While Italian unemployment has been declining steadily since 1999, so too has trend economic growth, making for a rather unusual combination. Indeed even as we recieve this raher positive employment news, we also have clear signs that the Italian the economy is slowing. Both the Organization for Economic Cooperation and Confindustria - Italy's biggest employers' lobby - cut their 2008 Itialian growth forecasts in December. The OECD lowered its forecast to 1.3 percent, and Confindustria said growth would slow to 1 percent from 1.8 percent this year due to factors including the rising cost of food and oil and the euro rise against the dollar.
The Italian unemployment rate, traditionally one of the highest in Europe, is now below the average for the 15 nations euro zone. Joblessness in the euro zone fell to a record 7.2 percent in October, the latest month so far reported by Eurostat, from 7.3 percent the previous month. The record-low unemployment rate in Italy masks regional disparities in joblessness and may also refllect the growing average age of Italy's potential workforce as people settle for early retirement and gradually drop out of the data. Employment has been growing strongly in Italy since the middle of 2005.
The number of migrant workers employed in Italy has also been growing steadily in recent years.
And if we look at a comparison of the quarter on quarter employment growth between total growth and migrant growthwe can see that after the second quarter of 2006 the majority (if not nearly all) of the employment growth has come from migrants (not how much of the time the pink line is above the green one, this means less native born Italians were employed in those quarters). None of this is surprising as Italy ages, and the effective labour force shrinks.
Another way of looking at the same issue is this chart I have prepared for the number of native Italians employed (estimated by subtracting migrant employment from total employment)
The above chart simply confirms the impression gained from the previous one, that in fact very little increase in employment among native Italians occured between early 2006 and Q3 2007, despite the apparent shà rp drop in the unemployment rate.
To this we need to add Italy's long standing imbalance between north and south. The jobless rate in Italy's industrial north fell as low as 3.4 percent in the third quarter, compared with almost 11 percent in the south of the country. More than half the 1.47 million unemployed seeking work wereactually situated in the south. Again, if we look at the charts for employment growth in the north and in the south, the difference is apparent enough.
Another complicating factor is that a lot of the gain in employment comes from more companies hiring part-time and temporary workers, who don't enjoy the same benefits and job security as full-time staff. Workers without permanent contracts rose 5 percent from a year earlier, while the number of workers with part-time contracts increased 10 percent from the third quarter of last year.
Looking at the above two charts the stall in full time employment after mid 2006 is clear enough, as is the fact that part time employment has continued to climb. Perhaps here we have some of the key to how it is that Italy can have such a low employment rate without sparking wage inflation (especially that 3.4% in the north), and why we are getting such low readings for domestic consumption and such negative outlooks on the sentiment indexes.
In conclusion what I would like to say is that this situation shares some really striking details with what we can see in Germany and Japan at the present time - growing employment, declining unemployment, weak consumption growth, comparatively low wage rises as the labour market tightens - that this has to be more than simply a coincidence, there must be some sort of connection with the fact that these are the planets oldest societies, although what the exact nature of that connection is has yet to be specified and measured.
For a comparison with what has been happening in Japan, try my Unemployment and the Japanese Labour Force (August 2007) and Japan Unemployment September 2007 . For the German situation see Employment and Unemployment in Germany (September 2007).
5 comments:
very good looking site, edward. Question: how do retirees fit in this picture and how does this compare with Germany and Japan ?
Happy New Year, Hans
Hello Hans,
Happy New Year to you, and thanks for the complement.
As for your question, I think it is important to emphasise at this point that any assessment I am making here is provisional, since there are still a lot of things we don't know and we are simply working our way forward, in a half-lit cavern. So excavation is slow, but since you have been following this blog almost from the begining, I guess you notice that every time i go a bit deeper. Whether this is nearer to the source or not remains to be seen.
Now the thing about retirees is whether they continue working or not. I don't have any explicit data for this on Italy, but ISTAT do give quite good data on part time and full time contracts, and temporary and perament work (which is unusual for them, they are very irregular, in fact I would say something at this point, I was in the Chilean statistical office looking up some data yesterday, and I would have to say that some of the emerging economies already have more transparency and better availability of data than some of the supposedly more developed ones. This must be an indication of something).
