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Cut to Italy “tax wedge” and labor policies need to be on govt agenda

by Claudio Tucci

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Incentives for companies to hire new workers and rules introduced by Italy’s “Jobs Act” labor market reform did what they could in an economy that is still only recovering slowly: the year 2016 has closed with 242,000 more people in work (December 2016 Vs December 2015), of which 111,000 are employees hired permanently. Temporary contracts accounted for 155,000 positions.

The number of unemployed people has grown by 144,000, but the number of those classed as “inactive,” who are neither in employment nor seeking work, fell by 478,000, pointing to greater participation in the labor market, above all among women and young people.

The demographic component is weighing on the numbers, according to statistics office ISTAT. In the 15-49 age range, employment is declining (-168,000) because the population in this age range is declining (without this dynamic there would be 76,000 more employed people). Among those aged 50-64, on the contrary, demographic growth is leading to an increase in employment (the increase in the retirement age also plays a part).

The point, however, is that in the last few months of 2016 the situation has stagnated. In December, employment did not grow compared to November (companies seem to have not made use of the last month that a generalized tax break was in force). The unemployment rate remains stable at 12%, and the jobless rate among young people is returning above the psychological threshold of 40% (it has reached 40.1% in Italy, Spain and Greece are the only EU countries with higher rates).

The fact is, faced with greater participation in the labor market, the possibility of finding a contract is limited: companies, above all manufacturing ones, are waiting for brighter times, and in the mean time they are bringing people previously placed in the unemployment insurance scheme (cassa integrazione) to full time hours. There are still complicated company crises underway, and from January social welfare buffers have been reduced.

The cost of labor remains a central theme for companies, and from January only the incentive linked to work placement schemes for school students is still in place.

What is needed is an immediate cut to the “tax wedge,” or the difference between how much a company pays to employ a worker in Italy and the amount that the worker actually takes home. Furthermore, industrial crises need to be tackled with work policies that focus on training and activation to help people find new job positions. On this front, a joint document by employers’ association Confindustria and the trade unions was drawn up in September and is still due to be implemented.