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  • Italy, 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
  • The 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 conditions: eight euros an hour, six of which were paid in cash without social assistance or pension contributions.

Parini, 44, a graduate in modern languages, returned to Milan to work as a dog-sitter.

Millions more have similar stories in Italy, where much work is unregulated and – uniquely in Europe – wage growth has been stagnant for 30 years.

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

Wages negotiated in the single-currency zone rose 2.8% in the first quarter from a year earlier, led by a 4% gain in Germany. In Italy, they only increased by 0.6%.

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

Italy was the only country where wages fell, registering a drop of 3%.

OECD data

The OECD figures have sparked an anguished debate over “the wage question” – or why Italy is unable to generate stable, well-paid jobs.

According to economists, the answer 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,” explains Francesco Saraceno, professor of economics at Luiss University in Rome and Sciences-Po in Paris.

“To respond to globalization, we tried to compete with emerging markets by cutting costs instead of following the German example of investing in higher quality production. That meant keeping wages low.”

PRODUCTIVITY PROBLEM

Italy has been the weakest of the 19 eurozone economies since the launch of the single currency in 1999. Labor productivity, roughly measured by output per hour worked, has risen just 13% since 1995, according to the Bank of Italy, against 44% in Germany.

Behind these figures lies a web of problems that include a rapidly aging population and an unskilled labor force. Read more

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

A large underground economy is part of the picture. Some Italians, especially in the impoverished south, supplement their regular jobs with casual work that doesn’t show up in official wage statistics and is usually even worse paid.

Parini, an avid climber, spent several winters working in alpine resorts. Like many jobs in the hospitality industry, they were all paid at least partly “cash-in-hand”.

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

In April, the number of temporary workers exceeded 3.15 million

In April, the number of temporary workers exceeded 3.15 million, the highest since 1977.

Tito Boeri, a labor economist at Bocconi University in Milan, says Italy has a dysfunctional labor market split between mostly protected workers hired before the reforms and low-wage, unprotected workers hired after.

“The real problem is that it’s very difficult for people to go from a permanent contract to a permanent contract,” he said.

MINIMUM WAGE? NO THANKS

One of six countries in the European Union to have no statutory minimum wage, Italy has one of the highest proportions of “working poor” with wages below 60% of the average.

Yet when the EU last week approved a directive establishing common rules for minimum wages and tackling labor abuse and in-work poverty, it received a mixed reception in Italy. Read more

Many companies, backed by right-wing parties, fear rising costs, while unions reject any interference in the wage bargaining process and argue wages could actually fall toward a legal minimum.

Boeri criticized the union position as “a question of power”, saying that with millions of Italians excluded from collective bargaining, “the current system does not work”.

Some employers complain that a poverty-fighting “citizens’ wage” program offering around 450 euros a month – around 25% of the average take-home pay in Italy – to the unemployed is preventing them from finding staff.

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

Economics professor Saraceno says this illustrates Italy’s plight: “It means that some companies think that 500 euros a month is 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.

Some 200 billion euros ($208.36 billion) in European pandemic recovery funds that Rome is set to receive until 2026 is a major opportunity, he said, allowing Italy to enact reforms while increasing spending, rather than cutting it 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 the salary paid by an employer 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 adopted reforms that can allow us to develop significantly? Unfortunately, this is not the case,” he said.

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

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