Italy is having a very hard time recovering from these crises unlike other European countries. Why hasn’t Italy managed to fully recover?
The problems that our country has encountered in recent years do not derive from the outside (as for example we often hear that the Euro and the European Union are to blame), but depend on the inside, due to the structure of our country, the political choices that have been made during all these years and now we are experiencing their effects. Let’s list some of these problems:
- Low productivity;
- The enormous interest paid on the public debt;
- The negligible amount invested in research and development;
- High tax evasion;
- The high pension expense.
These are just some of the causes of Italian stagnation, but let’s now focus on the topic of wages and try to understand what are the causes why the latter are so much discussed.
Low Productivity and comparison with other European countries 4
What is productivity?
Productivity is the production capacity of a company by best combining its production factors. In the period 2010-2016, Italian labor productivity increased by 0.14%, a very discouraging figure, the second worst only after Greece.
The 2008 crisis had a devastating impact on productivity in all countries, especially in Europe. Italy, on the other hand, had difficulties with its productivity long before 2008, in fact in the 2001-2007 range it did even worse with a paltry 0.01% per year
Overall, in the 1995-2016 range, the annual productivity growth rate was 0.3%, but let’s try to understand what were the reasons for this “dark evil” that hit Italy through 4 key points:
1. Difficulty in doing business
Difficulty in efficiently combining the financial system with Italian companies, especially in accessing credit, Italian companies struggle a lot compared to other nations, this obviously reduces the investments that Italian companies can make. Italy also has an economy centered on small and medium-sized businesses (as we saw before) with traditional production and difficulties and no technological progress, a fundamental point. this, which marks a separation between old Italian excellences and Italian companies today: Ferrero, Piaggio, Luxottica just to name a few of the companies born in the economic boom of the 60s.
Entrepreneurs had perfectly trained human capital at their disposal for the needs of those years, in fact the Italian economy mainly needed a workforce focused on manufacturing and there were workers who satisfied the low-skilled demand for work, but this demand, as the years went by and with technological progress, it slowly changes over time.
Compared to other countries, Italy has adapted very slowly to technological progress, a key point for understanding the backwardness of the Italian economy, for example by not reforming schools which remain the same for years; while other countries tried to innovate, Italy remained stagnant and the workers, who entered the job market every year, were specialized exactly like previous years, therefore there was no cultural innovation, causing our country to fall behind compared to the other.
In recent years, few companies such as Eni and Enel have established themselves in the technological sector, but the ability of Italians to “do business” is slowly disappearing due to the “non-innovation” of our system and it is a very important point to observe.
2. Low level of skills
Italy is affected by a very particular phenomenon, that of Skills mismatch, that is, the misalignment that is created between study paths and the skills required by Italian companies. It is important to underline the misalignment of supply and demand since around the 1980s.
Very important point because from here it is possible to give an explanation on the wage inequality that has been created and why wages are unable to grow; while the supply of low-skilled labor has grown progressively over time, the demand for low-skilled labor has increased slightly, this has caused a decline in the number of low-skilled workers. On the other hand, the supply of skilled labor increased slowly over time and instead the demand rose dramatically, this resulted in the increase in wages of highly skilled workers. Furthermore, the phenomenon of low wages for the same high qualification is one of the lowest in Europe, this pushes young people to leave their country. Let’s analyze some data from the OCPI observatory 5:
- Since 2010, Italian residents abroad have been progressively growing.
- Italy is one of the last nations with a graduate unemployment rate of 5.8%, mainly due to the misalignment of job supply and demand mentioned above.
- Italy is among the last, clearly below the European average, in terms of employment rate by age group, the youngest (15-24) is the most affected, the trend of young people who do not work or study is very widespread and , now that the country is also hit by a demographic crisis, this mixture could trigger many problems for the world of work.
Furthermore, compared to other countries, Italians improve their standard of living especially at an advanced age, over 55. Careers are therefore very slow, thus greatly discouraging young workers, whereas in other European countries this is not the case, young people earn immediately and this is why they attract more and more foreign talent.
3. Structural deficiencies and the North-South divide
We can see by using a graph to understand the trend of income disparity between the various areas within Italy. Underlining, from the study conducted by the Bank of Italy, important aspects such as:
- Performance of the Northern Economy greater than that of the South (2015-2021)
- Size of companies in the North approximately 3 times larger on average than those in the South
- The unemployment rate on the potential workforce in percentage values is significantly higher in all the categories studied in the South than in the North.
There is much other important evidence you can consult 6.
