Unemployment continues to be a pressing issue in Italy, particularly among youth (ages 15-24). Italy has one of the EU’s highest youth unemployment rates at 25.3 percent (January 2022), while the overall unemployment rate was 8.9 percent in December 2021. The effect of the COVID-19 pandemic on the labor force has been uneven and substantial. Job losses were concentrated among self-employed workers and those on fixed-term contracts, especially in the services sector, penalizing younger workers and women. The unemployment rate did not increase due to the government’s ban on layoffs and a program that provided paid furloughs, which allowed companies to temporarily reduce staff during the COVID-19 emergency – without adding them to the ranks of the unemployed. Despite these measures, Italy lost 456,000 jobs in 2020 but recuperated 540,000 jobs in 2021, while Italy’s inactive population (neither working nor seeking work actively) dropped 4.8 percent (corresponding to 653,000 people).
Moreover, compared to February 2020, there are still 207,000 fewer jobs. Most new jobs in 2021 were in the services sector under temporary contracts (without unemployment insurance and social security benefits) and predominantly taken by young people and women. As of January 2022, only 50.3 percent of Italian women had jobs – the second lowest rate in the EU- compared to 68.1 percent for men. The data shows that the COVID pandemic impaired the already low levels of female participation in the labor force. The ratio of long-term unemployment (unemployment lasting over 12 months) as a share of overall unemployment continues to be among the highest of major European economies. Underemployment (employment that is not full-time or not commensurate with an employee’s skills and abilities) is also severe. Those underemployed usually find work in the service industry or other low-skilled professions in the large informal economy, which Italy’s statistics agency estimates comprises at least 12 percent of Italian GDP. According to the latest available data (released in October 2021), the informal economy accounted for 11.3 percent of GDP in 2019, with undeclared work estimated at approximately 3.6 million full-time equivalent units. The agricultural, services, and construction sectors stood out for high rates of undeclared work. However, there is anecdotal evidence of unpaid internships and trainee programs masking as de facto undeclared work in every industry as a precursor to securing a regular labor contract.
Labor force productivity – a central weakness of the Italian economy – is below the EU average. Many Italian employers report an inability to find qualified candidates for highly skilled positions, demonstrating considerable skills disparities in the Italian labor market. The government has also reported difficulty finding qualified candidates to manage NRRP programs in the South. Well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU freedom of movement to work in other EU countries. 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.
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. However, the cumbersome and lengthy process is 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.
Indefinite employment contracts signed before March 2015 are governed by the 2012 labor regulations, 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 release indefinitely, often using the threat of protracted legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.
Indefinite employment contracts signed after March 2015 fall under rules established by the 2015 Jobs Act, a labor market reform package that contractually advanced employee protections that increased with tenure. During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons. Under the 2015 Jobs Act regime, dismissed employees must appeal their dismissal within 60 days, and reinstatements are limited. Regardless of the reason for termination, a former employee is entitled to receive severance payments (TFR – trattamento di fine rapporto) equal to 7.4 percent of the employee’s annual gross compensation for each year worked. Other 2015 Jobs Act measures include universal unemployment and maternity benefits and a reduced number of official labor contract templates (from 42 to six). For example, Italy’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers. The government also provides worker retraining and job placement assistance, but services vary by region. Implementation of robust national active labor market policies remains in progress. The NRRP includes provisions for unemployment benefit reform and new active labor policies that the government approved as part of the 2022 budget. In 2018 the government introduced the “Dignity Decree,” which rolled back some structural reforms to Italy’s labor market adopted as part of the 2015 Jobs Act. For example, the Dignity Decree extended incentives to hire people under 35 years of age, set limits on the renewal of short-term contracts (the government suspended the limit during the pandemic), and made it costlier for companies to fire workers.
Italy offers residents other social safety net protections. In 2017 the government implemented an anti-poverty plan (Reddito di Inclusion, or “Inclusion Income”) to provide some financial relief and training to the indigent and those below a certain income threshold. In the 2019 budget, the government introduced the Citizenship Income (Reddito di Cittadinanza), which replaced and broadened the 2017 Inclusion Income program. The Citizenship Income program provides a basic income of €780 per month to eligible citizens and acts as an employment agency to some participants. The estimated annual cost of the program was approximately €6.5 billion, but the pandemic increased the number of potential beneficiaries. The program benefits around 1.3 million households (or 3.1 million individuals).
In 2019 the government implemented an early retirement plan (Quota 100), which changed the pension law and permitted earlier retirement for eligible workers aged 62 or older with at least 38 years of employment. The benefit expired at the end of 2021, although the government proposed a less generous early retirement pilot program in the 2022 budget and is actively negotiating pension reform with unions.
While the 2015 Jobs Act included a statutory minimum wage, the government has yet to implement the policy. With no national minimum wage, sector-wide collective bargaining determines prevailing wages. The government in 2016 established an agency for Job Training and Placement (ANPAL) to coordinate (with Italian regional governments) the implementation of many labor policies. ANPAL oversees the relocation allowance (Assegno di Ricollocazione), an initiative to provide unemployment benefits to workers willing to move to different regions, and a related special wage guarantee fund (Cassa Integrazione Straordinaria) that provides stipends for retraining.
The Citizenship Income program and ANPAL appear to have failed in their goal of helping eligible workers find jobs. However, the Citizenship Income program seems to have played a role in reducing poverty before the pandemic and limiting its rise in 2020 during the economic crisis. In March 2021, the Ministry of Labor set up a committee to reform the Citizenship Income program. The 2022 budget provided extra funds to the program (€8.8 billion for 2022-2029) and implemented more stringent qualification criteria. Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate than northern and central Italy. Despite these differences, internal migration within Italy remains modest and limited to highly educated workers that cannot find jobs in the South. At the same time, industry-wide national collective bargaining agreements set equal wages across the entire country.
Italy is a member of the International Labor Organization (ILO), and Italy does not waive existing labor laws to attract or retain investments. Collective labor agreements in different professions periodically fix the terms and conditions of employment. Italian unions fall 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 is usually affiliated with the World Confederation of Labor (WCL). The confederations negotiate national-level collective bargaining agreements with employer associations that are binding on all employers in a sector or industry.
Collective bargaining is widespread, occurring at the national level and used primarily by labor to secure compensation for inflation, cost-of-living adjustments and bonuses for increased productivity and profitability. Firm-level collective bargaining is limited, and the Italian Constitution provides that unions may reach collective agreements binding on all workers. There are no official estimates of the percentage of the economy covered by collective bargaining agreements. However, a 2019 estimate from the European Trade Union Institute estimated collective bargaining coverage was approximately 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, although the current practice renews collective contracts annually. Collective bargaining establishes the minimum standards for employment, but 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 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 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 reach a mutually acceptable agreement to avoid layoffs or closure. In recent years, U.S. companies have faced significant resistance from labor unions and politicians when attempting to right-size operations. Due to the COVID-19 pandemic, the government banned most layoffs through 2021. The end of the ban did not generate any relevant impact on layoffs and employment, and the 2022 budget extended the prohibition to end-April 2022.
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, occasional strikes by employees of local transportation providers may limit citizens’ mobility.