Chapter 1. Recent trends in the Italian Labour Market

This chapter provides an overview of the recent developments in the Italian labour market and discusses the main challenges. The Italian economy and labour market have started to recover from the Great Recession in the past few years. However, youth and long-term unemployment remain high and there is space to increase female labour force participation. The qualification and skill level of the labour force are low and the resulting mismatches contribute to the low and declining productivity. Although many of these challenges apply across the country, regional disparities are vast and persistent. Resources devoted to labour market policies are insufficient and not well allocated or targeted to address the difficult labour market situation.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

1.1. Introduction

The objective of this chapter is to give an overview of the Italian labour market situation and highlight the main challenges. The Great Recession hit the Italian economy more than many other OECD countries and only recently a mild recovery from the crisis can be observed. The improved economic situation has triggered an increase in the participation rate and some increase in employment. The employment rate of persons aged 15-74 years has risen to 50.6%, very close to its pre-crisis level. The unemployment rate (at 11.2% in 2017) has been decreasing in recent years, but it remains well above its pre-crisis levels and the third highest among OECD countries. Female participation has considerably improved, but labour market prospects for women are still lagging behind those for men. A high share of young people neither in employment nor in education and training and high long-term unemployment also constitute obstinate challenges.

Moreover, Italy’s labour market is characterised by a low level of skills. The share of working-age adults with a tertiary degree is low in comparison with other OECD countries and the skill levels tend to be relatively low at all levels of educational attainment. In addition, there is a high incidence of mismatches on the labour market, which further contributes to low productivity and low incentives for individuals to invest in education.

Italian regions face many of the same challenges. Nevertheless, regional labour market differences are vast and persistent, as labour force mobility between regions, occupations and sectors remains low.

Investment in active labour market policies is low compared with other OECD countries considering Italy’s high unemployment rate and deep-rooted challenges on the labour market. The limited resources available for the system of public employment services, the weak targeting of active measures and the misallocation of valuable resources constitute important challenges that should be addressed going forward.

This chapter proceeds as follows. Section 1.2 discusses the general labour market situation and identifies the groups that have more severe obstacles to enter employment. Section 1.3 highlights the challenges regarding skills and skill mismatch in Italy. Section 1.4 discusses regional disparities in labour market situation. Section 1.5 analyses the resources that Italy has devoted to labour market policies to address the difficult labour market situation. The final section concludes the chapter.

1.2. General trends in the labour market

The Italian labour market situation has witnessed mild improvements during the past few years after a long recession. However, the female labour market participation rate is still low, youth unemployment high and long-term unemployment prominent.

1.2.1. Some signs of recovery in the Italian labour market

The Great Recession was deeper and longer in Italy than in most other OECD countries (Figure 1.1). Due to the long duration and severity of the crisis, the real GDP per capita was in 2017 about at the same level as it was almost 20 years ago, in 1999. Although since 2014 the real GDP growth has been positive, it has remained weak. The economic recovery during the past few years has emerged due to structural reforms in Italy (including on the labour market), but also accommodative monetary policy and mildly expansionary fiscal policy as well as lower commodity prices (OECD, 2017[1]). The mild economic growth is expected to continue also during the coming years.

Figure 1.1. The economy is recovering, but productivity stagnating

However, total factor productivity as well as labour productivity have been declining or stagnating during the recent years. In fact, productivity in Italy has been lagging behind the productivity of most of its closer neighbours already for decades. The total factor productivity has been decreasing in Italy during the past twenty years on average by 0.2% a year, while increasing in most of its neighbouring countries. One of the main reasons behind this has been a rising misallocation of resources. It has been shown that capital inflows have been misallocated toward firms with higher net worth but not the more productive ones (Gopinath et al., 2017[2]) and that the rising misallocation was triggered by a sharp decline in real interest rates (Cette, Fernald and Mojon, 2016[3]). Though other reasons such as increasing global competition and changes in the trade dynamics (the rise of China), too stringent labour market protection legislation, “brain drain” and under-skilling as well as inefficient public administration might have played a role in the low productivity and economic weakness in Italy as well. Pellegrino and Zingales (2017[4]) and Hassan and Ottaviano (2013[5]) have argued that some of the main reasons for decreasing productivity have been low ICT investments and penetration due to the inability to exploit the ICT revolution as well as non-meritocratic management practices.

The Italian labour market has witnessed mild improvements along with a better economic situation (Figure 1.2). In particular, employment growth has supported the economic recovery during the past years through household income and private consumption (OECD, 2017[1]). The structural reforms including reforms on the labour market and the improving economic situation have encouraged many people to exit from inactivity and the labour force participation rate is now higher than before the beginning of the economic crisis. However, the rise in the participation rate has not yet fully transformed into higher employment rate which was in 2017 still slightly below the pre-crisis level.

Figure 1.2. Labour market indicators improving, but the situation still challenging

Even though Italy has advanced well in terms of the main labour market indicators during the past years, its labour market situation is still one of the worst among the OECD countries. The unemployment rate among 15-74-year-olds is relatively high (at 11.2%) and the employment rate and the participation rate are relatively low (at 50.6% and 57.1% respectively in 2017).

1.2.2. Female labour market participation is low despite recent improvements

Sharp differences in labour market outcomes exist between different population groups in the Italian labour market. For instance, women fare less well than their male peers (Figure 1.3). In 2017, 75% of men aged 15-64 were active on the labour market in Italy while only 56% of women. Nonetheless, there have been recent improvements in female labour force participation which reached 56% in 2017, versus 46% in 2000. Yet, other Southern European countries which had similar female labour force participation back at the time, have evolved much faster (70% of working-age women participate in labour force in Spain and 60% in Greece). There is indeed a lot of potential to further increase female labour force participation in Italy, for example by further improving the caretaking facilities for children and elderly and in the system of public employment services targeting active labour market policies to women.

Figure 1.3. The gender gap in participation rates has decreased, but still high

A quarter of all inactive working-age women state that the reason for their inactivity is education and training. For inactive men it constitutes even more than 40% (Figure 1.4). The main factors explaining the gender gaps in labour force participation are family duties and a lower retirement age for women. More than one in ten working-age women states to be out of the labour force due to family duties, while only less than one in hundred working-age men state family duties as the main barriers to labour force participation. Indeed, the lack of caretaking possibilities for children and elderly and the fact that flexible working arrangements are relatively uncommon, contribute to the low labour force participation of women in Italy [Boca, Pasqua and Pronzato (2004[6]), OECD (2017[1])].

In addition to differences due to family duties and retirement age, proportionally more working-age women than men do not believe that there are jobs available for them on the labour market. This suggests that labour market prospects are still not as good for women as for men. Women are discouraged to enter the labour market and thus policies to increase participation rates for women should go beyond caretaking measures.

Figure 1.4. Barriers to labour force participation differ by gender

Indeed, a study by the OECD using EU-SILC (European Union Statistics on Income and Living Conditions) data from 2014, shows that the employment barriers for Italian women are quite heterogeneous (Pacifico et al., 2018[7]). A relatively large group of women who are persistently out of work (unemployed or inactive) or who are in weak labour market attachment (unstable jobs, restricted hours, near-zero earnings) do not have childcare responsibilities, but have employment barriers such as limited work experience and education. An additional factor is their lower motivation to search for work because of sufficient income by other members of the household. Some groups of women do not have any past work experience at all which can occur in combination with other employment barriers such as care responsibilities or low work incentives.1

During the past years, there have been several new attempts to increase female participation in the labour market further, mainly promoting the balance between work and family life (additional funding for kindergartens, possibility to use parts of subsidy at the end of maternity leave for childcare services, an extension of compulsory parental leave for fathers, new regulations and incentives for employers regarding teleworking), yet they are considered to be small in scope (OECD, 2017[1]).2 Additionally, since March 2016, employers have to use an electronic database of the Ministry of Labour and Social Policies for terminating an employment contract, which should put an end to a common practice of illegal firing of young mothers, a practice that was common thus far (Pacifico et al., 2018[7]).

The system of public employment services has potentially a role to play by providing support for women to enter employment, for example through financing temporary caretaking services in case of participation in active measures or entering employment, or reaching out to discouraged workers and offering job-search training to build skills for job search, but also self-esteem and motivation. Currently, the active policies targeting women tend to be limited to employment incentives for employers hiring them (OECD/Eurostat Labour Market Programme Database, data for 2015).

