Bruno Contini
University of Torino
LABORatorio R. Revelli, Centre for Employment Studies
DISPOSABLE WORK PATTERNS IN ITALY’S LABOR
MARKET
27 October 2008
PRESENTATION AT THE
INSTITUTE OF RESEARCH ON LABOUR AND EMPLOYMENT
UNIVERSITY OF CALIFORNIA, BERKELEY
DISPOSABLE WORK PATTERNS IN ITALY’S LABOR MARKET
Abstract
This handout (not-yet-a- paper) explores the “disposable” pattern of workforce utilization in
Italy, already well under way before the cyclical downturn of the early 90’s. Italy’s youth
unemployment is still above 20% inspite very negative demographic trends (baby cohorts
shrank from 900,000 during the baby boom to 500,000 nowadays), and several programs
aimed at enhancing labor market entry since the mid Eighties. The modal age at entry
hovers around 21, but the outflow of youth workers from employment exceeds the inflow
within 3-4 years from entry. Out of 100 new entries in dependent work, only 75 are still at
work 10 years after entry. This raises a big question: where do all the others go ? The
unemployment inflow rate is about 5%. A number of young entrants end up in the black
economy (by definition, unobservable, the order of magnitude estimated at 15-20% of the
labor force). Some go back to school (but ought to reappear after few years), very few go in
the army/police (unobserved in our data), 10% of the university graduates in professional
independent activities (also unobserved). What about the rest ?
We know that a bad start makes a large difference in future outcomes. For those who have
had a continuous 12-month employment spell at entry, survival at work after 10 years is
about 85%. For those – three times as many - who have started their career with one or
more short employment spells (< 3 months), survival does not reach 60%.
A similar exploration in Norway and Denmark indicates that the survival rate 10 years after
entry is between 90 and 95% of the initial lot. Suggesting that the institutional setting
explains such a huge difference may be true, but won’t tell what is behind the story. This
exploration is a preliminary attempt in this direction.
A first result – not yet an explanation – indicates that these numbers, at first sight dramatic,
are, if anything else, consistent with an extended definition of unemployment. Which does
not reduce the seriousness of the problem, and the difficulty of formulating policy
recommendations.
PUNCH LINE OF THIS INVESTIGATION
ARE YOUNG PEOPLE’S JOBS BECOMING A
DISPOSABLE COMMODITY ?
ITALY LOOKS WORSE THAN MOST EU COUNTRIES
A PUZZLE:
YOUTH UNEMPLOYMENT ALWAYS VERY HIGH (OVER 20%)
INSPITE OF
-DEMOGRAPHICS (TODAY’S COHORTS OF LABOR MARKET ENTRANTS
ABOUT 500,000; 20 YEARS AGO 900,000).
-INCREASED SCHOOLING (THE ONLY POSITIVE SIGNAL)
-LOWER SUBSIDIZED LABOR COST (60% RELATIVE TO ADULT OF
SAME SKILL LEVEL)
-HIGH CONTRACT FLEXIBILITY (ONE OR TWO-YEARS) SINCE MID90’S
-LOW UNIONIZATION AMONG YOUTH (HIGHLY APPRECIATED BY
EMPLOYERS…)
-EARLY RETIREMENT PRACTICES SINCE THE EIGHTIES FOR THE
“YOUNG ELDERLY” (50 +)
150,0
140,0
130,0
120,0
110,0
100,0
90,0
1979
1981
1983
1985
1987
1989
1991
Uomini
ITALY’S EMPLOYMENT TREND
1993
1995
Donne
(1979 =100)
1997
Totale
1999
2001
2003
140
130
120
110
100
90
80
1996
1997
1998
perm
-- - permanent
1999
2000
term
--- --- --- atypical
2001
2002
2003
Indipendenti
_________ self-employed
in 2007 atypical jobs made up > 15% of total employment
Unemployment rate in recent years
(from 2005-II to 2008-II )
-------- AGE 15-24
-------- AGE 15-64
30.0
25.0
20.0
Series1
15.0
Series2
10.0
5.0
0.0
1
2
3
4
5
6
7
8
9
10
11
12
13
Young workers (very often with
“ATYPICAL” = NON STANDARD
contracts):
low motivation, low company loyalty, high
absenteism
no incentive to invest in human capital from
both sides (employers and employees).

Low productivity….
there is some evidence that firms may be
re-thinking the hiring strategies of the last
decades.
Ageing in the population
In last two decades the total fertility rate has declined steeply: it fell below the
replacement rate of 2.1 at the beginning of the ‘80s, reaching 1.24 in 2000.
