When Italy’s parliament debated a labour reform law this spring, the most intense battles were fought over how to protect older workers nearing retirement. Little discussion was had about the nation’s 600,000 unemployed young people.
At 36 per cent, Italy’s youth unemployment rate is more than three times the overall level. As in Spain and Greece, where youth unemployment rates are even higher, fears are widespread that a generation could fall through the cracks. And critics say that Italy’s recent labour reforms have only reinforced practices that penalize young workers.
“We may lose these people forever if they don’t manage to enter the labour market when they are young and consequently don’t develop marketable skills,” says Gustavo Piga, an economics professor at Rome’s Tor Vergata university. “In addition to the human drama, Italy will lose billions of euros of gross domestic product if a large part of the population never becomes part of the work force.”
To tackle the problem, the technocratic administration of Mario Monti, Italy’s Prime Minister, is revamping the country’s apprenticeship scheme in the hope that it can become more like Germany’s, which is often cited as a major factor behind that country’s low youth unemployment rate.
Poor oversight of an existing apprenticeship scheme has allowed employers to take advantage of a tax benefit while not teaching young people a profession or putting them on the road to permanent contracts, critics charge. The revamped program will require spot checks for employers, who will have to convert at least 30 per cent of apprenticeships into permanent jobs to take advantage of the tax break.
But, in failing to go further in its push for labour reform, critics of the government charge it has missed an opportunity to address some of the big structural problems that make it difficult for Italy’s young to secure a place in the work force.
The labour reform law, which passed through parliament in late June, created incentives for companies to hire workers, and made it easier to fire workers, provisions sought by Mr. Monti and Elsa Fornero, his Labour Minister.
It also, however, retained protections for workers with permanent contracts that had made many employers reticent to hire people with anything but short-term contracts that rarely lead to long-term employment.
“The system penalizes young people and the new labour reform did nothing to confront that,” says Tito Boeri, an economist and professor at Milan’s Bocconi University who has been outspoken about what he sees as the government’s limited response to youth unemployment.
One of the main problems with the labour laws, according to Prof. Boeri, is that newly hired workers with a permanent contract immediately get the same protection as somebody who has worked at a company for 30 years. This dissuades companies from hiring and leads young workers to a future of jumping indefinitely from one job to the next. Ultimately, it results in lower economic output for Italy.
The problem of short-term contracts is familiar to Paolo, who graduated from university in Milan two years ago. Since then, the 28-year-old has had four office jobs lasting from three to seven months.
“Every time I start a new job I’m enthusiastic, but soon that peters out when you realize they won’t keep you for some reason that has nothing to do with you,” says Paolo, who just started his most recent job on a four-month contract and asked that his last name not be used for fear his comments could compromise his chance at getting a new contract. “Inevitably, you get demotivated.”
To address the problem of short-term contracts, Prof. Boeri has pushed for the introduction of a single contract for new hires, regardless of age. Some severance pay would be given to employees whose jobs were cut in the first three years. But once the third year has passed, the worker would have the same protection as all other employees with permanent contracts.
Prof. Boeri reckons that the plan would prompt companies to invest in training, and it would not cost the state anything.
Other economists say the scale of Italy’s problem requires a big public works program.
Among them is Prof. Piga, who wants to help young people get their first job through a national youth work program that would cost the state €16-billion ($20-billion) a year and hire one million young people on non-renewable two-year contracts paying €1,000 a month. They would work in hospitals, museums, the civil protection agency and public administration in a sort of paid civil service. After the two years, the young people would be better positioned to continue in the labour market. The plan could be paid for by cutting government waste, Prof. Piga says.
Prof. Boeri questions the idea of a plan that requires government expenditure. But everyone agrees that Mr. Monti cannot afford to ignore the problem. “I don’t know how high youth unemployment has to go to get people out on the streets protesting,” Prof. Boeri says. “But we are getting close.”