national statistics office Istat at the end of December. That is the lowest since level since Istat began calculating the figures in 1992.

While Italian unemployment has been declining steadily since 1999, so too has trend economic growth, making for a rather unusual combination. Indeed even as we recieve this raher positive employment news, we also have clear signs that the Italian the economy is slowing. Both the Organization for Economic Cooperation and Confindustria - Italy's biggest employers' lobby - cut their 2008 Itialian growth forecasts in December. The OECD lowered its forecast to 1.3 percent, and Confindustria said growth would slow to 1 percent from 1.8 percent this year due to factors including the rising cost of food and oil and the euro rise against the dollar.

The Italian unemployment rate, traditionally one of the highest in Europe, is now below the average for the 15 nations euro zone. Joblessness in the euro zone fell to a record 7.2 percent in October, the latest month so far reported by Eurostat, from 7.3 percent the previous month. The record-low unemployment rate in Italy masks regional disparities in joblessness and may also refllect the growing average age of Italy's potential workforce as people settle for early retirement and gradually drop out of the data. Employment has been growing strongly in Italy since the middle of 2005.

The number of migrant workers employed in Italy has also been growing steadily in recent years.

And if we look at a comparison of the quarter on quarter employment growth between total growth and migrant growthwe can see that after the second quarter of 2006 the majority (if not nearly all) of the employment growth has come from migrants (not how much of the time the pink line is above the green one, this means less native born Italians were employed in those quarters). None of this is surprising as Italy ages, and the effective labour force shrinks.


Another way of looking at the same issue is this chart I have prepared for the number of native Italians employed (estimated by subtracting migrant employment from total employment)



The above chart simply confirms the impression gained from the previous one, that in fact very little increase in employment among native Italians occured between early 2006 and Q3 2007, despite the apparent shàrp drop in the unemployment rate.

To this we need to add Italy's long standing imbalance between north and south. The jobless rate in Italy's industrial north fell as low as 3.4 percent in the third quarter, compared with almost 11 percent in the south of the country. More than half the 1.47 million unemployed seeking work wereactually situated in the south. Again, if we look at the charts for employment growth in the north and in the south, the difference is apparent enough.





Another complicating factor is that a lot of the gain in employment comes from more companies hiring part-time and temporary workers, who don't enjoy the same benefits and job security as full-time staff. Workers without permanent contracts rose 5 percent from a year earlier, while the number of workers with part-time contracts increased 10 percent from the third quarter of last year.

Looking at the above two charts the stall in full time employment after mid 2006 is clear enough, as is the fact that part time employment has continued to climb. Perhaps here we have some of the key to how it is that Italy can have such a low employment rate without sparking wage inflation (especially that 3.4% in the north), and why we are getting such low readings for domestic consumption and such negative outlooks on the sentiment indexes.

In conclusion what I would like to say is that this situation shares some really striking details with what we can see in Germany and Japan at the present time - growing employment, declining unemployment, weak consumption growth, comparatively low wage rises as the labour market tightens - that this has to be more than simply a coincidence, there must be some sort of connection with the fact that these are the planets oldest societies, although what the exact nature of that connection is has yet to be specified and measured.

For a comparison with what has been happening in Japan, try my Unemployment and the Japanese Labour Force (August 2007) and Japan Unemployment September 2007 . For the German situation see Employment and Unemployment in Germany (September 2007).