In the next two decades, the baby boom generations will reach retirement age,
and will be replaced by new cohorts roughly half in size.
Although a recovery in fertility rates is expected, the transition to the new
demographic regime will have a deep impact on the age structure. According
to Istat projections, by 2050 more than one in three Italians will be over the
age of 65.
Forecasting labor force 2006-2050
Totale 15-24
16,000,000
80%
14,000,000
70%
12,000,000
60%
10,000,000
50%
8,000,000
40%
6,000,000
30%
4,000,000
20%
2,000,000
10%
FL 15-24
Popolazione 15-24
Tasso attività
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
0%
1977
0
licenza medie superiori al netto delle qualifiche(19 anni)
Workforce age 15-24 – Partecipation rate Population - High school degree -------
REAL
Market sectors
WAGES:
ITALY
vs.
EUROPE
Manufacturing
1
Profitability of hiring young people increasing over time !!!
2
Increasing wage inequalities
Twenty years of labor market
reforms in Italy
1984: training-and-work contracts (CFL)
1997: introduction of temporary agency
workers and other non-standard contracts
(L. 196 - Pacchetto Treu)
2001: liberalization of fixed term
contracts
2003: overall regulation of nonstandard contracts (Legge 30)
today 2008:
1) youth unemployment still above 20%
2) non-standard workers make up 15% of
total employment = 3.5 million individuals,
and 65% of new labor market entries.
REFORMS “AT THE MARGIN”:
==
AIMED AT ENHANCING YOUTH
AND FEMALE EMPLOYMENT.
BULK OF EXISTING
EMPLOYMENT UNTOUCHED
NEW YOUTH ENTRANTS HIRED
ALMOST EXCLUSIVELY VIA ATYPICAL =
NON STANDARD CONTRACTS

SANCTIONED EXISTING
PRACTICES

“LEGALIZED” SEMI-ILLEGAL
PRACTICES
Where the reforms hit
Hires under non-standard contracts allowed:
• Increased mobility (in large firms and in the public
sector)  EXTERNAL FLEXIBILITY
• Reduced labor costs (reduced tax wedge and no
collective bargaining)  WAGE FLEXIBILITY
• BUT INCREASING DUALISM OF ITALY’S LABOR
MARKET WILL HAVE NEGATIVE IMPACT ON
PRODUCTIVITY IN LONG RUN: EXCESSIVE
MOBILITY TAKES OUT INCENTIVES TO INVEST IN
HUMAN CAPITAL (some effects already in sight)
Empirical research on temporary jobs
It has been argued that, from a theoretical viewpoint, temporary contracts might
improve the chances of finding a stable and permanent job (“ports-of entry” ?).
Booth et al. (2002): (UK) temporary jobs pay less, lower satisfaction, less workrelated training. However, fixed-term contracts are effective stepping-stones to
permanent jobs.
Hagen (2003): (Germany) TJ increase both the employment probability and the
chances to move to a permanent job.
Zijl et al.'s (2004) (Netherlands) TJ are stepping-stones to regular employment.
In contrast, some US studies pointed out negative effects on labour market
outcomes or little indication of stepping-stone effects. Hotchkiss (1999) and
Autor and Houseman (2005).
.
Modest impact of public programs on youth employment (1)
Contini-Malpede-Rettore (2003) on training-and-work program (CFL)
Overall wage - elasticities
1986-91 w-elasticity = - 0.110
1991-96 w-elasticity = - 0.083
estimates may be downward biased by as much as 40%, as a consequence of the
omission of flexibility. More precise estimates (but less efficient) yield -0.07 and
- 0.05 respectively for the two sub-periods 1986-91 and 1991-96.
 between 50% and 75% of additional jobs for youth would have taken place also in
absence of the CFL-program;
 2 – 3 % of jobs of non-eligible workers (in their 30’s and early 40’s ) are offset by
CFL hires;
 Program quite expensive. All net welfare benefits wiped out if wage cuts induced
on non-eligible workers exceed eu 150 / year (about 1% of current earnings)
Bank of Italy (2005) - on tax credits to hiring firms
Higher impact, but terribly expensive. Phased out in less than two years.
Modest impact of public programs on youth employment (2)
Berton, Devicienti, Pacelli (2008) = are atypical jobs (TJ) ports-of-entry
to LM ?