1.2.3. No real recovery in youth labour market situation yet

The young people were hit hardest during the last crisis in Italy. The labour market situation of youth has improved only mildly and as a result every third economically active person aged 15 to 24 was unemployed and more than one in four young persons aged 20 to 24 were not in employment, education or training in 2017.

Many young people lost their job when the global economic crisis hit as some 40% of young employees used to work on temporary contracts in Italy, which were easier to terminate. Thus, the employment rates have plummeted for the younger age groups (Figure 1.5). Though there have been slight improvements in 2017, the employment rates for 15-to-24-year-olds (17.1%) and 25-34-year-olds (61.3%) were still almost ten percentage points lower than a decade ago. Simultaneously, the scarce job opportunities for youngsters have also become even more precarious as now more than half of employed 15-24-year-olds work on temporary contracts (see also Chapter 2). Workers on temporary contracts however tend to face wage penalties, income instability, slower wage growth, more job strain, less job security and they receive less training from their employer (OECD, 2015[8]).

Figure 1.5. Italian youth were severely hurt by the crisis

Along with the decline in employment, the youth unemployment rate (persons aged 15-24) peaked at 42.7% in 2014. While the youth unemployment has witnessed some improvements during the last years, its level as well as its difference from the unemployment levels of other age groups are still much higher than in most other OECD countries.

In addition to high unemployment, many young Italians are inactive (Figure 1.6). Among those 18-24-year-olds who are not in education, the share of youngsters who are employed is much lower in Italy than on average in the OECD countries, whereas the share of unemployed as well as inactive is much higher. Very importantly, while on average the share of youth neither in employment, nor in education or training (NEET) among 20-24 year-olds has slightly decreased in the OECD countries within the last ten years, Italy has suffered the largest increase making it the OECD country with the highest NEET rate (30.1%) after Turkey.

Long unemployment spells and drifting into inactivity early in a career have shown to cause large scarring effects on wages and employment prospects throughout the working-life [see for example OECD (2010[9]), Gregg (2001[10]), Arulampalam (2001[11])]. The long-term damaging effects of longer unemployment periods can occur even on other aspects of life such as happiness, job satisfaction and health [Scarpetta et al. (2010[12])]. Thus, youth unemployment and NEETs require particular attention.

The Youth Guarantee in Italy targets the young NEETs similarly to the other EU member states directing them to employment (e.g. through hiring subsidies and support for self-entrepreneurship), education, apprenticeships and traineeships. There were on average 2.3 million NEETs aged 15-29 during 2014-17 (data from I.Stat Database). According to a report by the National Agency for Active Labour Market Policies (ANPAL, 2018[13]), from the start of the programme in May 2014 until December 2017 altogether more than 1.5 million people aged 15-29 had registered for the Youth Guarantee programme in Italy. However, due to cancellations, no-shows and eligibility issues, only two-thirds (1.02 million) effectively started the programme (though this rate has improved over time), out of whom about half were enrolled to an active measure, mostly traineeships (60%), employment incentives for employers (23%) and education (12%). Furthermore, while the Youth Guarantee framework expects people registered with the programme to receive an offer for employment, education or training within four month after registration, 75% of youth in the programme had been waiting for an offer more than four months in 2016 [average over the year (EC, 2018[14])].

There are large regional differences in the share of enrolment in the programme compared to the registrations as well as in the share of youth thereafter enrolled into active measures. At the end of July 2018, the share of youth participating in at least one active measure compared to all youth enrolled in Youth Guarantee was 71% in North-Western regions, 64% in North-Eastern regions, 58% in Central Italy and only 45% in the South and the islands (ANPAL, 2018[15]).

By end of July 2018, 1.06 million youth had started the Youth Guarantee programme (i.e. successfully registered), out of whom 703 thousand had been enrolled at some point to an active measure and 542 thousand among them had completed the measure (ANPAL, 2018[15]). The average employment rate one month after participation has been 43% and after six months 52% (66% in North-Western regions and 38% in the South and the islands). Almost 40% of these jobs are not regular employment contracts, but apprenticeship contracts.

Figure 1.6. A third of Italian youth are not in employment, education or training

Over the years, there have been improvements in the performance of the Youth Guarantee programme in Italy and the satisfaction rates of participants is relatively high. Four out of five youth registered in the programme between May 2015 and December 2016 were quite or very satisfied with the assistance from the employment services, (ANPAL, 2018[16]). Nevertheless, the outreach to NEET is still modest, the coverage rate with active policies of those NEETs who have applied for the programme is fairly low and the impact of the programme is limited.

More could be done by the system of public employment services to reach the NEETs on time and provide them active measures bringing them closer to employment. For example, almost half of the subscribers (45%) to the Youth Guarantee between May 2015 and December 2016 learnt about this programme from friends and relatives, 16% from social networks and internet and only 19% from public and private employment offices. It means that the main channel of information is word of mouth and formal channels to reach out to NEETs by the system of employment services (national, regional and local level) are underused.

Generally, the difficulties undermining the effectiveness of the Youth Guarantee are the same as those for the other active policies in Italy. These are mainly the insufficient resources dedicated to job matching and mediation, scarce knowledge of the effectiveness of the measures (see Section 1.5), lack of co-operation between the stakeholders of the network of employment services, insufficient staff in the employment offices (see Chapter 2) and insufficient outreach to employers (see Chapter 3).

1.2.4. Long-term unemployment is decreasing, but remains high

Long-term unemployment remains high in Italy. The share of long-term unemployed persons out of all unemployed persons stood at 58.8% in 2017 while the long-term unemployment rate (the share of long-term unemployed in the labour force) was close to 6.5% in 2017 (Figure 1.7). Italy shares second position together with Slovak Republic among OECD countries in terms of its share of long-term unemployment, just behind Greece.

There are usually two main phenomena affecting the share of long-term unemployed in the beginning of an economic recovery. On the one hand, employers prefer hiring shorter term unemployed persons as they have more recent working experience, which pushes the share of long-term unemployed upwards. On the other hand, an improving economic situation encourages inactive persons to start looking for work, which statistically decreases the share of long-term unemployed among total unemployment. These people have still short periods of unemployment as they only started looking for a job, though their working experience may be well more than a year ago. In the Italian case, the economic upturn has triggered more people to look for work as the share as well as the number of short-term unemployed (unemployment period less than a month or less than three months) increased after 2014 and the labour force participation rate in general has increased. However, the economic recovery has had an effect also on the long-term unemployed as not only the share, but also the number of long-term unemployed has decreased (from 1.966 million people in 2014 to 1.682 million in 2017).

Positive developments in the labour force participation rate are accompanied by decreasing incidence of marginally attached workers and discouraged workers. This shows that more people believe there are jobs available on the Italian labour market and get engaged in job search.

Figure 1.7. Long-term unemployment decreasing, but still high

1.3. Skill and qualification mismatches in the Italian labour market

The qualification and skill levels are relatively low in Italy leading to high incidence of under-qualification and under-skilling. However, also over-skilling is relatively high as rigid wages and low occupational mobility contribute to mismatches on the labour market.

1.3.1. Upskilling is necessary throughout the country

The educational attainment in Italy is very low. The share of the working age population (aged 25-64) with tertiary education is less than 18.7% which is the lowest among OECD countries after Mexico (Figure 1.8). The share of the population with tertiary education is fairly similar across Italian regions. Simultaneously, the share of the population with education level below upper secondary education is 39.1%, which is one of the highest shares in OECD.

Figure 1.8. The education level of adults is low in Italy

Overall, youth tend to be more educated than older persons. More than one-quarter of the 25-34 year-olds have tertiary education, while this share is only 13% for the 55-64 year-olds (2017 data). More than half of the older people have below upper secondary degree while only a quarter of the young. Nonetheless, Italian youth’s education level is still very low compared to that in other OECD countries (only Mexico has lower share of tertiary educated among the 25-34-year-olds similarly to all working-age people).

Possible reasons for the low level of educational attainment are the modest employment prospects for people with higher education level relative to those with a lower educational attainment as well as a low return in terms of wages (see Annex 1.A). On average across OECD countries, employed adults (25-64 year-olds) with a tertiary degree earn on average 56% more than those with only upper secondary education, while in Italy the earning advantage for tertiary-educated is only 41% (OECD, 2017[17]).