Anyway, surprisingly ISTAT do seem to give much better data on part and full time work breakdowns than the federal statistics office in Germany (Japan is systematic on this, if you look at the Japan employment post I link to).
So the recent growth in part time and temporary work is evident in Italy. But who is doing this? In Japan it is clear that people now leave their lifelong job at 55, and then continue to work in some part time fashion or other perhaps for another 15 years. The work ethic in Japan and in Italy is probably quite different on this.
On Germany I don't have data, except for the growth in part time work, and work in non-social-security covered employment, both of which have been significant.
Now what IS observable about all 3 of these economies is that they all have skill shortages in key areas due to the population crunch (Japan for example is notoriously short of nurses) but even as these labour markets tighten there is NO real evidence of wage squeeze push.
From this point in we are left guessing until someone does some really systematic research, but it isn't a bad guess to suggest that the pressure on wages in the more skilled areas is being offset by a downward movement in wages in those less skilled areas where the retirees are volunteering to work.
One other conjecture about Italy is that migrants are doing jobs in Italy which retired or semi-retired workers are doing in Germany and Japan. At the moment I'm not quite sure what the macro economic consequences of this are going to be (if indeed it is the case).
My feeling is that since people reaching 60 can now expect to live quite a long time, and since nowadays there is no great certainty attached to current levels of retirement benefit as we move forward, then older people, who are normally more prudent, will be protecting as best as possible their current savings - in whatever form they may be - and supplementing pensions with bits and pieces of work to maintain living standards so as to not run down their capital.
Another point here is that many retirees in Italy have a lot less in the way of accumulated wealth (and imagine the situation in Hungary, which is the next one coming in this group as far as I can see) in comparison with Germany and Japan.
This is why the recent deal with the unions about postponing raising the retirement age was such a negative as far as I can see.
So what I am suggesting is that the very weak internal consumption we are seeing in these three (and I would drop in that Hungary is "coupling" here perfectly, in terms of my model) is not ONLY associated with a higher propensity to save associated with older people, but also to do with the earnings profile associated with the new kinds of low level work older people are doing. In other words you can't just take the numbers for new jobs created and translate this into consumption (as I think most of the conventional analysts are doing) since more things are happening here.
I don't know if any of this answers your question. If it doesn't please fire away again, and I'll see what I can do.
Hi again,
I've got the data in front of me now. Basically I think I will do a separate post on all this later in the week, because there are a lot of interesting points, and I think people can only assimilate so much at a time.
But the data is fascinating. The regional disequilibrium is becoming really important (just like East-West in Germany, and Tokyo vs the rest in Japan).
Actually the participation rate in the 55 to 64 has gone up from 28.9% in Q1 2004 to 33% in Q3 2007, while in the mezzogiorno it has gone up from 31.8 to 35.3 over the samer period, so they are keeping pace here, but if we look at the 65 plus group, while participation has gone from 3.4 to 4 over the same period, in the mezzogiorno it has gone DOWN from 2.4 to 2.1%. The 15 to 64 participation rate also dropped from 54.1 to 52.5 over the period in the mezzogiorno while in the North it went up from 67.8 to 69.2 %.
Basically, given the very strong fiscal pressure which is about to come, and the danger IMHO of a default at some point, Italy can be torn apart by this disequilibrium if the tendency is not corrected, especially as it is reinforced by the unequal distribution of migrants. Something similar is happening in Spain, with the odd twist that the Basque country is actually one of the regios which is dying, while Catalonia's population is exploding. We went from 6 to 7 million in as many years. So one region of Spain may well feel in the mood to break lose at some point.
People really aren't thinking about the political implications of all this. I was looking at France and Germany the other night, and making some not unreasonable assumptions, by the 2030s it isn't impossible that France can have the same size population as Germany. This, if it happens, will be important.