 Prob (CFL  open ended ) = about twice the probability from any other
program
 Prob (any atypical job  open ended ) = 15% (1-yr transitions)
 Prob (any atypical job  open ended ) = 31% (4-yr transitions)
Gagliarducci (2005): probability of moving from a TJ to a permanent position
increases with the duration of the contract, but decreases with repeated
temporary jobs and career interruptions. In Italy it is not temporary
employment per se but its intermittent nature that damages career prospects.
Ichino & al. (2008): (Italy) TWA jobs are an effective springboard to
permanent employment in Tuscany
M. Picchio (2008): TJ increase the probability of a 2-year transition to an
open-end position by 13-16 p.p. relative to one originating from
unemployment.
MOBILITY IN ITALY ALWAYS HIGH, CONTRARY TO
COMMON WISDOM (EVEN BEFORE REFORMS IN
PLACE FROM 1996 ONWARDS)
“LAW IN THE BOOKS” VERY DIFFERENT FROM
“LAW IN ACTION”
COLLECTIVE DISMISSALS NEVER A PROBLEM
(CASSA INTEGRAZIONE GUADAGNI, LISTE DI
MOBILITA’) IN THE COURSEOF INDUSTRY CRISES
AND RESTRUCTURING)
INDIVIDUAL DISMISSALS MORE DIFFICULT IN
PRINCIPLE, BUT SMALL FIRMS HAVE ALWAYS BEEN
ABLE TO BYPASS THE LAW
GROSS WORKER TURNOVER
Firm
size
1985-1999
1-5
108.4
6-15
81.8
ITALY
67%
FRANCE
59
GERMANY
44
16-49
64.6
U.K.
85
50-199
51.7
U.S.
76
200-499
39.2
U.S.
105
500-
23.6
Total
66.9
(Blanchard – Summers)
(Anderson - ??? )
Since the late 90’s mobility has
become higher, especially for the young
=
Gwt
Source: Naticchioni et al., 2006
BUT LABOR MARKET ENTRY AFTER SCHOOL IS PROBLEMATIC:
(estimated transitions from Italy’s LFS)
Prob {end-of-school  employment} = 0.13
at age 19-22
Prob {end-of-school  employment} = 0.18
at age 23-27
4 years after end-of-school 70-75 % of the school leavers have found a job
(women do better than men)
1987-89
1997-99
New contracts (para-subordinato = disguised self-employment & temp jobs)
are introduced in 1996 with the so-called Pacchetto Treu. All are observed in
WHIP.
But the following graph does NOT include them. This shows that mobility
picks up after 1994 even on standard, open-end, positions.
Age
groups
Pacchetto
Treu (1996)
sanctions/
/legitimizes
already
existing
trends
15-24
25-35
ALL
[--CFL-program--------]
[--post-1996 reforms-----]
SEPARATION RATES
1985 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 2003
SURVIVAL PATTERNS:
ARE YOUNG PEOPLE’S JOBS BECOMING A
DISPOSABLE COMMODITY ?
the above 70% (red line) are not people necessarily at work
for 10 consecutive years, nor have the remaining 30 % been out of
work for long periods.
a process of in-and-outs of employment:
in principle, it might equally involve all the new entries as in a big
job sharing
experiment, each working 70% of the time and
being idle the remaining 30%.
Not Italy’s case: micro-evidence 
probability of employment outflow from a bad start (first job spell < 3
months, and low-wage = < Q1) is four times as high as that from a
good start.
Where do all the non-survivors go ?
How many are really unemployed or inactive or working in the blackgrey ?
Enter in
1986
Expansion
After 2 years After 5 years After 8 years After 12
years
BORN IN
1958 ( at 28)
1962 (at 24)
76
66
63
67
85
74
63
61
1966 (at 20)
79
76
71
71
1970 (at 16)
82
70
68
69
1958 (at 33)
52
52
41
1962 (at 29)
59
62
54
1966 (at 25)
68
61
62
1970 (at 21)
64
62
67
1974 (at 17)
62
67
73
Enter in
1991
prerecession
MALE WORKERS IN DEPENDENT EMPLOYMENT
PSEUDO SURVIVAL RATES
1
AGE EFFECT  PEOPLE WHO START AT LATE AGE SURVIVE
LESS
2
BUSINESS CYCLE EFfECT  PEOPLE WHO ENTER IN 1986 DO
MUCH BETTER THAN ENTRANTS IN 1991
Women do better than men at early age. Things change at age 30...
SOME MICRO-ECONOMETRIC RESULTS ON SURVIVAL:
IS THERE AN UNEMPLOYMENT (or NON-EMPLOYMENT)
TRAP ?
