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Prepared by Eswar Prasad and Francesca Utili (summer intern).
Bertola and Ichino (1996) argue that the limited and tentative reforms in recent years lacked credibility and may in fact have exacerbated the unemployment problem.
The dispersion of regional unemployment rates in Italy is estimated to be the largest among OECD countries. Other EU countries that have significant but smaller regional disparities in unemployment rates include Belgium and Germany. In Belgium, the unemployment rate in 1997 was about 17 percent in Wallonia compared to 9 percent in Flanders. In Germany, the unemployment rate in 1997 was close to 20 percent in the east compared to 10 percent in the west. An important difference relative to the Italian situation is that, in both of these countries, changes in regional unemployment rates have been positively correlated during the 1990s. See Pugliese (1993) for additional perspectives on the regional segmentation of the Italian labor market relative to other European labor markets.
These age brackets were chosen to facilitate international comparison. The minimum working age in Italy is 14.
The existence of a large informal sector, may in turn, be attributable among other factors, to the fact that Italy has one of the highest tax wedges among OECD countries.
The large share of employment in public administration appears to be a feature of other continental European economies as well. The OECD’s estimate of the proportion of general government employment in total-employment is close to 20 percent on average for the EU-15, compared to about 15 percent for the United Kingdom and the United States. It should be noted, however, that the definition of general government employment may be somewhat narrower than the measure of public administration used in this chapter.
Other European countries that have a share of self-employment greater than 25 percent are Greece, Portugal, and Spain. By comparison, the share of self-employment is less than 15 percent in France, Germany, and the United Kingdom.
Gross flows of labor across sectors generally dominate net flows in terms of magnitudes. In recessions and periods of major structural change, however, the ratio of net flows to gross flows tends to rise. Lilien (1982) has argued that a significant fraction of cyclical unemployment in the United States is attributable to such sectoral shifts.
Other aspects of these reforms are discussed below. For details on the July 1993 agreement, see Demekas (1994).
Fabiani, Locarno, Oneto, and Sestito (1997) argue that the wage moderation engineered by the incomes policy, embodied in the 1992–93 agreement may have contributed to some of the recent decline in inflation.
The OECD estimates that the coefficient of variation of labor cost levels per working hour for production workers across thirteen industries in the manufacturing sector was 0.15 in Italy in 1994, compared to about 0.30 for Canada, Japan, and the United States, and an average of 0.20 for France, Germany, Spain, and the United Kingdom (OECD, 1997).
Bayoumi and Prasad (1997) find that, for Italy, industry-specific shocks are more important than common shocks across all industries for explaining fluctuations in disaggregated output growth.
The 1970 Charter of Workers’ Rights (Statuto dei Lavoratari) resulted in substantial rigidities in hiring and firing procedures, the compensation structure, rules for workers’ mobility within firms, etc. These rigidities and their deleterious effects are well-documented in the literature. See Demekas (1994) and Bertola and Ichino (1996) for a comprehensive description of labor market institutions in Italy, and Brunetta and Ceci (1996) for details on the 1992–93 tripartite agreement and related reforms.
Workers covered under the CIG are not classified as unemployed in official unemployment statistics while workers on mobility lists are. The unemployment rates reported in this chapter incorporate the Bank of Italy’s adjustment to the unemployment figures to include workers compensated by the CIG.
Labor unions have also played an active role in the tripartite “consultation process,” for example, in recent negotiations of pension reform, labor market regulations, etc., indicating their continued importance as social partners.
Faini, Galli, Gennari, and Rossi(1997) document trends in inter-regional migration in Italy. Based on survey evidence, they also list a number of institutional factors, such as an inflexible housing market, that have hindered migration within Italy.
The 1983 reform of the indexation system included a 15 percent reduction in inflation coverage. As discussed by Bertola and Ichino (1996), the indexation system was then progressively weakened. In particular, a cap was instituted on scala mobile payments in 1984, and cost-of-living adjustments were made proportional to earnings in 1986.
Decentralized wage bargaining could enhance wage differentiation but could lead to a wage-price spiral if relative wage competition among unions is significant, thereby resulting in adverse effects on aggregate employment.
See Keane and Prasad (1996) for a discussion and an empirical example of how estimates of sectoral wage equations using data aggregated at a sectoral level can be biased by compositional effects.
This is potentially an important result. Since larger firms are permitted to link pay levels above nationally-contracted minimums to firm-specific productivity and profitability, this finding suggests that labor productivity is, on average, higher in larger firms. This indicates that there could be significant efficiency losses from the onerous labor market regulations that have fostered an industrial structure that is skewed toward smaller firms.
The numbers reported in this and subsequent tabulations in this section are derived from the authors’ calculations based on data from the Bank of Italy’s household survey for 1995.
This result should be viewed with some caution since the number of young college-educated labor force participants in the sample is quite small.
A further striking result (not shown here) is the substantially lower probability of employment for workers with a history of one or more long spells of unemployment. This is true in all regions and indicates the employability problems associated with long-term unemployment. The regressions containing this result are not reported here since this variable was available only for a limited sub-sample.
A recent report of the Associazione per lo Sviluppo dell’Industria nel Mezzogiorno (SVIMEZ) notes that, in 1997, part-time work accounted for about 6.4 percent of total employment in Italy (5.5 percent in the South), compared to about 15 percent in Germany and 24 percent in the United Kingdom.
Castronuovo (1992) cites evidence that the profitability of investment (measured as the marginal ratio of capital to product) is lower in the South compared to the North.
For instance, Castronuovo (1992) estimates that, in the manufacturing sector, there was a gap of about 20 percent in labor productivity between the North and the South in 1989. Viviani and Vulpes (1995) estimate similar large inter-regional differentials in total factor productivity. Taylor and Bradley (1997) conclude that differentials in unit labor costs across Italian regions are statistically and economically significant determinants of both the levels and persistence of regional disparities in unemployment rates.
Attanasio and Padoa-Schioppa (1991) and Faini, Galli, Gennari, and Rossi (1997) document the low and declining levels of inter-regional migration, although these two sets of authors reach different conclusions about the role of income support mechanisms and other institutional factors in influencing such migration.
The SVIMEZ report for 1997 indicates that only about 7.5 percent of new job placements in Italy were arranged by (public) employment agencies. This proportion is substantially lower than in most other European countries, many of which permit the operation of private employment agencies. These include England (about 33 percent), Germany (37 percent), and the Netherlands (63 percent). Faini, Galli, Gennari, and Rossi (1997) cite evidence that informal networks (i.e., family and friends) play a far more important role in job matching in Italy, especially in the South, than in other countries.
To cite one example, it has been suggested by some observers that restrictions on shop opening hours may have hitherto limited the diffusion of part-time contracts in Italy. Recent measures to relax such restrictions in the retail sector could, therefore, have spillover effects on the demand for part-time labor and could encourage more women to enter the labor force.