The skills of Italian adults are low by OECD comparison

According to the results of the OECD Survey of Adult Skills (PIAAC), the skill levels of adults in Italy are low compared to the other participating countries and this holds for all levels of educational attainment [data from OECD (2016[18])]. The share of tertiary-educated Italians scoring high (4 or 5 on a 5-point scale) in literacy proficiency is 12%, while the average in countries that participated in the survey is 21%, and in numeracy proficiency respectively 14% versus 23%. The relative skill level of Italian adults with upper secondary or post-secondary non-tertiary education is slightly more similar to the other countries, the share of high scores in literacy proficiency is 4%, while the average share across countries is 7%, and in numeracy proficiency respectively 7% versus 8%.

Some of the reasons for low skill levels of Italian adults start already early on in their life as the 15-year-olds demonstrate low scores in the PISA tests and the early school drop-out rate is high; some reasons are added during adulthood as also the likelihood to participate in adult education and training is very low for Italians according to the PIAAC survey, particularly on the main islands and the southern part (OECD, 2017[19]). Italy has advanced well during the past years with many of these indicators, but still lags behind the other OECD countries.

With regard to youth, the 2015 Good School (“Buona Scuola”, see also Chapter 2, Box 2.1) reform is a notable effort to strengthen the links between the education system in Italy and the labour market. Among other things, it aims at providing the Italian youth with up-to-date skills required by Italian companies by putting a higher focus on internships and work-based learning. This improvement concerns persons who are only yet to enter the labour market.

Looking beyond this population, the low skill levels of the numerous working-age individuals who face barriers entering the labour market and remain employed represent an ongoing challenge. Improving the skill level of this group of people is partly the responsibility of the system of public employment services. On the one hand, the public employment services should direct to up-skilling those who have lost their job and are hard to place to the labour market due to their lack of skills. This is a task that the system of public employment services in Italy also aims to fulfil currently (see the discussion in Section 1.5). On the other hand, the public employment services could aim at up-skilling also those who are still employed, but are in threat of losing their job due to their low skill level or skill mismatch. The training programs for employed people in Italy are covered at present by dedicated funds, the Inter-Professional Funds run by social partners and supervised by the National Agency for Active Policies (ANPAL). A task for the system of public employment services to solicit employers to upskill their staff using these funds has been recognised only recently (see discussion in Chapter 3).

In the context of low participation of adults in education and training, the role of the public employment system should not only be in providing short courses for upskilling, but also in utilizing case workers and career counsellors in directing low-educated adults and drop-outs back to formal education. This task is at present in general underdeveloped (particularly regarding adults aged over 29) due to limited resources for public employment services (see Section 1.5). The integration to formal education could be further facilitated by scholarships for low-skilled adults, particularly when they are unemployed and do not have an income source.

The skill mismatch is high

Mismatches are high on the Italian labour market both in terms of qualification mismatch (how the attained formal education corresponds to the job requirements) as well as in terms of skill mismatch (how the skills of the employee correspond to the tasks performed on the job). Labour productivity would increase significantly if mismatches would be reduced. The system of public employment services should play an important role here.

Qualification mismatch (defined as the mismatch between one’s qualification level and that required by the job he/she holds, estimated using the European Union Labour Force Survey data) is high in Italy relative to other countries in the European Union (Figure 1.9). Close to 40% of adults aged 15-64 are either over- or under-qualified for their job. Despite the low education level of the Italian working-age population, both the shares of over-qualified and under-qualified workers are higher than in the other OECD countries.3 In addition, field-of-study mismatch is prevalent as 36.5% of employed people do not work on the field they are specialised in. Data from the Survey for Adult Skills (PIAAC) indicates also to high mismatches in Italy. However, somewhat contrary to the data from the Labour Force Survey, the share of under-qualified workers is the highest among the OECD countries while the share of over-qualified is the lowest [self-reported data from the participants in 2012,4 (Garda, 2017[20])].

In addition, mismatches are high in terms of skills. This means that either employees cannot fully use their skills or lack skills for their current job. Skill mismatches take into account not purely the formal qualification, but also the skills acquired or lost beyond the formal education as well as the quality of education system. Pellizzari and Fichen (2017[21]) have developed an indicator for skill mismatch using PIAAC data that indicates that Italy has a relatively large incidence of under-skilling compared to the other countries, though also the level of over-skilling is not very low (based on PIAAC data from 2012). In general, under-skilling and under-qualification are particularly pronounced in the southern regions while young and highly educated have higher probabilities to be over-skilled or over-qualified (Garda, 2017[20]).

Adalet Mcgowan and Andrews (2015[22]) use PIAAC data to study the relationship between skill and qualification mismatches and labour productivity in a number of countries. They show that there are links between higher mismatches and lower labour productivity, over-skilling and under-qualification being the main culprits. Thus, not only the activity rate of working-age adults is important for economic growth, but also the allocation of the economically active people. Simulated gains from a decrease of the skill mismatch to the best practice of the OECD could increase the labour productivity in Italy by around 10%, which is the highest among the countries covered in this study.

Figure 1.9. Qualification mismatch is high in Italy

As under-skilling and over-skilling exist simultaneously on the Italian labour market, there is room for improvement of matching the skills through increasing labour mobility across occupations and sectors (but potentially also across regions, see the next Section 1.4). Hence, mobility between occupations and sectors, which is otherwise relatively low in Italy (Eurofound, 2017[23]), should be encouraged. This could be facilitated by counselling activities and training provision for jobseekers (and potentially for employed people that are under- or over-skilled for their job) administered and delivered by the system of employment services.

Labour demand-side measures would also be relevant, such as policies encouraging employers to upskill their employees and/or restructure to higher value-added products. A prerequisite for such measures is the availability of good regional labour market data (e.g. overview of skills that jobseekers have) across the country, which currently are lacking in Italy. Additionally, an important task for the system of public employment services is to match well vacancies and the unemployed to minimise mismatch and inefficient labour allocation. To this end, the employment services need to be relevant as a job broker mediating a high share of vacancies on the market. To play this role successfully, they need to have contacts with both the demand and the supply of the labour market and a clear overview of the skills in demand and supply. They also need rich, systematic and up to date data on both labour demand and supply to determine the skill gaps and intervene through upskilling or reskilling if necessary. The respective labour demand-side services and job brokering activities have so far been largely neglected by the system of public employment services in Italy (see discussion in Chapter 3).

1.3.2. Rigid wages contribute to skill mismatch and low productivity

Real wages in Italy are increasing as nominal wages experience a moderate growth and inflation has been persistently low. However, labour productivity is at the same time declining and thus wage dynamics do not reflect well the economic and labour market situation (Figure 1.10). Though it is difficult to adjust real wages to declining productivity when also inflation is low, also the specific wage setting system in Italy adds to the wage rigidity.

Figure 1.10. Real wage costs are increasing while labour productivity declining

Wages are set in Italy through a centralised system of collective bargaining at sector level while firm-level contracts tend to be uncommon. Sectoral level collective agreements are applied automatically across country and these agreements define also the scope of bargaining at the firm-level. As a result, on the one hand, the wage response to the labour market situation is lagged as contracts are negotiated in a sequence for three years ahead (EC, 2016[24]). On the other hand, this wage setting process hampers productivity through less efficient resource allocation, higher incidence of skill mismatches and less effort to develop innovative solutions at the firm level [Tronti (2010[25]), European Commission (2017[26])]. For example, in this wage setting system wages have not been responsive to the labour market needs as employers have not been able to attract employees to hard-to-fill jobs through wage increases nor other features of these jobs (Monti and Pellizzari, 2016[27]). While the Italian Government has made efforts to enhance firm-level bargaining and thus make the system of wage setting more flexible, negotiations between social partners to review the system have started only in recent years (OECD, 2017[1]).

There are also other factors in Italian industrial relations contributing to wage rigidity. For example, the sectoral collective agreements also regulate in detail the tasks, responsibilities and duties for different occupations thus making it more difficult for employers to reallocate tasks between employees and be responsive to the economic situation. Additionally, wage increases tend to be linked to the seniority of an employee rather than to productivity, and performance bonuses are rare. To improve the current situation, the budget for 2017 provided a tax reduction on performance-related pay and welfare provisions to promote firm-level bargaining and a better match between salaries and productivity (OECD, 2017[19]). Nevertheless, further efforts by the social partners are required to decrease the rigidity of wages and thus contribute to better resource allocation and productivity.

