Youth Unemployment in Italy at the Time of the ‘Great Recession’

Italy is not much different from other EU countries, and in particular South European countries, as to the recent evolution of the youth unemployment rate (YUR) at the time of the Great Recession. Figure 1 shows the progression of the youth and adult unemployment rates (YUR and AUR since now) by gender from 1993 till 2011 [1]. Expectedly, young people have been the worst hit by the recent recession. The weakness of young people during recessions in general is a well-known fact in the literature due to the tendency of firms to apply the so-called “LIFO (last-in-first-out) principle” to their firing decisions. The YUR has increased from 24% in 2007 to about 32% in 2011. The available data relative to the trimester one of 2012 shows a jump of the YUR up to 39.3%, well above the level reached in 1995 after the previous slowdown.

Figure 1

If anything new can be noted with reference to the current crisis, and in comparison with the previous 1991 crisis, it is the tendency of the LIFO principle to strengthen as a consequence of the diffusion of temporary employment contracts in the previous 15 years. In fact, Figure 1 shows an increasing degree of fluctuations of the YUR in the years after 1997, when for the first time the Treu Law started liberalizing the use of short-term contracts. While in the late 1990s and the early 2000s the YUR had shrunk, mainly due to the diffusion of short term contracts, when the crisis started back in 2008 the YUR exploded almost reaching the mid-1990s level in a few years.

In comparison, the adult unemployment rate (AUR) is much more stable over the entire period. In a way, the recent two-tier reforms have reduced the degree of fluctuation of the AUR, transferring the impulses of the business cycle on the YUR. Also the AUR has increased in the recent crisis, but much less than the YUR, as noted at more length below.

Interestingly, gender differences in terms of unemployment rates tend to slightly reduce over the period considered both among young and adult people. The gender gap in YUR goes down from 9.3% back in 1993 to about 5% in 2011. This is a complex phenomenon which has been already observed in other countries and is a consequence of the increasing educational gap in favor of women.

Figure 2 is similar to the previous one the only exception being that here we consider the YUR of people aged from 25 to 34 years. Here the curves are much lower and hence tend to almost overlap with those of the AUR confirming that it is around that age that young people tend to become adults, so to speak. It is at that stage in fact that the YUR goes down almost to the level of the oldest age segment. Interestingly, for the considered age group, gender differences become wider than those observed for the youngest segment as a consequence of the tendency of young women to marry and have children in their early thirties [2].

Figure 2

However, the YUR is an index of absolute disadvantage. It shows the extent to which the youth labor market problem is important and how it is affected by the business cycle. It does not allow us to understand whether the youth disadvantage in the labor market is higher or lower than the adults’ and whether their relative disadvantage has increased or decreased. To such an end, Figure 3 shows the evolution of the ratio of the YUR to the AUR over the years from 1993 till today by gender. The figure clearly confirms that in addition to being very high on average and over the entire period considered, the relative youth disadvantage has further escalated dramatically as a consequence of the great recession. Interestingly, the indicator had increased already since the early 2000s, reaching a peak in 2006, slightly shrunk in the years immediately before the crisis and has exploded again later. This dynamics are again related to the two-tier reforms and the increased employment rate of the first half of the 2000s. By way of comparison between Figure 1 and 2 we can see that the ratio of the YUR to the AUR has increased in the first half of the 2000s as a consequence of a slow but continuous reduction in the AUR in presence of a stable YUR. In the period of the economic crisis, the ratio has increased because of the much faster increase of the YUR.

Figure 3

An interesting way to assess the impact of the crisis on young people is looking at the YUR by educational level of the unemployed. Figure 4 does so by focusing at the period from 2004 till 2011. It shows that the crisis has not been neutral in terms of the type of workers that have been most hit. In fact, the hardest hit groups include those with primary education or below and those with compulsory education. The young people holding a high secondary school diploma have also seen a worsening of their absolute position. The only group experiencing a reduction in their unemployment rate are young people holding a university degree. Comparison of outcomes by gender suggests that the reduction in the unemployment rate of young people holding a university degree depends especially on women. Other educational groups seem to exhibit similar evolutions across genders.

Figure 4

Figure 5 focuses on one of the most vulnerable groups, namely the long-term unemployed. It shows the evolution of the youth and adult long-term unemployment rate over the period from 2004 to 2011. The figure shows that the share of long-term unemployed has dramatically increased among young people, much more quickly than among the adults. This is confirmed also by inspection of Figure 6 which reports the ratio of the long-term YUR and long-term AUR. This measure had shrunk over the period immediately preceding the crisis but has dramatically increased after the explosion of the crisis, confirming the dramatic increase in the YUR, both in absolute and relative terms. The effect is mainly due to the worsening position of young women. Their long-term unemployment rate has dramatically increased with respect to that of their adult counterparts especially starting from 2008. In the case of men, instead, the ratio has remained quite stable.

Figure 5

Figure 6

Figure 7 presents a breakdown by trimesters of the YUR and AUR. The figure also presents data relative to the first trimester of 2012. It confirms the already observed extreme volatility of the YUR and the much stronger stability of the AUR over the business cycle. The fluctuations of the YUR depend especially on women. The female YUR goes up to about 60% in the first three months of 2012. However, it is clear that this is not the peak for the female YUR which has, in other periods reached also higher levels. The same applies also to the male YUR, which reaches 30% in the first trimester of 2012. The male YUR has also been higher in previous trimesters, especially since the beginning of the great recession.

Figure 7

Last, but not least, it is interesting to look at the not-in-employment-education-training (NEET) youths. This is a larger statistical aggregate than the unemployment rate, in as much as it includes a more heterogeneous group of inactive people involved neither in educational nor in training activities. Figure 8 provides the only available series for Italy, up to 2010 broken down by macro-regions. The figure allows showing that also this group has dramatically increased in recent years. The increase is in fact higher in the Centre-North macro-regions, rather than in the South. This is probably due to the fact that the level of NEETs in the South has always been much greater than in the other macro-regions.

Figure 8