LOW PAY  INCREASES RISK OF EXIT
YOUNG AGE (19-22)  LOWER RISK vis-a’-vis ADULT
AGE GROUPS
SMALL FIRMS  HIGHER RISK THAN LARGE FIRMS
INDUSTRIES  BIG ACROSS VARIATION
GEOGRAPHY  SOUTH ITALY HIGHER RISK THAN
NORTH
BUSINESS CYCLE  INCREASING RISK TIL 1998, THEN
TAPERS OFF
TRUE STATE DEPENDENCE  VERY HIGH (= 0.61)
UNOBSERVED HETEROGENEITY  MODEST
MICROECONOMETRIC EXPLORATIONS ALONE WILL
NOT PROVIDE THE ANSWER TO THE PUZZLE !!!
…………… WHICH I DO NOT HAVE YET
NEED A MORE MACRO FRAMEWORK, AND CROSSCOUNTRY COMPARISONS
No clear-cut distinction between youth unemployment and inactivity.
Distinction more complicated in countries where there is a large irregular/
grey/black economy (Italy is one), and people may be unwilling to declare
their status.
Many youth who work in the black economy will report themselves as
unemployed or inactive.
Anecdotal evidence (to be taken very seriously):
in the poorest neighbourhoods of Naples estimated youth unemployment is
close to 40%, with the extent of the black economy also known to be at its
highest. The situation in the banlieus of Paris may not be too different.
Must be modelled in a birth-and death framework to
account for those who never enter the labor market
EMPLOYMENT AND EDUCATION (oecd)
2004
% with
secondary
school
OECD
ranking
% with
university
degree
OECD ranking
DK
81
6
32
5
FIN
78
8
34
4
SWE
83
5
35
3
FR
65
12
24
16
GER
84
3
25
14
IRL
63
16
28
10
IT
48 (70 ?)
18
11
20
SP
45
19
26
12
UK
65
13
26
12
USA
88
1
39
1
JAP
84
4
37
2
S-KOR
74
10
30
7
From work flexibility to
precariousness of workers
Flexible jobs may lead to precariousness if:
1. careers are discontinuous, with long
unemployment spells between different jobs
2. wages are low, so that individuals cannot
self-insure against the risk of unemployment
3. social protection is inadequate
Taken together, these 3 conditions are sufficient
for precariousness
much worse
worse
Social Protection III than
FIXED TERM CONTRACTS (BENCHMARK: STANDARD WORK)
ENTITLEMENT
STANDARD
CONTRACT
ELIGIBILITY
AMOUNT
UNEMPLOYMENT
FULL
yes
–
=
BENEFIT
PARTIAL
yes
=
=
SICKNESS BENEFIT
yes
–
–
MATERNITY BENEFIT
yes
–
=
FAMILY BENEFIT
yes
–
=
PENSIONS EARNINGS RELATED
yes
–
–
yes
–
–
CONTRIBUTION
RELATED
Fonte: Berton, Richiardi, Sacchi (forthcoming
2008)
---
Social Protection V
PROJECT WORK (BENCHMARK: STANDARD WORK)
ENTITLEMENT
UNEMPLOYMENT
FULL
No
BENEFIT
PARTIAL
No
ELIGIBILITY
AMOUNT
SICKNESS BENEFIT
Yes
––
––
MATERNITY BENEFIT
Yes
––
–
FAMILY BENEFIT
Yes
––
–
PENSIONS
Yes
––
–
Yes
–
–
EARNINGS
RELATED
CONTRIBUTION
RELATED
Fonte: Berton, Richiardi, Sacchi (forthcoming 2008)
What could be done ???
EASY TO SAY, DIFFICULT TO DO …….
1 - reduce incentives to hire with atypical (subsidized and flexible) contracts
2 - social security coverage of atypical contracts
{ A DRASTIC
}
3 – health insurance for all workers
{ REFORM OF THE
}
4 - eligibility for unemployment benefits
{ WELFARE SYSTEM }
EXTEND ELIGIBILITY TO ALL THOSE WHO
DO
NOT
WORK IN THE BLACK/ GREY
But reduced incentives may re-create the profitability of having people work in
the “grey” (evading social security contributions)
Must avoid collusion of interests between employers (who save on payroll taxes)
and workers (who evade any unofficial pay)
WHIP is the WORK HISTORIES ITALIAN PANEL
developed in Torino, available on-line at <www.laboratoriorevelli.it>
An employer-employee linked longitudinal database developed from
administrative (Social Security) archives.
Sample / population ratio = 1: 90  150,000 individuals observed
at monthly frequency starting in 1986.