- Research finds Italian labour market structure resembles a tunnel, characterised by state dependence and immobility;
- Situation is entrenched by unemployment and low pay ‘traps’;
- Authors call for targeted policy measures to reduce social harm.
The Italian labour market structure resembles a tunnel characterised by immobility and ‘true state dependence’, researchers at the University of Oxford and Bank of Italy have found in a new research study.
The study, published this month in Labour Economics journal, aimed to examine the extent of state dependence in the persistent and stubbornly high unemployment and low-pay employment rates in Italy.
It is the first to look at the detailed interactions between unemployment and low paid employment, and used a novel model and a rich dataset from the Italian component of EU-SILC.
The authors found that that state dependence was the defining feature of the Italian labour market - rather than individual heterogeneity (differences between individuals) - and that targeted policy measures would be needed to address the structural problems going forward.
Lead author, Michele Bavaro of the Department of Social Policy and Intervention and the Institute for New Economic Thinking at the Oxford Martin School, Oxford University said that the research contributed by disentangling the cause of Italy’s comparatively high levels of unemployment and low-pay employment.
“Disentangling the relative importance of individual heterogeneity and true state dependence is important for targeting policy measures.
“If state dependence is the main cause of unemployment and low pay-persistence, it may be crucial to break their vicious cycles, e.g. by adopting income-supporting social polices.
“But if individual heterogeneity (differences between individuals) is the issue, then effective policies should focus primarily on education, training, development of personal skills and other labour market-oriented policies.
“We find the former is the case and that policy focus on breaking down the traps and tunnels should be focused accordingly.”
Co-author Federico Tullio, researcher at the Bank of Italy said that based on these findings it became apparent that people who are unemployed and those with low-paying jobs have distinct needs.
“Addressing unemployment persistence typically requires income-supporting policies, and policies aimed at promoting employment.
“On the other hand, tackling low-earnings dependence involves implementing minimum wage programs, preventing the misuse of non-standard contracts through regulations, and introducing measures that guarantee fair compensation (e.g. for women and migrant workers).
“In both cases, it is crucial to implement policies enhancing characteristics such as higher education, serving as protective factors against unfavourable labour market conditions.
“From a macro perspective, unemployment is socially harmful as it represents both an economic burden, for instance in terms of growth and labour productivity and a fiscal cost though unemployment benefits and it may contribute to public finance imbalances. Furthermore, a rise in the share of low-pay workers may undermine the long-term sustainability of social security systems.”
ENDS.
FACTFILE: Italian Labour market:
- In the last thirty years Italy has been characterised by high levels of unemployment and low-pay employment. After the sovereign debt crisis, Southern European countries, including Italy, experienced a rise in unemployment larger than the EU-28 average.
- The study makes use of AD-SILC, a dataset integrating survey data and administrative records covering the period 2014-17 and providing information on gross labour income at the individual level, additional work-related details, individual social-demographic characteristics and other information at the household level.
