29 July 2011

Filippo Strati (SRS)

Fiscal consolidation and structural reform

According to the new economic governance in the European Union (EU), Italy prepared its 2011 Stability Programme (for the period 2011 – 2014) and its 2011 National Reform Programme to follow the Europe 2020 Strategy, the EU Council priorities for fiscal consolidation and structural reform, as well as the Euro Plus Pact. As for all the Member States, the EU Council assessed the two Italian documents and formulated specific Recommendations for the period 2011 - 2012. Italy should reduce the excessive deficit through the planned fiscal consolidation and adopting concrete measures by October 2011 to support the targets for 2013 – 2014. In so doing, Italy should take coherent actions to: reduce the persistent regional disparities; combat labour market segmentation; fight against undeclared work; promote greater participation of women in the labour market; ensure closer links between wage growth and productivity; open up the services sector to further competition; promote access of small and medium sized enterprises (SMEs) to capital markets; foster private sector investments in research and innovation.

These Recommendations are relevant to the Italian structural weaknesses. However, the Italian policy agenda should take more coherent and concrete courses of actions aimed at: reducing precariousness in labour markets; improving and extending education and training services especially in favour of young people and older workers; eradicating any discriminatory restriction (mainly against immigrants and ethnic minorities) from existing laws; improving local welfare systems and the associated social services, including minimum income schemes; reducing inequality in income distribution; shifting taxes away from labour in order to stimulate new employment and reduce undeclared work; promoting national green economy plans to enhance environmental quality and the livelihood of poor communities, to foster sustainable consumption and to create new jobs and skills.

The following aspects deserve further attention in order to assess the policies proposed by the Italian National Reform Programme.

Regional / local disparities

Inequality in income distribution (e.g. the wealthiest 10% of households owned nearly 45% of the total national wealth) increased between 2000 and 2009 with higher disparities in the South than in the other regions.

During the last decade, poverty rates remained stable, showing that the impact of positive trends in employment recorded before the global financial and economic crisis has been insignificant. The highest at-poverty-risk rates are concentrated in the South, where only one third of the national population lives but constitutes two thirds of the total relatively poor persons.

Environmental decay is closely linked to poverty, material deprivation, housing hardships and bad health conditions both in urban and rural areas, both in peripheral neighbourhoods and big cities but with particular risk in the South.

Gender gaps are disseminated throughout the national territory and several factors aggravate gender disparities especially in the South.

Lowest activity and employment rates, as well as highest unemployment rates, are concentrated in the South and mainly affect women and young people, as demonstrated by the following data concerning 2010.

Activity rates of people aged 15 – 64 years in the South: 51% as a total (compared to 69% in the North and 67% in the Centre); 36% for women (compared to 60% in the North and 57% in the Centre); 66% for men (compared to 78% in the North and 77% and the Centre).

Activity rates of people aged 15 – 24 years in the South: 24% as a total (compared to 33% in the North and 29% in the Centre); 18% for women (compared to 29% in the North and 24% in the Centre); 29% for men (compared to 38% in the North and 34% in the Centre).

Employment rates of people aged 15 – 64 years in the South: 44% as a total (compared to 65% in the North and 62% in the Centre); 31% for women (compared to 56% in the North and 52% in the Centre); 58% for men (compared to 74% in the North and 71% and the Centre).

Employment rates of people aged 15 – 24 years in the South: 14% as a total (compared to 26% in the North and 22% in the Centre); 11% for women (compared to 22% in the North and 17% in the Centre); 18% for men (compared to 30% in the North and 26% in the Centre).

Unemployment rates of people aged 15 years and over in the South: 13% as a total (compared to 6% in the North and 8% in the Centre); 16% for women (compared to 7% in the North and 9% in the Centre); 12% for men (compared to 5% in the North and 7% in the Centre).

Unemployment rates of people aged 15 – 24 years in the South: 39% as a total (compared to 21% in the North and 26% in the Centre); 41% for women (compared to 23% in the North and 27% in the Centre); 38% for men (compared to 19% in the North and 25% in the Centre).