1.4. Regional differences

The previous section highlighted the many common challenges on the labour market, which are shared by all the Italian regions. Nonetheless, in terms of labour marker performance, regional disparities are relatively wide and persistent, suggesting that there is scope for policies to encourage labour mobility that is currently limited.

1.4.1. Regional disparities are vast and not profoundly decreasing

The economic and employment situation varies a lot across the regions in Italy. For example, more than 80% of GDP growth from 2000 to 2013 was attributable to the performance of the top 20% fastest growing regions (OECD, 2016[28]). The main indicators in the OECD Regional Well-Being Database related to the labour market show relatively high regional disparities compared to the other OECD countries (for example higher regional disparities regarding jobs and income than Spain and Greece) (OECD, 2017[1]). Labour market participation rates (including for females), employment rates, productivity, wages and GDP per capita, but also skill mismatch tend to be higher in the northern regions than in the south and the main islands. Working-age people in the southern regions and the islands tend to have higher unemployment rates, and higher incidence of under-skilling and under-qualification.

Although in recent years regional disparities for many of the labour market indicators have decreased compared to the recession period, there are no considerable advancements compared to the period before the crisis (Figure 1.11). For example, the lowest unemployment rate in 2006 was in the autonomous province of Bolzano-Bozen at 2.6% and Sicily with the highest at 13.4%, i.e. more than five times higher. In 2016, the province of Bolzano-Bozen had an unemployment rate of 3.7%, Calabria more than six times larger at 23.2%.

As the pace of deterioration on the labour market as well as the pace of recovery have been often different across the regions, a convergence has not taken place in many labour market and economic indicators. Nevertheless, the directions of changes have been often the same regardless of the disparities and different pace. For example, the disparities in the real GDP per capita have increased between regions, yet the real GDP per capita has decreased almost everywhere. Similarly, despite the increased disparities, total unemployment and the female participation rate have increased across the board and the rate of early school leavers has decreased nationwide.

In addition, there is some convergence taking place. For instance, the youth unemployment rate and the share of long-term unemployed among total unemployment are today more similar (yet worse) than ten years ago across regions. These trends demonstrate that regardless of the many differences, Italian regions still face some of the same challenges and are influenced by similar trends in the economy. This provides the scope for more co-operation between the regions also in the field of active labour market policies such as learning from each other’s good practices, sharing labour market information and developing common tools and methodologies for service provision. The challenges of regional co-operation are discussed further in Chapter 2.

Figure 1.11. No major progress in decreasing regional disparities

1.4.2. Labour mobility is limited

Labour mobility between the Italian regions does take place, with southern regions experiencing negative net migration flows and northern regions gaining additional population (Figure 1.12). However, labour mobility is still very modest in Italy in comparison with other OECD countries.5 The inter-provincial migration rate is 0.5% in Italy, versus 2% for the OECD on average. Labour mobility could be potentially increased and lead to lower disparities between the regions. The system of public employment services can contribute to the labour mobility, targeting both labour supply and demand as well as improving matching between the two. Nevertheless, encouraging labour mobility has to be accompanied by up-skilling and promoting mobility also between occupations.

Figure 1.12. Although low, internal migration responds to local labour market situation

Higher mobility may play a self-equilibrating role in reducing regional disparities, can contribute to a more flexible labour market and to better matching between skills and jobs, thus increasing productivity. Geographical mobility could be encouraged for example by housing-market policies such as reducing tax incentives and subsidies in favour of homeownership, reducing transaction costs on housing, providing housing allowances [OECD (2005[29]), Andrews et al. (2011[30])] and relocation subsidies, but should be integrated with increased flexibility of work arrangements and family support such as subsidised childcare and schooling (OECD, 2017[19]).

Moreover, the system of public employment services can contribute to higher geographical mobility. For example, a decentralised system of public employment services, such as the one in Italy, may help design labour market measures tailored to local requirements and specific needs. However, a proper central system for reporting regional labour market outcomes is vital for the success of such a system and thus a system of accountability framework that sets regional objectives and where funding is dependent on the achievements of these objectives has to be agreed on by regional and central authorities[ (OECD, 2005[29]), see also Chapter 2].

Additionally, general tools of the public employment services to increase geographical mobility can involve for example a certain level of mobility in job search and acceptance requirements. This was recently adopted in the definition of suitable job offer in Italy, but it is not yet implemented (see Chapter 2). Public employment services can also motivate job acceptance in other areas by case management and counselling as well as geographical relocation subsidies. Thus it is important that the front-line counsellors have information about their local labour market as well as about other regions (for example an overview of which skills/occupations are in surpluses/shortages in other regions, general trends, etc.). Labour demand-side policies would be also relevant, such as measures encouraging employers to move to a geographical area where the skills they need are available (considering the supply of skills of both mismatched workers as well as unemployed persons). Also, it is important that the IT system matching jobs and unemployed is capable to match across regions and that information is accessible for jobseekers, employers as well as counsellors, which today is still missing in Italy.

Nevertheless, geographical mobility does not lead always to a decrease in regional employment disparities if it is the highly skilled who move, de-skilling further the regions worsening the economic situation and weakening their regional growth potential (OECD, 2005[29]). This seems to have taken place over the past decades also in Italy, weakening the southern regions (Fratesi and Percoco, 2014[31]). Simultaneously, the rate of young highly-educated who have emigrated from Italy altogether during the past decades, has been high as well, while contrary to many other developed countries Italy has not attracted significant numbers of highly educated immigrants to offset the “brain drain” [OECD (2013[32]), Becker et al. (2004[33]), European Commission (2016[24]), Tintori and Romei (2017[34])]. This has added to the low qualification level of the labour force and weakened the regions even further. Thus, to overcome regional disparities on the labour market, in addition to encouraging regional labour mobility, the focus should be also on tackling under-skilling (see previous Section 1.3).

1.5. Italy’s resources for labour market policies

Considering the profound challenges of high level of unemployment, widespread under-skilling and low labour mobility, Italy devotes too little resources on labour market policies. This section discusses first the overall budget for labour market policies, secondly the capacity of the public employment services as a job broker and thirdly the main types of Italy’s active labour market policies.

1.5.1. Italy spends relatively little on active labour market policies

Italy spends less on active labour market policies than OECD countries on average, especially considering that its unemployment rate is twice as high. Before the Great Recession, the unemployment rate was in Italy at a similar level as the average in the OECD countries (only slightly higher). Simultaneously, also the expenditures on passive and active labour market policies relative to GDP were at a similar level as the OECD average (only slightly lower, see Figure 1.13). Now, ten years later, the unemployment rate in Italy is almost double the average of OECD countries and so are the expenditures on passive labour market policies. Yet, expenditures on active labour market policies are continuously slightly below the OECD average despite the higher number of people in need (see Figure 1.14 and Annex 1.B). The gap in expenditures on active policies is even greater in Italy compared with the EU average.

Figure 1.13. Expenditures on active and passive labour market policies

The rise in expenditures on passive measures during the crisis is well explained by the rise in unemployment and the massive reliance on wage supplementation schemes, a policy response adopted in that period. Instead, spending on active measures tends to react with some lag to the downturn. Yet, active policies can be efficient even in a bad economic situation and some cyclicality of expenditures would be desirable [see for example OECD (2015[35])].

Figure 1.14. Variety of active policies is low in Italy

Although the labour market reforms which started in 2015 with the Jobs Act (more details on this are provided in Chapter 2 of this report), have put greater emphasis on active measures, they have not changed this expenditure imbalance between passive and active measures. There has been some increase in the expenditures on active policies after 2014, with the start of the new programming period from the European Social Fund and the introduction of the Youth Guarantee, but this has not continued in more recent years. The application of sanctions in case of noncompliance with job-search conditionality by unemployment benefit recipients has not yet started to be implemented and enforced, which leads to forgone additional funds for ALMPs (see Section 2.3 in Chapter 2 for a discussion of this).

