Italy Economy Real Time Data Charts
Friday, January 25, 2008
Election Resources on the Internet
When the center-left coalition government of Italian Prime Minister Romano Prodi nearly collapsed early last year, I wrote here that "the events [...] may turn out to be the prelude of a greater crisis further down the road." Well, eleven months later that's exactly what has come to pass: after just twenty months in office, Prodi resigned on January 24, having narrowly lost a vote of confidence in the Italian Senate (by 161 votes against to 156 in favor).
In many ways, history repeats itself. As in 1998, a crucial ally on the fringes of the ruling coalition (the far-left Refounded Communists in 1998, the right-of-center UDEUR of Clemente Mastella in 2008) deserts the government, depriving it of a parliamentary majority (in the Chamber of Deputies in '98, in the Senate this time around). Prodi nonetheless soldiers on, hoping to turn things around, but ultimately comes up short by a narrow margin (by one vote in 1998, by five votes today). Finally, in both instances the definitive collapse of the government comes about a year after an earlier crisis had been successfully defused.
Although Prodi easily won a vote of confidence this Wednesday in the Chamber of Deputies, where the center-left holds a substantial majority (even after the departure of UDEUR), the Senate and the Chamber of Deputies are co-equal legislative bodies, and Italian governments must have majority support in both houses of Parliament in order to remain in office.
At the time of writing, it is expected that President Giorgio Napolitano will hold consultations on Friday, January 25 concerning the formation of a new government. Nonetheless, if it's not possible to form a new government capable of commanding a majority in both the Senate and the Chamber, early elections would have to be called, presumably for both houses.
Opinion polls currently have the center-right opposition parties ahead by a large margin, and to no one's surprise their most prominent leader, former Prime Minister Silvio Berlusconi is calling for early elections. However, President Napolitano appears to favor the formation of an interim, "institutional" government that would reform the proportional representation electoral law imposed by Berlusconi's government prior to the 2006 general election. Under the current system, parties with as little as two percent of the vote (and sometimes even less) can attain parliamentary representation, resulting in a highly fragmented legislature in which a very small party such as UDEUR - which actually polled only 1.4% of the vote in 2006 - can effectively hold the balance of power; Elections to the Italian Parliament has a comprehensive review of Italy's present and preceding electoral systems.
That said, it remains far from clear if such a government could be formed and who would preside it. Senate Speaker Franco Marini has been frequently mentioned as a possible candidate, and Prodi himself has not been ruled out. Just as important, while there may be a growing consensus that the current electoral system is not working in the country's best interest, so far there has been no agreement on an alternative. As such, it's quite possible that Italy will head to the polls later this year under the existing electoral system - with its well-known shortcomings - and that the government that emerges from that election may eventually find itself in a predicament similar to that of Prodi's outgoing cabinet.
Thursday, January 24, 2008
This is not good news, along with the simmering political crisis going on in the background. The following quote is pretty representative of views being expressed, and pretty much to the point I think:
``It's a very strong decline that we definitely did not expect,'' said Chiara Corsa, an economist at UniCredit Markets & Investment Banking in Milan. ``It looks like global economic conditions along with factors linked to sentiment like the fall of stock markets had a decisive impact on confidence.''
Tuesday, January 22, 2008
Italy's Prime Minister Romano Prodi will call a confidence in the lower house of parliament to test support for his administration after an ally deserted his centre-left coalition, a party leader said on Tuesday.
The vote will be held at around 1600 GMT on Wednesday, said Angelo Bonelli, head of the Green Party group in the coalition in the lower house, after a meeting of party leaders.
This follows a La Stampa report earlier this morning that Bertinotti wants institutional reforms (presumeably associated with the electoral law) before any elections are held.
Fausto Bertinotti, president of Italy's lower house of parliament, called for a caretaker government to push through institutional reforms before fresh elections are held, La Stampa reported, citing an interview.
``There are institutional and social reforms that can't wait,'' Bertinotti told the newspaper in an interview. Bertinotti's party, the Refounded Communists, is a member of Prime Minister Romano Prodi's governing coalition.
The background to the crisis is, of course, the decision yesterday taken by former justice minister Clemente Mastella to withdraw the support of his Udeur Catholic party from the Prodi coalition. The implication of this would seem to be that Prodi loses his majority in the Upper House, but it should be borne in mind that he may well still have a workable majority in the Lower House - and hence the decision to hold the vote of confidence and test it, I presume - so all of this may continue for some time yet.