I have also found a sort of breakdown for part time work by age. The two categories are 15 to 34 and 35 and over. Now strangely the number of part-time jobs for the 15 to 34 age group between Q1 2004 and Q3 2007 went DOWN from 1.107 millions to 1.102 million, while the over 35s went up from 2.854 to 3.223 million. So the part time workers are not young, and it is a good bet that the majority of the increase is coming from the over 55s, and is responsible for the increase in the participation rates at the higher ages.
Of course, when we come to look at TEMPORARY work the pattern is rather different, there are an increasing number of young people (and since the number of such people is steadily declining, a rising proportion) on temporary contracts. The number has gone up from 1.035 million in Q1 2004 to 1.368 million in Q3 2007. Over 35s (whicvh we can pretty much imagine as over 50s, since the 35 to 50 age group normally is robust in work terms) goes up from 679,000 to 993,000.
Basically the macro economics of all this are hard to assess. Italy's working age population - ex migration - is about to touch the ceiling, and then it will go down and down. So everything depends on raising the productivity of those employed. But if in volume terms the numbers of older but less qualified people working - and working in every time more fragile and less wellpaid occupations - swamps the numbers of new highly educated workers in highly productive jobs (we are talking about aggregates here) then the new value created by the society won't compensate for the contraction in the workforce. This is what I feel we have been seeing in Japan and Germany too, so there is strong prima facie evidence that there should be a big and really systematic research programme into all of this, instead of all the "gung-ho", we haven't got a problem mentility which has prevailed up to now.
Also Hans, I belong to a Japan forum, and someone put up the post I am now pasteing last week. Anything sound familiar?
Edward
The Nikkei carried an article today (January 3, 2008) about the economic fall out of Japan's population decline. It quotes a report put out by the Japan Center for Economic Research. As the article is copyrighted, I'll summarize it and add my comments on the end:
Basically, the Japan Center for Economic Research predicts that through 2020, the Kanto and Chubu regions are capable of 2% growth centered on Tokyo and Nagoya, while other regions will have 1% growth. The BOJ estimates Japan's potential growth rate in the middle to upper 1% range.
"Population inflows"--in other words, Tokyo and Nagoya sucking in able bodied and young workers from other areas of Japan --are seen as the engine of growth. In other words, Tokyo's vast service industry and Nagoya's manufacturing industries.
By contrast, other regions are expected to grow "beneath the nation's 1.6% average". In particular,Shikoku and the Kinki region, which centers on Osaka, are "projected to grow the least, at 0.9%"
According to the Nikkei "these areas of low growth face declining and rapidly aging populations".
My own personal comments on this are that given the fact that the Tohoku and other areas on the north of Honshu, including Yamagata, Aomori, Miyagi (but probably not Sendai itself) are projected to lose up to 30% of their population by 2020, this report is (if these population loses do occur) wildly optimistic.Hokkaido is also rapidly becoming an economic cipher.
Given the fact that the government has constantly missed growth rates and has had to continually revise downward, it looks like a pattern of Tokyo and Nagoya staying active, while the rest of Japan stagnates. The prediction of less than 1% growth for the Kinki and Shikoku ares is particularly disturbing, as this is tantamount to permanent recession in the very heartland of Japan.
On the same day the Nikkei carried a interview with a big cheese (big natto?) of the LDP in which he strongly expressed a sense of Japan's economic decline and its inevitability. When you have Japanese leaders talking like this we should all worry. It is indeed inevitable if we keep to the same polices that Japan has followed now for a number of years. However, there is nothing inevitable about it at all, and Japan's voters may find it necessary to look for new leadership if a culture of stagnation is all that Kasumigaseki is willing to offer the Japanese people.
You're painting an interesting picture here.
A factor which could change Italy's future for the better is a stronger female work force. It's not only a question of social justice but it makes for a better, more progressive and more efficient society.
While labor law is rather generous with the bringing of bambini into this world, later on it becomes extremely difficult to place the kids somewhere during working hours.
That the financial law has once again has given generously to the elder taking it away from the younger doesn't forbode well.
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