In addition to the limited resources, the budget for ALMPs suffers from misallocation. Italy’s ALMPs are characterised by less variety than ALMPs in the other OECD countries (see Figure 1.14). Although the recent labour market reforms (Jobs Act, Chapter 2) defined a long list of employment services that should be accessible across Italy (Annex 1.C), not all these services are delivered by all employment offices across the country, yet. The list of provided services covers only the basic needs of the jobseekers and fails to address individual needs, jobseekers in greater difficulties or jobseekers with disabilities. Half of the spending on ALMPs goes currently to employment incentives,6 a measure usually susceptible to suffering from large deadweight losses. About a third of the budget goes to training measures, but mostly benefiting employers during apprenticeship programs. Even though the Italian labour force suffers from lower skills and higher skill mismatch than other OECD countries, spending on formal training is only a fifth of that in the other OECD countries. Less than a fifth of the budget on ALMPs goes on employment services and administration, though mostly as costs on administration. Thus, only 2% of the budget on ALMPs is devoted to job-search assistance, which according to evaluations in other countries [see Brown and Koettl (2015[36])Card et al. (2010[37]), Kluve (2010[38]), Dar and Tzannatos (1999[39])] tend to be the most efficient expenditures (OECD countries spend on average almost 10% of their budget for active policies on these services).

Furthermore, the allocation of funding of ALMPs across Italy does not always follow a coherent national framework, leading to large differences in access, quality and effectiveness of active labour market policies between regions.

In total, a large share of expenditures on labour market policies aim to lower the cost for employers. In 2015, more than 38% of the expenditures on passive labour market policies in Italy were dedicated to subsidise continuing employment contracts (wage supplementation schemes and mobility allowance) and 74% of expenditures on active labour market policies were dedicated to subsidise new employment (and apprenticeships and internships) contracts. This implies that 48% of all expenditures on labour market policies in Italy served a very similar purpose.

1.5.2. The system of public employment services has low credibility as a job broker

The public employment service is not a popular channel for seeking employment in Italy. About half of the unemployed people are registered with the public employment service, a lower share than in most other OECD countries and well below the OECD average share of 66% (Panel B, Figure 1.15). In addition, only half of these registered unemployed (i.e. 26% of all unemployed persons) are in contact with the public employment service for seeking work (Panel A, Figure 1.15). This share is not only low in comparison with other OECD countries but is also equally low for different population groups defined by gender, age and level of education. The share of unemployed persons registering with and contacting public employment service increased slightly during the recession period, partly due to the inflow of new jobseekers previously employed and qualifying for unemployment benefits, thus required to register with the PES. However, along with the economic improvements during the past few years both the numbers and the shares of unemployed registering with and contacting public employment service have decreased.

Figure 1.15. A low share of jobseekers use the Italian public employment service

Similarly to the use of PES services by jobseekers, employers are also reluctant to rely on these services to fill their vacancies. In 2014, only 1.5% of employers used public services as the main channel to find employees (Mandrone et al., 2016[40]). Other, advanced PES tend to be much more popular channels for employers to find employees. For instance, the PES market share of vacancies has been on average over 50% during the past few years in Germany (Bundesagentur für Arbeit, 2018[41]). In Italy, employers often do not risk employing people outside of their networks whose skill level they are unaware of (as qualifications are poor predictors of skills in Italy) and as until recently the firing costs were still very high (OECD, 2017[19]). They prefer using informal channels to fill their vacancies. A large share of vacancies on the Italian labour market are neither published nor mediated through the public employment service. In 2014, two thirds of employers used their personal and social networks as the main channel to find employees (Mandrone et al., 2016[40]). While the utilisation of informal networks is more common for smaller firms and also more prevalent in the southern regions and the main islands, the use of public employment services as the main channel for filling vacancies is rare for all enterprises, independently of their size, region or economic sector.

The shares of unemployed registering with the public employment office vary greatly across regions (see Figure 1.16). On average 64% of unemployed register with the public employment service in the Northern regions; Aosta Valley and the Autonomous Province of Trento having the highest rates with 74% and 78% respectively. In the southern regions and on the main islands, on average 54% of unemployed register with the public employment services, the lowest rates being in Campania (40%) and Sicily (45%). Likewise, there is a similar gap in the share of the unemployed who contact public employment offices in order to find a job between the North and the South (38% versus 25%). More than 50% of unemployed use the public employment service for finding a job in the Autonomous Provinces of Trento and Bolzano and less than 20% in Campania and Sicily.

The differences between regions might arise from disparities in the type and quality of services provided to jobseekers, the capacity to apply the activation conditionality as well as the ability of public employment offices to serve as job brokers. Additionally, some differences in these figures between the regions reflect differences in the development of the market for private services providers. The issue of conditionality is discussed in Chapter 2 whereas Chapter 3 discusses in detail the development of the market for private service providers.

Figure 1.16. Regional disparities in the use of public employment services

The most common means to look for work in Italy has been the use of personal and social network such as inquiring for job opportunities from friends and relatives (Figure 1.17). Up to 84% of the unemployed used this as one of the channels for finding work in 2016. This has been the most popular channel and has been continuously gaining popularity.

Figure 1.17. Unemployed in Italy seek employment through social networks

As only few jobseekers use public employment service for job search and likewise only a minority of employers use this channel to find employees, the share of jobseekers finding a job with the support of public employment service is also very low. In 2016, only 2.5% of employed persons who found their current job during the previous year, claimed that the public employment service was in some way involved in finding that job. This is five times lower than the average of the OECD countries and indicates that the Italian system of public employment services lacks credibility both on the labour demand and labour supply sides.

1.5.3. Strengthening the relevance of ALMPs is of primary importance

Raising spending on ALMPs alone will not be sufficient to improve their effectiveness in Italy. It is also necessary to improve the services for both jobseekers and employers and strengthen the relevance of ALMPs by taking into account the specific needs of jobseekers in order to increase the value-added of the system of public employment services in Italy. Strengthening the relevance of ALMPs requires the development of effective labour market services for the jobseekers, i.e. job search assistance (counselling, job search monitoring and sanctioning in case of noncompliance, job matching and mediation, etc.). Moreover, the different services currently offered should be better targeted to ensure they reach and help the jobseekers who need them the most. Finally, being relevant as a job broker and improving the matching of jobseekers and vacancies on the labour market requires establishing trustful relationships with the employers to increase the market share of vacancies by well-functioning matching tools and services for employers on the one hand. This last issue is discussed in detail in Chapter 3 of this report, whereas the other areas for improvement are discussed below.

Employment incentives should be more targeted

Although the evidence on employment incentives is rather mixed, in general, they can be effective if they are carefully targeted [see e.g. Brown and Koettl (2015[36]), Card et al. (2010[37]), Kluve (2010[38]) and Dar and Tzannatos (1999[39])]. A weak targeting to all long-term unemployed can even be counter-effective as some unemployed might not receive a job offer before they become long-term unemployed (OECD, 2015[35]). Italy devotes a lot more than other OECD countries of its resources to employment incentives (0.23% of its GDP compared to 0.10% in the other OECD countries on average in 2015) and it covers many different interventions under this measure concerning women, older jobseekers, younger jobseekers, young parents, benefit recipients, long-term unemployed, disabled people, etc. (see Annex 1.D).

Thus, the employment incentives cover the majority of jobseekers and do not target only the most vulnerable groups, but rather serve the purpose of subsidies for employers to create jobs and use preferably open-ended contracts for that (employment incentives dependent on contract type). As in Italy the targeting of these measures is quite broad, substantial deadweight, substitution and displacement effects7 are likely to occur and the effectiveness of these measures is probably low and the likelihood to benefit from these measures may be low for the most vulnerable persons or those who are the farthest from the labour marker.

Given the current economic situation and labour market duality in Italy, the focus of employment incentives on the majority of jobseekers without emphasis on the most vulnerable groups is to some extent reasonable. However, now that the economy has started to recover, the employment incentives should become more targeted to the most vulnerable groups and should not be used as permanent subsidies for non-sustainable low value-added enterprises. More targeting could be achieved for example by using the current national quantitative jobseeker profiling tools (see Section 3.2 in Chapter 3) for this purpose, making only these jobseekers eligible for the employment incentives that have the highest likelihood (the highest score) to remain in unemployment over longer time. Until now, the quantitative profiling tool has been used for determining the amount of employment incentives in case of the Youth Guarantee, but not regarding other groups of jobseekers or for targeting the employment incentives in general.