The government of Premier Romano Prodi appeared to be on the brink of collapsing on Monday after former justice minister Clemente Mastella said his small Udeur Catholic party would no longer support the executive. Without the Udeur's three senators, Prodi does not have a majority in the Senate. ''If there is a confidence vote we will vote against the government. This center-left experience is over,'' he added.
The political turmoil is in Italy is also affecting Italian financial markets. This is of course part of a general global trend, but there are also certain local details, like for example the fact that Alitalia plunged as much as 8.6 percent in Milan trading today on concern that the collapse of the government could derail the planned sale to Air France-KLM.
The Prodi government has been teetering on the brink of something since it won the closest elections in modern Italian history in April 2006. Those elsections left him with a razor-thin majority in the Senate. He has been constantly forced to resort to confidence votes, staking the survival of his government on the outcome, in order to try to keep his bickering allies in line. He passed the 2008 budget last month using the 31st confidence vote of his 21-month old administration (so that will make this one the 32nd.
Constant divisions within the government have been steadily sapping his popular support. A Dec. 23 survey by polling company Ispo Ltd. showed only 29.6 percent of Italians had confidence in Prodi, down from 44.5 percent a year earlier.
And now of course the Italian economy is about to enter a critical moment in its history. The long term growth concerns see chart below) have not been resolved, it is either currently entering, or already in, recession and the necessary underlying structural reforms to put the budget on a sounder footing have not been made. Which means at some point in the not too distant future watch out what happens next from the Credit Ratings Agencies on the government debt front. My colleague Manuel Alvarez on Global Economy Matters entitled his summary and analysis of Prodi's firts resignation offer last February "A crisis is born in Italy", could it be that subsequent the crisis he then anticipated is now finally about to arrive?
"If I go down, I'll do it standing up." Prodi is quoted as saying. Well said! But could these be some of those proverbial last words? Perhaps, though, it is the best way to go, better not to drag things out too much. Unlike Venice, or the Italian economy, which both seem to be condemned to sink and sink in the absence of anyone who is really ready, willing and able to lend them a helping hand.
I have entitled this post "live blogging" since I will try and post regular updates as and when more news arrives. If anyone has any additional insight to offer, please feel free to comment away.
Well the mood in the prodi camp is optimistic this morning, and the general consensus is that the government will survive, for the time being, with the emphasis being on the time being part. As the Financial Times says:
"Mr Prodi is generally expected to secure approval when the lower house votes on Wednesday afternoon, but the Senate battle on Thursday will be much closer. Should Mr Prodi scrape through after the defection to the opposition of a small Catholic party led by the former justice minister, then the 68-year-old prime minister will probably owe his escape to the seven unelected life senators"
"Whatever the immediate outcome, analysts pronounced Mr Prodi’s bickering, multiple-party coalition to be in its death throes."
I concur. As I say to Hans in comments:
The thing is the coalition is virtually bound to fall apart at some stage, since the economic problems are about to mount in an important way, and then the "medicine" in terms of public spending cuts which may need to be dished out are probably going to be just too much for the left allies.
Basically I think we are soon going to be into a long running tussle between ratings agencies - who you will recall are now sure to become a lot more strict after the most recent debacle, and Italy's steadily mounting social services and welfare costs. Again, as I've been flagging, we should also expect to see a growing North-South dimension to the problem.
I mean, I resist the idea that there is no alterantive at all, since this would begin to imply that Italy had now - as a nation state - passed the point of no return. Some sort of realignment in the centre is obviously necessary, and Bertinotti's departure only makes that even more remote. Or at least that is my impression from here.
Japan and Germany are already visibly wilting under all the reform fatigue, but could we say that Italy already has the fatigue without having actually carried out that much in the way of reform. Those participation rates in the 55-64 age group I cited are absolutely scandalous given the high level of male life expectancy.
and perhaps the most scary thing of all is the fact that the Prodi discourse seems to bear no relation to the seriousness of the economic recesion which Italy is now - in all probability - entering:
Calling for the votes of confidence on Tuesday, Mr Prodi defended his economic record. “This is a government which put the country back on its feet,” he told parliament. “We need continuity of action, above all at a moment when the world economy is faced with negative developments.”
