Youth Unemployment in Italy at the Time of the Great Recession: Labor Market Liberalization or Educational Reform?

The Great Recession, so to use the expression that the Nobel laureate Paul Krugman has proposed, has, on the one hand, exacerbated the old weaknesses of the country’ school-to-work transition system and, on the other hand, added new reasons of concern. In fact, it has dramatically further increased both the absolute and the relative disadvantage of young people with respect to adults.

If anything new can be noted with reference to the current crisis, this is the tendency of the old LIFO (last-in-first-out) principle to further strengthen its bite as a consequence of the diffusion of temporary contracts in the previous 15 years. The recent two-tier reforms have reduced the degree of fluctuation of the adult unemployment rate, transferring the impulses of the business cycle on to the youth unemployment rate. As a consequence, the latter has increased from 24% in 2007 to 32% in 2011 and 39.3% in quarter one of 2012. Also the adults’ unemployment rate has increased in the recent crisis, but less than the youth one. In fact, the ratio of the youth to the adult unemployment rate, has dramatically further escalated.

These recent trends are a consequence of long-lasting problems. Italy has always offered to its young people one of the most rugged school-to-work transition path in the world. It is a typical example of the South European regime, like France, Spain and Greece, where the labor market, once rigid, has become increasingly flexible at the margin, through two-tier reforms, but the educational system is extremely rigid and sequential and the family (not the state) has the role of shock absorber and bears most of the cost of the transition to adulthood.

A number of indicators suggest that wage, functional and numeric flexibility have all increased in recent years due to the many labor market liberalizations’ reforms. These changes have reduced the unemployment rate, but only for a short period. They have also reduced the duration of youth unemployment, which was unusually high in the country, but not the duration of the overall school-to-work transition process, still one of the lengthiest in the world.

The recent reforms suggest that there is little room to claim for more flexibility. It is rather the inability of the educational system to address in a satisfactory way the youth experience gap. Also the most educated young people miss the work related component of human capital, due to the inefficiency of the educational system, which tends: a) to teach the most theoretical aspects of each discipline, with little attention to their applications, which does not allow young people developing their problem solving skills, the most requested in the labor market; b) and to have little linkages with the labor market.

The latter is apparent from the shortage of on-the-job and apprenticeship training not only during the school and university path, like it is the case of the German dual system, but also when a degree has been achieved. It is only in 2011 that the apprenticeship contract has been re-launched as the main insertion contract for young people up to the age of 29. Nonetheless, after about a year of implementation, it has had only limited diffusion due to the much lower cost for firms of alternative work arrangements, such as stages, temporary contracts and the like. In addition, with few exceptions, job placement activities are missing both at the school and university level.

The educational system at all levels should be considered as the main leverage to help young people fill their experience gap, but also to increase their average educational level in accordance to the Europe 2020 objectives. The share of dropouts is highest at all educational levels, starting from primary school, with rates that in some Southern cities and regions reach world records. 55% of registered students at the university level dropout and fuoricorsismo, a neologism for delayed graduations, regards over 40% of graduates. It takes still 7-8 years on average to get a degree, despite the fact that the 3+2 reform, based on the Bologna process, had the aim of increasing the share of graduates by reducing the indirect cost of education.

From a policy point of view, it is apparent that up to now the government of Mr. Mario Monti has been unable to curb the rise in youth unemployment. Nonetheless, this is not the fault of the government itself, but most likely of the previous government, which has left little choice but raising taxes, which is further depressing internal demand. In the last weeks, the government is trying to revamp aggregate demand through the spending review, which should cut unproductive public spending, and to increase the revenues from tax evasion and elusion in order to reduce taxes on labor and increase disposable income.

In addition, on the 27th of June 2012, the government has implemented a labor reform (so-called “Fornero Law”, like Elsa Fornero, the Minister of Labor who promoted it) which has the declared aim to smooth school-to-work transitions in two ways: on the one hand, it has reduced the cost of permanent work, mainly by decreasing the constraints imposed to the firms’ firing decisions by art. 18 of the 1970 Labor Code; on the other hand, it has increased the cost of temporary work by recognizing social security rights, which previous reforms (Treu Law of 1997 and Maroni Law of 2003) did not allow. It is however too early to assess the impact of this reform.

This article is part of a project on youth unemployment in Europe run by the Friedrich-Ebert-Stiftung and Social Europe Journal

  • Josh Mosca

    Surely it as a decrease on Theory (in the educational system) which has led to our current crisis; so to the ones before it, and likewise the ones to come… practical training may of course be essential for the transition into the ‘real’ world, but it nonetheless disregards historical alternatives. Rather, a decrease on the emphasis placed on theory can only reify the immediate reality and its inherent contradictions: theoretical training hones student’s skills for critiquing the status quo, opposed to molding them to work within it. For surely modern civilization is no pinnacle of human achievement, not when we realize that is merely one of a host of alternatives; alternatives structured in accordance with Reason. The decrease placed on theory grows globally, and is a cause for reifying the established reality in a way like never before. Theory offers alternatives to the present historical reality, a reality which is as destructive as it is socially entrenched.