The system of employment incentives is not transparent at the moment due to an abundance of different programs that vary between the regions and Autonomous Provinces (hereinafter referred to as the Regions) and due to a lack of data exchange. The Jobs Act tasks ANPAL to set up a repository of these measures and sets the general principles for employment incentives to avoid obvious misuses (i.e. uses that are not fulfilling the objective of the measure).8 This repository is a necessity to increase the effectiveness of employment incentives.9

Upskilling through training programmes reaches only limited groups of jobseekers

Training measures are another group of active policies on which Italy spends relatively more than other OECD countries. As under-skilling is a vast challenge in Italy, operating effective training measures is a clear need for the country. Evaluation results of training measures in other countries have shown that these programs might incur modest positive effects, especially in the longer term [see e.g. Brown and Koettl (2015[36]), Card et al. (2010[37]), Kluve (2010[38])]. Training in a workplace and apprenticeship programs might have even more positive results than classroom training, especially in the short run (OECD, 2015[35]) and these are the programs that Italy focuses on.

The majority of training costs form support for apprenticeships,10 23% for workplace training and only 9% for institutional training. As such, most of the expenditure on training programs goes to employers as reduced social contributions, a third to training providers and less than 1% to the participants in training as periodic cash payments. This is quite different from the training expenditures in other EU countries, where more often the majority of costs form transfers to individuals and only marginal share is devoted to benefits for employers (data from Eurostat Labour Market Policy Database for 2015).

Thus, a large part of the expenditure on training programs in Italy serves partly similar purposes as the employment incentives. While in both cases the recruited employees and apprentices do gain work experience and skills, both of these measures also serve the purpose of reduced labour costs for the enterprises. Therefore, there is some risk that these programs are used by employers as a permanent solution for cheap labour in low-skill sectors. The apprenticeship programme should be adapted to minimise this risk while offering the jobseekers the possibility to acquire new skills. At the moment, a mechanism to avoid abuse of apprenticeship contracts is provided for companies with more than 50 employees, which cannot hire more apprentices if they have not retained employment at least for 20% of apprentices during the previous three years of operation.

The support for apprenticeship programs concerns in Italy young people up to 29 years of age.11 In addition, there are several other training programs targeted for young people (institutional training for apprentices, apprenticeship and institutional training programs under the Youth Guarantee, etc.). In total, more than 90% of expenditure on training is limited to young people. There are only very few institutional training programs available for adults over 29 years of age and essentially no workplace training or internships for them possible. Yet, meta-analyses by Kluve (2010[38]) and Dar and Tzannatos (1999[39]) indicate that training programs for jobseekers other than youth tend to yield more positive results than training programs for youth.12 As at the same time older people have also lower education and skill levels than youth (see Subsection 1.3.1), the effectiveness of public employment services in helping older adults back to the labour market is currently questionable. Financing and implementing training programs for (low-skilled) adults are necessary to change that.

The apprenticeships for adults in the Polish public employment service (also a decentralised system) could be taken as an example when designing the respective programmes in Italy. Polish public employment service offers adult jobseekers job-training of 6-12 months and qualification upgrading of 3-6 months. Participants receive a monthly transfer in the amount of 120% of unemployment benefit. Employers receive a small monthly fee (2% of the average wage) and a bonus if the participant passes the exam successfully. In 2016, 78% of participants gained employment during the programme or within 3 months after completing the programme. The programme is conducted in co-operation between a local public employment office, an employer, a training institution and an institution responsible for exams (Kaczmarska-Sawicka, 2018[42]).

The referral of jobseekers to institutional training should be improved in general considering the widespread lack of skills among adults. A monitoring survey conducted by ANPAL in 2017 (ANPAL, 2018[43]) showed that more than a third (34.8%) of employment offices (public and private) do not carry out any functions related to referring jobseekers to vocational training. Only 12.3% carry out the whole set of functions related to training programmes, such as identification of jobseeker characteristics and motivation for training, assessing the suitability and skill match of the training programme, assessment of individual needs concerning training, etc. The same issue is reported by the jobseekers when asked why they turn to local employment offices. A jobseekers’ satisfaction survey among jobseekers who visited public employment offices in 2016, showed that only 0.9% of jobseekers that participated in the study had decided to visit an employment office in the hope to find a training course (ANPAL, 2018[44]).13 Out of the jobseekers who asked for an assessment of their training needs and/or referral to a course, only 37.9% received this service. In total, less than 5% of the jobseekers had received some support in finding or signing up for a training course (considering also those jobseekers for whom it was not the main request or who were suggested to receive training by the employment office). One quarter of them were very satisfied with this service and another half were rather satisfied than dissatisfied.

Furthermore, even though there are many different exercises conducted for assessing and anticipating skill needs in Italy [using different methods and data sources, available on regional and national level and by sectors, see OECD (2017[19])], the results of these studies are currently not systematically taken into account in the Regions when referring jobseekers to training. Related to that, the choice of training programmes is at times limited to what the training providers are able to offer in that specific moment and failing to take into account when and what training programs the jobseekers actually need. This is also an issue for training programmes for employed people [see OECD (2019[45])].

As a first step to increase the effectiveness of training programs, the training programs available for the jobseekers should be more systematically linked with employer needs, by using the results of the skill anticipation studies (for example from the Excelsior survey by Unioncamere) and/or the labour market integration rates of the participants. ANPAL could take the role of disseminating the available information on skill anticipation to the Regions and the local employment offices and offer guidelines how to take this information into account in service provision. Information on labour market integration rates of participants in training as an input of referrals depends on the advancements with the common IT infrastructure.

Moreover, there is no information available about the effectiveness of the training programs (e.g. by type and training provider) that could be used as an input for referrals to training. A further step to improve the effectiveness of training programs could take into account the effects of the programmes14, for example, by regularly evaluating their impact by programme types, target groups, providers and areas. The German public employment service does this using a tool called TrEffeR. This tool applies automatically a quasi-experimental evaluation method (matching method) to compare participants in labour market programs with non-participants regarding their employment outcomes and taking into account their socio-demographic characteristics. The outputs of the model can feed into deciding which programmes work best for which target groups and which programs do not provide positive results and thus should be not offered. The model enables to detect also worse performing providers, enabling to feed into performance dialogue or possibly to not allocate resources to these providers. Once the IT infrastructure involving data on registered unemployed and their employment records is in place, the additional cost to develop an evaluation mechanism like TrEffeR is relatively low [see more details on TrEffeR in Schewe (2017[46]) and Büttner et al. (2015[47])]. In Italy, a similar tool could be developed by the National Institute for Public Policy Analysis (INAPP) in co-operation with ANPAL and the Regions (and possibly with universities), pending the advancements in the IT infrastructure and the respective data collection.

ANPAL is currently working together with the Regions to set up a register of vocational education and training. Firstly, this will improve the data quality for the system of vocational education. Secondly, this will provide better data for the system of employment service to support the jobseekers (e.g. enriching data about education and training in jobseekers’ CVs). This initiative provides also a good prerequisite to have the necessary data ready in the future to develop a system for regular impact evaluations of training courses.

More emphasis on counselling jobseekers is necessary

Employment services such as counselling activities, job-search monitoring and sanctioning in case of noncompliance, job matching and mediation activities as well as administrative activities (benefit administration and PES operating costs in general) represent the third larger item of spending on active labour market policies in Italy. Most of the expenditures in this category are devoted to administration activities, while the spending on job-search assistance and placement constitutes only a fifth of the average spending in the other OECD countries (Figure 1.14).

This imbalance reflects to a great extent the inefficient processes in the employment offices which impose high administrative burden on staff and limit the available resources for job-search support and counselling (see also Chapter 2).

In addition, when such counselling services are provided, they tend to be fairly basic in nature. A monitoring survey conducted by ANPAL in 2017 (ANPAL, 2018[43]) showed that while 80% of employment offices are able to provide basic counselling (such as identification of jobseeker needs, jobseeker profiling, providing information about training possibilities, providing support in composing a CV, addressing a jobseeker to a specialised service), only 45% of employment offices are providing more advanced counselling services (individualised counselling including the assessment of skills, career counselling, defining individual action plan) and only half of the employment offices (53%) engage in a full spectrum of services for employers to enable job matching and mediation activities.