For "world economy" read here the United States, a discourse which is propagated today by EU Commissioner Joaquim Almunia.
“The main reason [for the turbulence] is the risk of a recession in the US,” said Joaquín Almunia, the European Union’s monetary affairs commissioner. “It’s not about a global recession. It’s about a recession in the US, because big imbalances have built up over the years in the US economy – a big current account deficit, a big fiscal deficit and a lack of savings.”
Would that this view were right, not in the sense that I wish ill on the United States, but in the sense of "would that these were the only problems we were facing" (or was he really talking about Spain there, and had just got the name of the country wrong!). Unfortunately this coming recession is far more general, and the weakest point in the whole global picture as far as I can see is Eastern Europe. So I fear a lot of people are in for a rude awakening, though not perhaps in this afternoon's Senate vote.
Romano Prodi is also reported by Corriere della Sera today to be lobbying senators from small independent parties to support him in a confidence vote tomorrow in the Senate. The basic idea is that he can win tomorrow's vote if he maintains the support of six unelected life Senators and manages to persuade at least one opposition Senator not to show up for the vote.
My colleague, and Election Resources on the Internet specialist Manuel Alvarez mailed me yesterday saying "I must say Prodi looks decidedly optimistic, and barring a meltdown of the center-left coalition I think he should easily win the vote of confidence in the Chamber tomorrow". So obviously Prodi - and presumeably Corriere - aready know somthing we don't.
Things are warming up again, since Prodi easily won - as expected - the lower house vote, but now it seems he may face insurmountable difficulties in the Senate, as two left senators are threatening not to vote for him according to news reports.
Italy's Prime Minister Romano Prodi, facing shrinking odds of winning a vote of confidence in the opposition-controlled Senate, is considering resigning instead of facing the test, media reports said Wednesday.
Citing government sources, the reports said President Giorgio Napolitano advised Prodi not to submit to the vote set for Thursday in the Senate.
On a day of otherwise dire news for Prodi, his team easily won a vote of confidence Wednesday evening in the lower house Chamber of Deputies, where Prodi enjoys a comfortable advantage. The motion passed by 326 to 275. But the fate of the centre-left leader was all but sealed as two leftist senators said they would vote against Prodi on Thursday -- if the vote goes forward.
The "leftist senators" referred to above appear to belong to the Liberal Democrats who had formed part of the coalition. The party said on Wednesday that its three senators will not back Prodi in the Senate confidence vote. However, one of the party senators later put out a separate statement distancing himself from that position and saying he would indeed vote for Prodi. Thus we have a certain confusion and are left with only two "nay saying" senators.
Well Prodi it seems is going to go to the Senate. Does he know something we don't?
Italian Prime Minister Romano Prodi said Thursday he would take his case to the Senate as he struggles against increasing odds to save his centre-left government from collapse, the ANSA news agency reported.
"I told the president (Giorgio Napolitano) that I will go to the Senate at 3:00 pm (1400 GMT)," Prodi, 68, told reporters.
He did not state explicitly whether he was prepared to face the vote of confidence he said he wanted in the upper house on Tuesday.
Prodi, crippled by the defection of a small centrist party, faces almost certain defeat if the Senate vote, set for 8:00 pm, goes forward.
"It was a calm and constructive meeting," the embattled centre-left leader said after his second talks in 24 hours with Napolitano, who on Wednesday reportedly advised Prodi to consider resigning instead of facing the vote.
Prodi told the Corriere della Sera that he wanted the vote to go ahead for the sake of the nation. "It's painful, but I have to do it for the country," he said. "Italians have the right to know who is in favour of my government and who is opposed."
Thursday Night Prodi Resigns
Well this stage at least is over. Now we wait to see whether we are going to have a temporary interim government, or if we are going straight to elections.
Italian Premier Romano Prodi resigned Thursday after his center-left coalition lost a Senate confidence vote, a humiliating end to a 20-month-old government plagued by infighting. The government lost 161-156 after a fiery debate during which one senator was spat upon, fainted and had to be carried out on a stretcher. Calling early elections or asking a politician to try to form another government are among President Giorgio Napolitano's options as head of state. Until he decides, Prodi will stay on in a caretaker role.