The global financial and economic crisis impacted significantly on employment trends. Nationally, job opportunities have decreased as labour market flexibility has increased. Between the fourth quarters 2008 and 2010, there was an overall decrease (nearly -2%) in employment (414,000 units), in open ended labour contracts (nearly -2%) and in full-time jobs (-3%); an increase in fixed-term labour contracts (more than +1%) and in part-time labour contracts (nearly +7%).

Job precariousness increased in 2010: 17% of the total employed; 26% of women employment and 11% of men employment; 56% of employed aged 15-24 years and 24% of those aged 25-34. Young workers received a monthly wage 25% less than their counterparts employed in open-ended labour contracts, while the adult workers 38% less. Atypical and fixed-term labour contracts accounted for 76% of the new jobs activated between January 2009 and June 2010 at a national level, 78% in the South and in the Centre; 73% in the North.

Young people (aged 15 – 29 years) recorded high Neet (not in education, employment or training) rates in 2009: 21% as a national average, more women (57%) than men (44%), more in the South (58%) than in the North (28%) and the Centre (14%).

Immigration contributed to lessen the impact of the crisis between 2008 and 2010, constituting all new labour force (442,000 units) while nationals decreased (565,000 units). Labour projections indicate that there will be a need up to 2,600,000 more immigrants between 2011 and 2020. Immigrants in 2010 were closer to 5 million persons (8% of total population), produced 11% of GDP (gross domestic product), contributed to public revenue, but received a monthly wage 23% less than the Italians. Immigrants are often employed on the fringes of black economy and represent a kind of “ethnic division of labour” (e.g. unskilled jobs and home care services), mainly concentrated in the North and the Centre.

Undeclared work is embedded into the hidden economy, which value added was estimated between 16.3% and 17.5% of the Italian GDP in 2008. Rates of undeclared work were higher in the South (18%) than in the Centre (10%) and the North (9%) in 2007. Undeclared work constituted 12.2% of the total Italian employment in 2009.

Fiscal decentralisation and fiscal consolidation measures

Fiscal decentralisation will introduce significant changes over the next two years. All funding functions will be attributed to regional and local authorities. All financial allocations from the State to regional and local authorities will end. Non-earmarked equalising funds will be created to help regional and local authorities with a weaker fiscal capacity.

However, the decentralised fiscal system is not operational and basic levels of quality in social services have not yet been defined to ensure civil and social rights throughout the national territory. On the contrary, fiscal consolidation measures are fully operational as follows:

- a 35% progressive and consistent reduction in the overall budget of regional and local authorities between 2011 and 2013

- a 34% decrease between 2008 and 2010 and a further 82% decrease between 2010 and 2013 in financial resources allocated to social services through nearly 10 national funds, mainly managed by regional and local authorities (up to 80% of these funds)

- a 25% reduction in monetary support to low-income individuals and households between 2010 and 2013, summing up a series of allowances (only a small part managed by regional and local authorities = up to 26%)

Regional / local development initiatives

While fiscal consolidation measures are reducing financial resources devoted to regional and local authorities, the latter and their citizens have to face the current financial and economic crisis through development initiatives. Some examples are as follows.

Regional acts that support employment and educational plans (e.g. Piemonte, Liguria and Emilia Romagna in the North), youth education, housing, training and entrepreneurship (e.g. Toscana in the Centre), apprenticeship, training, job creation and self-employment (e.g. Campania and Puglia in the South).

Local authorities that ask for private donors and the involvement of private sector investments in local welfare systems (e.g. municipality of Firenze in the Centre).

Municipalities (e.g. Mollica in the South, Monteveglio, Ferrara and Modena in the North) and national networks (e.g. slow-food, transition towns, Local Agenda 21) that promote local sustainable development initiatives.

SMEs that enhance innovation in processes, products and markets in 18 out of nearly 100 industrial districts.

Workers’ cooperatives that take-over failing and bankrupt enterprises (e.g. in Toscana in the Centre).

Women and immigrants who create self-employment initiatives also because of a lack of other job opportunities.