The limited capacity of the employment offices is also reflected in the results of the jobseeker satisfaction survey for services provided in 2016 (ANPAL, 2018[44]).15 The request by jobseekers to receive core employment services are much less often met than the request for more simple administrative services. For instance, only 7% of the jobseekers requesting support to start self-employment feel that their request was met. About 38% of those requiring support for identifying training needs reported that their needs were met by the employment services. In contrast, almost all (97% and 96% respectively) jobseekers who approached the employment office for first reception and preliminary information and for administrative procedures reported that their demand was met. Furthermore, even when these services are received, the jobseekers’ satisfaction tends to be low. Only 15% of users were very satisfied and 40% rather satisfied with job search support.

The main obstacles that employment offices face in providing job search assistance and job mediation services are discussed in Chapter 2. Addressing these obstacles requires the allocation of additional resources, at least for some years and until the system becomes fully functional and savings on total labour market policies start occurring.

1.6. Conclusion

Despite recent improvements, the Italian labour market fares worse than most other OECD countries. The unemployment rate is relatively high, while the labour force participation rate, employment rate and labour productivity are low. Low qualification level and low skills contribute to low productivity, as under-skilling is common. Yet, relatively high under-skilling and over-skilling occur simultaneously in Italy as wages are rigid and labour mobility low. The major labour market challenges are common across Italy, though regional disparities do occur and are not yet profoundly decreasing.

The system of public employment services has potentially a major role to play to address these challenges. To enhance female employment, public employment services could reach out to female discouraged workers providing them job-search skills and supporting them in their care obligations during the take-up of employment.

Moreover, the public employment services should reach out to young people neither in employment, nor in education or training (NEET), by increasing their awareness about the Youth Guarantee programme and reacting to their needs quickly by soliciting employers to provide opportunities for employment and workplace training.

Unfortunately, the resources devoted to labour market policies (and particularly to active labour market policies) are too modest in Italy to address the labour market challenges and provide the aforementioned services sufficiently. The package of active measures is over-reliant on weakly targeted employment incentives. The training measures and particularly workplace training are essentially available only for jobseekers under 30 years of age and not for the low-skilled older adults. Counselling activities, job-search motivation and monitoring, and job-matching and mediation activities are underfinanced and thus underdeveloped. Consequently, the system of public employment services lacks credibility as a job broker in Italy and its effects on the labour market are limited.

Chapter 2 of this review discusses the recent reforms of the Italian labour market that aim to address the current labour market challenges. It analyses the Jobs Act, the latest labour market reform, which aims to introduce the flexicurity model in Italy in which one of the components is strong active policies. Chapter 2 provides an overview of the aims of the Jobs Act, the state of play regarding its implementation and the obstacles in the implementation and gives recommendations on how to improve the implementation process. Subsequently, Chapter 3 explores the specific approaches regarding providing employment services in Italy – using jobseeker profiling tools to target active labour market policies; increasing quality and capacity of employment services by contracting out employment services to private service providers; and reaching out to employers and advancing demand-side services.

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Annex 1.A. Returns to tertiary education in Italy

A report by the OECD (2017[17]) analyses employment prospects using a concept of relative employment advantage. A relative employment advantage of a specific level of education is defined as the share of employed people with this education relative to all employed divided by the share of unemployed people with this education relative to all unemployed. Thus, these statistics are not affected by the general situation on the labour market of a country in terms of unemployment and employment levels. An index value greater than one implies that the share of individuals with this education level is higher among employed persons than among the unemployed. Therefore, this education level gives them a relative employment advantage. An index smaller than one implies relatively worse employment outcomes for people with that specific educational attainment.

On average across the OECD countries, the index of relative employment advantage for 25-34 year-olds with below upper secondary education was 0.5 and among the tertiary-educated 1.5 in 2016. It means that young tertiary-educated have on average a substantial advantage with regards to employment prospects while people with below secondary education have a relative disadvantage. In Italy, the index of relative employment advantage for tertiary-educated is lower than the OECD average and also only marginally above the index for youth with upper secondary or post-secondary non-tertiary education. It means that the relative employment prospects for tertiary-educated are not as good as in the other OECD countries and gaining a tertiary education compared to having an upper secondary or post-secondary non-tertiary education does not improve the employment prospects much.

In addition to poor employment prospects, also the financial returns from attaining a tertiary education are low in Italy. The earning disadvantage for adults with below upper secondary education compared to those with upper secondary education is in Italy similar to the OECD average. The marginal return on tertiary education is lower in Italy, which impedes education attainment.

Annex Figure 1.A.1. Returns from tertiary education are poor in Italy

Annex 1.B. Expenditures on active labour market policies and the level of unemployment

Annex Figure 1.B.1 depicts the expenditure on active labour market policies (relative to the gross domestic product) and unemployment rate among the OECD countries. There is only a very slight tendency to spend more on active labour market policies when the unemployment rate is higher. This correlation is in general weak as policy choices by the governments and business models of public employment services vary considerably among the different countries. Nevertheless, in some countries the link is stronger (e.g. Denmark, Germany) than in others. Italy spent in 2015 slightly less on active policies considering its unemployment level than other countries in the OECD in 2015 as well as the average level of OECD countries in 2004-15. In addition, contrary to many other OECD countries, Italy spent rather less on active labour market policies during the years of higher unemployment rate throughout the past decade.

Annex Figure 1.B.1. Italy spent in 2015 relatively little on active labour market policies

Annex 1.C. Active labour market services and measures according to the Jobs Act

According to Article 18 in Legislative Decree No. 150 from 2015, the Regions perform the following activities to integrate unemployed people to the labour market:

a) Analysis of jobseeker’s skills taking into account the local labour market situation; basic counselling; profiling;
b) Assistance for job search, including group sessions;
c) Individualised counselling including the assessment of skills and analysis of the needs for training, apprenticeship or other active measures;
d) Individualised counselling for becoming self-employed and tutoring in the initial phase of self-employment;
e) Vocational training and retraining, including for self-employment and immediate job placement;
f) Assistance during the early stages of employment, also through reintegration (replacement) voucher;
g) Apprenticeship programmes;
h) Subsidies for self-employment;
i) Subsidies for geographical mobility;
j) Measures to aid reconciliation of working life with care obligations;
k) Public works.