Former Premier Silvio Berlusconi, the billionaire media magnate who lost to Prodi in 2006 and is eager to return to office, said Napolitano should call early elections, the Italian news agency ANSA reported.
"We need to go to the polls in the shortest time possible without delay," Berlusconi was quoted as saying outside his Rome residence.
But the leader of the largest party in the government, Rome Mayor Walter Veltroni, contended that early elections would only "push the country into a situation of dramatic crisis."
Veltroni, the head of a leftist group of former Communists and pro-Vatican centrists, is considered the likely candidate for the left.
The presidential palace said Napolitano would start consulting with political leaders Friday on what to do next.
Monday, January 21, 2008
So it seems the economic slowdown is finally being recognised as what it is, a far more general one than a simple sub-Prime issue in the United States.
This process has accelerated further this morning, witth the euro falling to a five-month low against the yen after European Central Bank council member Nout Wellink admitted that economic growth may slow more than policy makers had expected. Wellink suggested that eurozone growth will be closer to 1.5 percent than 2.5 percent in the coming year. All of this is causing a good deal of uncertainty in the currency markets with the euro falling 1.8 percent against the dollar in the past five days to a three-week low of $1.4510. This is, of course, still a very high value, but what we need to be aware of is that what causes most damage, economically speaking, are violent swings, and at this point in time there is no guarantee that we may not be in for one of those.
What's interesting about this Bloomberg article is the way these statements are being read. That is, higher than desireable inflation is now no longer the plus it was (we have been living for some months now on top of a discourse where inflation was virtually being seen as a positive by currency traders since it meant that interest rates, and hence yield differentials, would rise). This discourse seems to be coming to a rather abrupt end. We could perhaps notice some first indication in Romania in the middle of last week, where the focus moved from the inflation there driving up yield, to the fact that the central bank effectively needs to maintain rates up to stop capital outflows. Hungary is a very similar case (and here). This is also being reflected in a weakening in the so called carry trade and steady upward pressure on both the Swiss Franc and the Japanese Yen.
So the fact that the ECB may be tardy in dropping rates is no longer being read as a euro positive. Market participants seem to be reaching out further into the future, and are thinking more about the future path of relative currency values. Since the ECB can't cut, economic growth will tank more than it would do otherwise, and then the ECB will cut vigourously, so at that point the euro will fall. This seems to be the reasoning, of course, by having the thought these participants simply bring forward the moment when the decline starts, and as a result it starts to fall now. I think this is a sea change.
Of course, if, as the article suggests, the euro is about to follow the euro into "swoon", which currencies are going to rise, since given that currency values are relative, we can't all fall at once. My feeling is that the US administration will resist any strong upward correction in the dollar, since they have their own issues to think about - and not least among them the trade deficit - which mean that weaknesses in domestic consumption need to be compensated for by exports, and as a result dollar competitiveness becomes important. In this context Claus Vistesens latest note this morning is, as ever, interesting.
OK, now for the Italian labour market.
In what follows I intend to step back from the precipice a bit, and take a rather longer term look at one feature of Italy's economic performance, its labour and employment market. In this sense this post is going to form part of a "tripple whammy" I am working on, where I will attempt to carry out an in depth examination of possible connections and interconnections which may exist between population ageing, rapid job creation and weak internal consumption in three key G7 economies: Italy, Germany (see here) and Japan.
Well lets start by looking at the story so far, at least as far as Italy goes. Fortunately we do have a number of key stylised facts at our disposal. First off, unemployment has been steadily - I could say relentlessly - dropping in Italy over the last two or three years:
and new jobs have been created, lots of them:
Yet at the same time domestic demand has not been revived to anything like the extent that might have been expected. Retail sales have been in decline for most of the last year as you can see from this retail-sales purchasing-managers-index for Italy (remember that on the PMI reading, anything below 50 represents a contraction).
Meanwhile private household consumption, despite some early strengthening, could hardly be said to have been booming. We did see a couple of (in Italian terms) comparatively strong quarters in the first half of 2007, but then, surprisingly - as can be seen in the chart below - the rate of increase began to weaken in Q3, while, curiuosly, in the position in the Italian labour market remained, more or less, stable.
