As a result of its longest and deepest recession since World War II, Italy’s unemployment rate peaked at 13.1 percent in November 2014. Italy’s unemployment rate has since ebbed, but has remained high at 10.5 percent in January 2019 and above the Eurozone average of 7.6 percent. Despite the recent improvement, the GOI and the European Commission continue to forecast Italy’s unemployment rate will remain in double digits until 2020, as employers increasingly seek to improve worker productivity and increase hours for existing workers, rather than hire additional workers. The youth unemployment rate more than doubled during the financial crisis, exceeding 43 percent in 2014. Though youth unemployment has since declined, it remains elevated at 33.0 percent in January 2019 and is one of the highest among EU members. The Central Institute of Statistics estimates there are 2.2 million young Italians not enrolled in education, employment or training (NEETs), more than 22 percent of all young Italians, which is one of the highest percentages in the EU. Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential.
Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young, and the elderly, and in the south. Low labor force participation has been partially attributable to the informal economy, which Italy’s statistics agency estimates as at least 12 percent of Italian GDP. January 2019 marked the highest labor force participation rate in Italy since the data series began in 2004: 65.7 percent of working-age Italians.
The productivity of Italy’s labor force is also below the EU average. Many Italian employers report an inability to find qualified candidates for highly-skilled vacancies, demonstrating significant skills mismatches in the Italian labor market. Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU agreements on freedom of movement to work in the United Kingdom, Switzerland, or Germany. There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government. Skilled labor shortages are a particular problem in Italy’s industrialized north.
On paper, companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position. In reality, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions. Work visas are subject to annual quotas, although intra-company transfers are exempt from quota limitations.
In 2018 the newly-elected government majority introduced the so-called “Dignity Decree,” which rolled back some key structural reforms to Italy’s labor market adopted as part of the Jobs Act by the previous center-left government. The Dignity Decree extended incentives to hire people under 35 years old, set limits on short-term contracts, and made it more costly to fire workers.
Indefinite employment contracts signed before March 2015 are governed by the June 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments. Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal. In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of protracted legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.
However, indefinite employment contracts signed after March 2015 are governed by the rules established under the “Jobs Act” labor market reforms, which provide for employment contracts with protections increasing with job tenure. During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons. Under the Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited.
Regardless of the reason for termination of employment, all former employees are entitled to receive mandatory severance payments from their employer (TFR – trattamento di fine rapporto), equal to 7.4 percent of the employee’s annual gross compensation for each year worked.
Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six). The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers. The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of national active labor market policies remains in progress.
Italy also offers other social safety net protections to all residents, designed to tackle poverty. The previous government implemented an anti-poverty plan (Reddito di Inclusione, or “Inclusion Income”) aimed at providing some financial relief and training to homeless individuals and people with income below the poverty level. In the 2019 budget, the current government introduced the so-called Citizenship Income (Reddito di Cittadinanza), which will replace and broaden the Inclusion Income program. The Citizenship Income program is aimed at providing a basic income of €780 a month to eligible citizens; the GOI estimates that one million workers are potentially eligible for this benefit. The program also gives active support in finding a job to a portion of those receiving the Citizenship Income. The annual cost of the program is estimated to be €6 billion a year.
The 2019 budget and the associated decree and law also implemented an early retirement scheme (a.k.a. Quota 100) changing the pension law and permitting earlier retirement for eligible workers with 62 years of age and 38 years of work seniority.
Other Jobs Act measures, including a statutory minimum wage, have not yet been implemented, although in July 2018 a national minimum wage bill was introduced in Parliament. Italy does not currently have a national minimum wage, as wages are set through sector-wide collective bargaining. An agency for Job Training and Placement (ANPAL) was established in 2016 to coordinate with Italian regions, which after the defeat of the December 2016 constitutional reform referendum, remain in charge of implementation of many labor policies. ANPAL is following the implementation of the Assegno di Riallocazione (the “reallocation check”, an initiative related to the Jobs Act aimed at providing unemployment benefits to workers willing to move to a different part of the country), and the related special wage guarantee fund (Cassa Integrazione Straordinaria) and retraining to find a new job. The “reallocation check” funds are disbursed to the agency in charge of the retraining and job placement only after the candidate gets a new job. Citizenship Income and ANPAL are expected to play a key role in helping eligible workers who are willing to work to find a job.
Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate (e.g., more than 25 percent in Calabria) than northern and central Italy (e.g., approximately 4 percent in Bolzano). Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country. Immigrants from Eastern Europe and North Africa often are drawn to the north by the opportunities created there by shortages of unskilled and semi-skilled labor.
Italy is an International Labor Organization (ILO) member country. Italy does not waive existing labor laws in order to attract or retain investments. Terms and conditions of employment are periodically fixed by collective labor agreements in different professions. Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers’ Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL). The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL). The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.
Collective bargaining is widespread in Italy, occurring at the national-level (primarily to reflect inflation and cost-of-living adjustments) and industry-level (to reflect productivity and profitability). Firm-level collective bargaining is limited. The Italian Constitution provides that unions may reach collective agreements that are binding on all workers. There are no official estimates of the percentage of the economy covered by collective bargaining agreements. A 2014 estimate from union officials projected collective bargaining coverage at 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements.
Collective agreements may last up to three years, though recent practice is to renew collective agreements annually. Collective bargaining establishes the minimum standards for employment, though employers retain the discretion to apply more favorable treatment to some employees covered by the agreement.
Labor disputes are handled through the civil court system, though they are subject to specific procedures. Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.
In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.
There have been no recent strikes that posed investment risks. The Italian Constitution recognizes an employee’s right to strike. Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern. In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments. In addition, frequent strikes by employees of local transportation providers may limit citizens’ mobility.