Italy: Jobless Recovery?
At first glance, the Italian labor market appears to have weathered the recession remarkably well compared with its eurozone peers. Seasonally adjusted Italian unemployment in September registered at 8.3%, only a slight uptick from the unemployment rate of 7.3% a year ago, and significantly below the eurozone average of 10.1%. Italy’s labor market held up even better than that of the peripheral eurozone economies, but the official unemployment numbers do not reveal the full picture.
Overall, employment numbers fell by 195,000 between Q2 2009 and Q2 2010, constituting a decline in the employment ratio from 57.9% to 57.2%, well below the eurozone average of 64.4%. Total employment contracted, while part-time employment and self-employment rose, giving no indication that the decline in permanent payroll numbers will ease. Additionally, there was a fall in the average number of hours worked and a rise in the number of state-subsidized short-time workers in Q2, indicating weak future job creation.
Figure 2: Employment (thousands) vs. GDP Growth (q/q)
Furthermore, the labor market inactivity rate, which includes the proportion of the population currently underemployed, discouraged from seeking new work or who have chosen not to enter the labor force, registered at 37.5% (above the eurozone average) in Q2. The Bank of Italy provides its own unemployment estimate of 11.1% for Q2, which includes discouraged, short-term and underemployed workers. Even more worrying is the youth (16-24 year olds) unemployment rate, which rests at 27.9%. Without wide-ranging labor market reforms, Italy faces a sharp increase in structural unemployment.
The failure of the current economic upswing to deliver employment growth underlines the challenges facing Italy’s labor market. With Italy’s economic recovery likely to slow in H2 2010 and beyond, the outlook for the labor market remains bleak. (See related Critical Issue on Italy’s labor market.)
Editor’s Note: This post is excerpted from a much longer analysis available exclusively to RGE Clients: Europe Focus: UK Inflation and QE2; Italy’s Jobless Recovery?
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