Analysis: why us? Italy is looking for a way out of the low-wage economy trap

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  • Italy is the only European country where wages have fallen since 1990
  • Tried to compete with Asia by cutting costs
  • Most new jobs on temporary, low-paying contracts
  • Country has no minimum wage

ROME, June 16 (Reuters) – Diana Parini quit her job as a waitress at an Italian alpine resort last month because she was fed up with the pay and the conditions: eight euros an hour, six of which were paid in cash with no welfare or pension contributions.

Parini, 44, has a degree in modern languages ​​and has returned to Milan to work as a dog sitter.

Millions of others have similar stories in Italy, where much work is unregulated and – uniquely in Europe – wage growth has stagnated for 30 years.

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With consumer prices soaring across the eurozone, there are signs wages are also rising – but not in Italy, the bloc’s third-largest economy.

Negotiated wages in the single currency rose 2.8% year-on-year in the first quarter, driven by a 4% increase in Germany. In Italy, they increased by only 0.6%.

The pattern is familiar. Data from the Organization for Economic Co-operation and Development (OECD) on inflation-adjusted wages in 22 European countries shows that between 1990 and 2020 wages increased by 6% in Spain and by over 200% in the Baltic states.

Italy was the only country where wages fell, by 3%.

OECD data

The OECD figures have sparked a heated debate about “la questione salariale” (the salary question) – or why Italy can’t create stable, well-paying jobs.

The answer, economists say, lies in a vicious circle of underinvestment, especially in education and technology, low productivity and weak economic expansion. And it has deep roots.

“We chose the wrong growth model in the 1980s,” says Francesco Saraceno, economics professor at the Luiss University in Rome and the Sciences-Po in Paris.

“In response to globalization, we have tried to compete with emerging markets by lowering costs, rather than following the German example and investing in higher quality production. That meant keeping wages low.”

PRODUCTIVITY PROBLEM

Since the introduction of the single currency in 1999, Italy has been the most sluggish of the 19 eurozone economies. Labor productivity, roughly measured as output per hour worked, has increased by just 13% since 1995, compared to 44% in Germany, according to the Bank of Italy.

Behind these figures lies a web of problems that include a rapidly aging population and a low-skilled workforce. Continue reading

By joining the euro, Italy also lost the quick fix of being able to devalue its currency to remain competitive.

A large informal economy is part of the picture. Some Italians, especially in the poor south, supplement regular jobs with odd jobs that do not appear in the official wage statistics and are usually paid even less.

A passionate climber, Parini has spent several winters working in alpine resorts. Like many hospitality jobs, they were all paid, at least in part, “cash in hand.”

Reforms since the 1990s have partially deregulated the Italian labor market, widening the scope for temporary, low-paying contracts, which now account for the majority of new jobs.

In April, the number of temporary workers was over 3.15 million

In April, the number of contract workers was more than 3.15 million, the highest level since 1977.

Tito Boeri, a labor economist at Milan’s Bocconi University, says Italy has a dysfunctional labor market, divided between sheltered workers, who were largely hired before the reforms, and low-paid, unprotected workers who were hired after.

“The real problem is that it’s very difficult for people to move from temporary to permanent contracts,” he said.

MINIMUM WAGE? NO THANK YOU

As one of only six countries in the European Union without statutory minimum wages, Italy has one of the highest proportions of working poor with wages below 60% of the average.

However, when the EU last week passed a directive setting common rules on minimum wages and tackling labor abuse and in-work poverty, it was met with a lukewarm reception in Italy. Continue reading

Many companies, supported by right-wing parties, fear higher costs, while unions reject any interference in the wage-bargaining process, arguing wages could in fact fall to legal minimums.

Boeri has slammed the unions’ stance as a “power issue” and said that given millions of Italians are excluded from collective bargaining, “the current system is not working”.

Some employers complain that a “citizen’s wage” poverty relief program that offers unemployed people about €450 a month – about 25% of Italy’s average net wage – is making it impossible for them to find staff.

“When we look for young people to give them a job, we have a big competitor: the citizens’ wage,” says Carlo Bonomi, head of the employers’ lobby Confindustria.

Economics professor Saraceno says this is an example of Italy’s plight: “This means that some companies consider 500 euros a month to be a good salary, which is absurd.”

To reverse the situation, Saraceno says Italy must shift the tax burden from wages to rents and wealth while launching a long-term public investment program.

Around 200 billion euros ($208.36 billion) in EU funds to help Rome recover from the pandemic, which Rome is set to receive through 2026, is a huge opportunity, he said, allowing Italy to pass reforms while also committing to spending increase instead of reducing them as in the past.

In the short term, Mario Draghi’s government is considering measures to reduce the so-called tax wedge, the difference between what an employer pays and what a worker takes home, officials told Reuters.

Boeri says Italy’s priority should be reforms to increase competition in the service sector and improve the civil justice system and state bureaucracy, but he sees little progress.

“Has this government of national unity passed reforms that can allow us to grow significantly? Unfortunately not,” he said.

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Additional reporting by Emilio Parodi in Milan; Editing by Catherine Evans

Our standards: The Thomson Reuters Trust Principles.

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