Employment Insurance and the North-South Conflict in Italy

On February 12, the Italian Central and Local governments (“Regioni”) signed an agreement  [link: http://www.regioni.it/upload/accordo_ammortizzatori_120209.pdf] for sharing the costs of an unemployment-insurance scheme, 8 billion Euros, covering those private sector workers who do not have one (temporary and part-time workers, about one employee in two). The Regions will contribute 2,650m from their endowments of the European Social Fund (ESF), and the Government will put the remaining 5350m. Unfortunately, this agreement will soon leave the Government with an unpleasant alternative: managing a redistributive conflict between the South against the North, or contributing more money to the scheme. The reason is simple: in order to exploit the ESF, approximately 725 million euro should be transferred from the poor (but less crisis stricken) regions of the South the rich (but more crisis hit) regions of the Centre-North. Short of this, (national) tax-payers will foot most of the bill

The ESF finances education and labour market participation programmes along two types of projects, “convergence”, concerning poor regions (per capita GDP below 75% of average EU-25), and “competitiveness” projects, for the rich regions. Clearly, the South has the largest share of the ESF 2007-13 (about 50%), compared to central (20%) and northern Regions (30 %.). However, it is mainly northerners that will lose their jobs in the crisis. Recall that  1. approximately 50% of employment is in the North,  20% in the Centre and 30% in the South; in particular, manufacturing  and services, the sectors hardest hit by the crisis, as well as female employment, are even more concentrated in the North. 2. Temporary and part-time workers are also over-represented in the North (42% of temporary, 20% in the Centre, 37% in the South; 54% of part-time in the North, 22% in the Centre, and 24% in the South) 3. The “black economy “, by contrast, is over-represented in the South, but, by definition, irregular workers are not eligible for unemployment insurance.

Thus, for every worker who looses his job in the South, there will be approximately 1,5 in the Centre and 2 fired workers in the North. If the money (8 billions Euros) were assigned only on the basis of the regions’ needs, the North would get approximately 3.7 billions, the Centre 2.5 and the South 1.8 billions. With the regional destination constraint, however, the North will only get 3.3 billions (see my blog [link:http://paolomanasse.blogspot.com/2009/02/ammortizzatori-sociali-e-conflitto-nord.html] for the details), the Centre will get 2.2 and South 2.6 billions. Hence, the Centre and North will obtain respectively 296 and 429 millions less than their needs, and the South will be left with a surplus of 725 millions. The agreement specifies that the Government, rather than the southern regions, will foot the bill. But, by doing so, it will waste almost 1/3 of the European Funds. Yet, a simple solution was available: to allow Central and Northern regions to borrow ESFs from the South, possibly under a State guarantee, and to allow borrowers to use the next ESFs as collateral.