So how can we account for this apparent paradox of a steadily tightening labour market and deteriorating internal consumer demand? One explanation for this could, of course, be that labour market performance is a lagged indicator (that is that it only registers economic deterioration after other indicators have been pointing to red for some time, and this is surely true), but could there not be something more going on here? Especially since this kind of pattern is being repeated in Germany and Japan, and these two countries have, along with Italy, the highest global median age, and as a result the highest proportions of potential workers in the older age groups. There is something very different about the labour market tightening we are seeing in Italy, Japan and Germany, for example, and the kind of inflation generating labour market tightening which we are observing in Eastern Europe. So why this difference?
Italy's Age Structure
But first off let's take a look at one of the younger age groups for a minute, the 15 to 24 one. As is well known this group is now in historic decline as a proportion of the total Italian population. The decline has been very rapid, with a drop of around one third (from 15% to 10% of the population) since 1990.
What this means, logically enough, is that there are steadily less and less people in this age group to fill places in the labour market. To this numerical decline we need to add theongoing secular decline in economic activity rates among this group, as more and more of Italy's - now scarce resource - young people delay entry and seek to improve their education, their human capital rating and hence their future earning capacity.
Thus the proportion of this group which is economically active has been declining steadily, as have the absolute numbers of those who are active, and the numbers of those who are actually employed. It is perhaps worth noting that the absolute size of this age group has been virtually stationary over the last 3 or 4 years (a statistical effect), but it is now set to fall steadily.
So if new employees will be hard to come by in this age group as we move forward, where can employment growth come from? Well basically there are two evident potential sources of labour, immigration and older workers. It is hard to envisage any large increase in employment in the 25 to 34 or the 35 to 54 age groups since - as can be seen from the chart below - activity rates among these groups are already fairly high, and even the slight fall-off which can be seen to have taken place recently in the 25 to 34 age group seems to be the result of a decline in female activity rates, and this is almost to be hoped for if Italy is to do one thing which is very important for its long term future, and that is have more children. Squeezing this particular lemon too hard at this point in time is only likely to obtain short term benefit in return for substantial negative long term outcomes.
Turning now to the principle sources of potential long run labour supply, in the first place it is obvious enough that there has been a significant surge in the size of the immigrant workforce in recent years (see chart below, and my other post for more details).
The other main potential source of additional labour in an ageing economy is the over 55 age group (and as we move forward of course increasingly it will become the over 65 one). Now many international agencies (the World Bank, the OECD, the IMF, the EU Commission etc) are pinning their hopes on the idea that the effects of population ageing may be to some extent offset by increasing the participation rates of these older workers, presenting impressive looking projections all the way out to 2050 to back their view that this is a workable solution. Yet since we have, in the here and now, a number of examples of societies who are trying quite hard to follow recommendations here, I do think it is important to examine in detail what is actually happening in these societies and try to really start to estimate the longer term macroeconomic consequences of this shift.
Now the important thing to bear in mind when we speak of older workers is that the important decision they need to take is about whether or not to continue working, and what is very clear in the Italian context is that workers in the 55 to 64 age group are increasingly taking the decision to stay at work, in some form or another.
Not only is the activity rate - which has, it must be said, been ridiculously low for this group, especially given Italy's very high life expectancy level - on the way up, the unemployment rate is on its way down, and the number of those employed is steadily rising.
More Work, Less Pay?
What is also significant about this trend is that it is also associated with a significant growth in part time and temporary work. The question really is who is doing this part-time/temporary work? In Japan it has become clear that many people now leave their "lifelong" job at 55, only to continue working in some way shape or form for another 15 years or so (both the Economist and the Financial Times have recently run articles about this trend in Japan - see here - although they fail to explicitly lock-it-in to the ageing population issue, which I think is where it belongs) . The work ethic in Japan is probably quite different from the one in Italy, but the similarities in the way the labour markets are evolving are really quite striking . In the German context it is also clear that the growth in part time and in non-social-security covered employment has been significant. And of course, in Germany, as I explain at considerable length here, the big increase in employment is in comparatively low skill, low wage work, which very often draws the over 55s into employment in much the same way and for much the same reasons as it does in Italy and Japan.