Annex 1.D. Expenditures on active labour market policies in Italy in 2015

Annex Table 1.D.1. Expenditure on active labour market policies in Italy by programmes in 2015
Type of active labour market programme	Million EUR	Percentage of ALMP expenditures
Labour market services	658.24	8.8
PES staff expenditure	256.10	3.4
ESF Co-financed actions 2007-13 – Counselling	25.86	0.3
Youth Guarantee – Local and transnational mobility	89.51	1.2
Youth Guarantee – Support for work or work experience	176.53	2.3
ESF 2007-13 – PES: Acquisition Resources	25.80	0.3
ESF 2007-13 – PES: Development and testing of prototypes and models	6.39	0.1
ESF 2007-13 – PES: Guidance and training for staff	2.07	0.0
ESF 2007-13 – Networking of PES	2.32	0.0
ESF 2007-13 – PES: Creation and development of networks/partnerships	0.41	0.0
Youth Guarantee – Registration, enrolling, counselling	73.24	1.0
Training	2 761.17	36.8
ESF Co-financed actions 2007-13 – Training voucher	6.79	0.1
Training interventions financed by the solidarity fund for the credit sector	0.57	0.0
Training interventions financed by the solidarity fund for the co-operative credit sector	3.22	0.0
ESF Co-financed actions 2007-13 – Training for reintegration into work	92.09	1.2
ESF Co-financed actions 2007-13 – Training (after compulsory education and post-diploma)	59.52	0.8
ESF Co-financed actions 2007-13 – Integrated measures for reintegration into work	58.42	0.8
Institutional training for apprentices	40.00	0.5
Youth Guarantee – Professional training	177.36	2.4
Youth Guarantee – Extracurricular traineeship	376.07	5.0
Youth Guarantee – Public works	86.06	1.1
Training accompanying work-entry contracts	7.54	0.1
ESF Co-financed actions 2007-13 – Institutional training for people involved in Training and work contracts	1.91	0.0
ESF Co-financed actions 2007-13 – Vocational integration schemes	0.59	0.0
ESF Co-financed actions 2007-13 – Traineeships	17.36	0.2
Employment of immigrants	6.00	0.1
ESF Co-financed actions 2007-13 – Institutional training for apprentices	4.41	0.1
Youth Guarantee – apprenticeship	201.04	2.7
Apprenticeship	1 622.22	21.6
Employment incentives	3 760.18	50.1
Reintegration contracts	0.05	0.0
Integration of prisoners into work	2.03	0.0
ESF Co-financed actions 2007-13 – Incentives for hiring	40.14	0.5
ESF Co-financed actions 2007-13 – Mobility allowance	1.55	0.0
ESF Co-financed actions 2007-13 – Job grants	1.01	0.0
ESF Co-financed actions 2007-13 – Other work experience	40.08	0.5
Incentives for youth and women	20.00	0.3
Incentives to hire over fifty-year-olds and women	30.51	0.4
Experimental incentive to recruit people under 30 years of age	37.70	0.5
Incentive for hiring ASPI recipients	6.33	0.1
Incentive for new permanent hires in 2015	2 223.73	29.6
Incentives for hiring young parents	4.70	0.1
Incentive for hiring young people admitted to the Youth Guarantee programme	17.16	0.2
Incentive for hiring people under 30 years of age	248.00	3.3
Incentives for hiring people registered in mobility lists – Open-ended contracts	33.76	0.4
Incentives for hiring people registered in mobility lists – Temporary contracts	5.99	0.1
Incentives for hiring employees in CIGS	0.59	0.0
Incentives for hiring long-term unemployed	773.39	10.3
Subsidies for the reinsertion people previously in public works – Labour cost subsidies	0.02	0.0
Conversion of temporary apprenticeship contracts into permanent contracts	217.18	2.9
Incentives for hiring disabled people	21.91	0.3
Solidarity contracts – Expansive solidarity contracts	0.00	0.0
Incentives to provide fixed-term jobs as replacement for workers on compulsory leave	34.37	0.5
Supported employment and rehabilitation	19.66	0.3
Exemption from social contributions for disadvantaged workers in social co-operatives	19.66	0.3
Direct job creation	53.69	0.7
Public works	51.67	0.7
ESF Co-financed actions 2007-13 – Public works	2.02	0.0
Start-up incentives	259.17	3.5
ESF Co-financed actions 2007-13 – Training for start-ups	2.12	0.0
ESF Co-financed actions 2007-13 – Incentives for self-employment	3.89	0.1
ESF Co-financed actions 2007-13 – Integrated measures for start-ups	0.64	0.0
Youth Guarantee – Supporting self-employment	117.88	1.6
Loans for sole entrepreneurs	134.65	1.8
Total ALMPs	7 512.11	100.0
Note: ALMP: Active labour market programme. ESF: European Social Fund. PES: Public employment service.
The figures in the table above on summarising rows use more detailed information than shown in the table (more decimal places than visible in the second and third column).
Source: OECD/Eurostat Labour Market Programme Database, https://doi.org/10.1787/data-00312-en.
StatLink https://doi.org/10.1787/888933922481

Notes

← 1. In this study, people who are persistently out of work (unemployed or inactive) or who are in weak labour market attachment (unstable jobs, restricted hours, near-zero earnings) are clustered into 13 groups depending on their combinations of barriers on the labour market in Italy. Six of the clusters concern only females: 1) Labour-market inactive women with low education and limited work experience, who do not have children, but who can however draw significant income from other household members [16% of the target population (men and women)]; 2) Labour-market inactive women with low education and without any past work experience, who do not have children and whose household income is low (12% of the target population); 3) Labour-market inactive mothers with care responsibilities and limited work experience (7% of the target population); 4) Labour-market inactive mothers with care responsibilities, without any past work experience and lower levels of education (6% of the target population); 5) Underemployed prime-age women who did some paid work during the reference period but for several reasons remain underemployed and whose employment barriers are relative diverse (9% of the target population); 6) Unemployed prime-age women with limited work experience who are at risk of becoming discouraged from the labour market (7% of the target population). In addition, there are women also among another 5 groups of the remaining 7 clusters (discouraged younger adults with limited work experience, discouraged youth without any past work experience facing scarce job opportunities, retirees with low work incentives, older individuals with health limitations and limited work experience, individuals with disabilities and without any past work experience).

← 2. By age groups, female labour market participation and employment rates have increased the most during the past ten years within the group of older workers (55+) similarly to males due to the increases in the retirement age. Female employment and labour market participation has increased also among the 45-to-54-year-olds and has remained stable among 35-to-44-year-olds, while these indicators have suffered a decline among male counterparts. This means that the female labour market indicators have improved probably also through other measures such as the measures for childcare accessibility or for fostering female entrepreneurship, than the increase in the pensionable age.

← 3. The qualification mismatch is calculated by comparing the educational attainment of workers to the educational attainment that their job usually requires [the most common educational attainment that workers on that job at that time have, (OECD, 2017[48])]. The actual skills are not reflected well in these indicators in case of Italy. As the skill level tends to be low across educational attainment in Italy, the indicators for qualification mismatch can very well overestimate the share of over-qualified and underestimate the share of under-qualified.

← 4. The questionnaire asks the participants in the survey about their opinion on the match between their job and their education. While it is a subjective indicator, it takes into account the job specificities better than the qualification mismatch indicator in the OECD Skills for Jobs Database.

← 5. One reason, why the disparities between the Italian regions have emerged and mobility has been hindered, is that separate regional qualification frameworks have existed historically in each region. The differences in implementation and standards have pushed regions to only recognise their own qualifications. A legislative decree from 2013 and an agreement between the state and regions from 2015 are gradually changing that, though the barriers are not yet fully removed (OECD, 2017[19]). Also the register of regional vocational qualifications as a part of the national register of education, training and professional qualifications initiated by the 2015 agreement that should strengthen the recognition of qualifications has not been fully implemented (OECD, 2017[1]).

← 6. In 2015 in total 59% of this were the expenditures on social security exemptions on new permanent hires (see Chapter 2), because of which the expenditure on other programmes slightly decreased.

← 7. The net effect of an employment incentive can be lower due to deadweight effects (i.e. an employer would have hired the jobseeker also without the additional employment incentive), substitution effects (i.e. the employer does not hire a jobseeker without a subsidy and uses subsidised hiring instead) and displacement effects (i.e. employers not using employment incentives have to reduce their number of employees, because employers exploiting the subsidies get advantage on the market), see OECD (2015[35]).

← 8. For example, the employment incentives are not due in case an employer has made the same worker redundant within the past six months, i.e. the law aims to prevent that some employees are permanently hired using an employment incentive by an employer.

← 9. The details about the centrally provided schemes for employment incentives are already available on the webpage of ANPAL

(www.anpal.gov.it/Aziende/Incentivi%20e%20repertorio%20incentivi/Pagine/default.aspx), but not yet the Regional schemes.

← 10. Including related to the apprenticeship programs introduced with the reforms in 2014-2016 (see also Box 2.1 in Chapter 2).

← 11. There are three types of apprenticeships: i) apprenticeship to gain qualification and a professional diploma, a diploma of upper secondary education and a certificate of technical specialisation; eligible group: people aged 15 to 25 years; aimed at finalizing one of the aforementioned qualifications in the workplace; ii) professional apprenticeship; eligible group: people aged 18-29; aimed at learning a job or attaining a professional qualification; iii) apprenticeship of advanced training and research; eligible group: people aged 18 to 29; aimed at obtaining university and higher education qualifications.

← 12. Meta-analyses of Kluve (2010[38]) and Dar and Tzannatos (1999[39]) indicate that training programs for youth do not tend to yield positive results or at least these effects are less pronounced than for other age groups, i.e. training programs by public employment services are generally not able to make up for the problems in education system.

← 13. A satisfaction survey carried out among jobseekers aged over 30 years who used services in the local employment offices in 2016. The study reached about 40 000 respondents.

← 14. I.e. the net effects. The labour market integration rates after program participation indicate the gross effect, but it is not known how big share of this effect is due to the program. Net effects show the share of labour market integration rates that are attributable to the program.

← 15. A satisfaction survey carried out among jobseekers aged over 30 years who used services in the local employment offices in 2016. The study reached about 40 000 respondents. Unfortunately, ANPAL does not carry out a regular customer satisfaction survey among employers, yet.

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