So what IS observable in the case of all 3 of these economies is that they are experiencing at one and the same time skill-shortages in some key areas of economic activity (due to the growing population crunch among the young - Japan for example is notoriously short of nurses) and generating large volume employment in more tenuous and lower skilled categories of work, since such work meets the skill and performance profile of the workforce they really have available. Thus, even as these labour markets tighten we find NO real evidence of significant 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 a mixture of lower skilled migrants, retirees and older workers are offering themselves for work in increasing numbers.
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, and hence we find that the participation rates in the 55 to 64 age group are still pretty low. At the moment I'm not quite sure what the macro economic consequences of this are going to be.
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 their current savings - in whatever form they may hold them - as best they can, 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 a country like Hungary, which is the next one coming in this group as far as I can see, even though the median age is somewhat younger, but the male life expectancy is also much lower, and the population is already falling) in comparison with Germany and Japan.
This is why the recent deal Prodi struck with the Italian unions about postponing raising the retirement age was such a negative when viewed from where I am sitting.
So what I am suggesting is that the very weak internal consumption we are seeing in these three countries (and I would drop-in that Hungary is "coupling" here perfectly with the others, in terms of the model I am working on) 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 large number of new jobs being created and translate this into more consumption (as I think most of the conventional analysts are doing) since more things are happening here.
North-South Regional Stresses and Imbalances
But in any event the data we have is fascinating. The regional disequilibrium in Italy seem to be once more becoming really important (just like East-West one in Germany, and Tokyo vs the rest in Japan). While the national participation rate for the 55 to 64 age group went up from 28.9% in Q1 2004 to 33% in Q3 2007, in the mezzogiorno it has gone up from 31.8 to 35.3 over the samer period, so the South is keeping pace here, but if we look at the 65 plus group, while participation has gone from 3.4% to 4% nationally 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 %. And this situation is reflected in the relative job creation performance between the North and the South.
Basically, given the very strong fiscal pressure which is about to come in Italy, and the danger IMHO of a sovereign default at some point if nothing is done to correct this very weak growth trajectory, Italy can be almost literally torn apart by this disequilibrium, especially given that it is reinforced by the unequal distribution of migrants. We have an ongoing polarisation of wealth, employment and people, and we really aren't giving sufficient consideration to the longer term political implications of the underlying economo-demographic process.
New Forms of Employment: Temporary and Part-Time Work
I have also found a limited breakdown for part time work by age. The two categories which the Italian statistics office use are "15 to 34" and "35 and over". Now strange as it may seem the number of part-time jobs for the 15 to 34 age group actually went DOWN between Q1 2004 and Q3 2007 - from 1.107 millions to 1.102 million - while among the over 35s it went up from 1.74 to 2.121 million. So Italy's new part-time workers are by-and-large not young, and it is a good bet that the majority of these new workers come from the over 55 group, and that it this kind of work which 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) working on temporary contracts. The number has gone up from 1.035 million in Q1 2004 to 1.368 million in Q3 2007. Over 35s (which we can pretty much imagine as over 55s, since the 35 to 55 age group is normally pretty robust in employment participation terms) goes up from 679,000 to 993,000.
By Way of a Conclusion
Basically the macro economics of all this are hard to assess. Italy's working age population - ex migration - has touched the ceiling, and without immigration it will go down and down. So everything depends on raising the productivity of those employed. But raising productivity today is pretty much synonymous with raising the human capital component and if in volume terms the numbers of older but less qualified people working - and working in more and more fragile and less and less well-paid occupations - swamps the number of new highly educated workers in highly productive jobs (we are talking about aggregates here) then the new value created by the society in question won't compensate for the contraction in the workforce. This is particularly true when it comes to raising participation rates in that oft quoted potential labour supply, female workers over 55. Many of the women in question are excellent wives and mothers, but given their often very low level of formal education, and given their lack of real experience of work out of the home, the economic worth in value added terms of their formal labour market participation may be much lower than many expect, and certainly this is where the evidence to date is leading us.
I also feel that the Italian experience is very similar and comparable with what we have been seeing in Japan and Germany, so it seems to me that there is now strong prima facie evidence that we need a big and really systematic research programme into the details of all of this, and rather less of that "gung-ho", we haven't got a problem approach, which has prevailed up to now, and which - at the end of the day - is based on the idea that raising participation rates will do the trick. As we are seeing, and unfortunately, it may well not do. It will do something, but that something may well not be enough.