Youth Unemployment in Italy at the Time of the New Great Depression

Authors

Francesco Pastore

Abstract

This paper studies the causes of youth unemployment in Italy by considering mainly the immediate impact of what Paul Krugman has referred to as a twenty-first century version of the Great Depression. The current economic crisis has not only made existing weaknesses in Italy’s school-to-work transition system worse, it has also added further cause for concern. In fact, the current “Great Depression” has contributed to a dramatic increase in both the absolute and the relative disadvantage of young people compared to adults. This report sets out the main effects the current recession has had on youth labour market outcomes over the past decade.

From a policy point of view, it is clear that up to now, Mario Monti’s government has not been able to influence youth labour market outcomes in a positive way. However, this failure should probably be attributed more to the previous government than to the present one, since Silvio Berlusconi left his successor a very difficult legacy. In his last three years of office, the national debt rose from 103 per cent to an all time record of 120 per cent of GDP, that is, about 400 billion euros. Mr Monti’s government therefore had little choice but to increase taxes, a move that has further depressed internal demand. The only way to increase the income available for consumption is to cut public spending in unproductive sectors and reduce Italy’s massive tax avoidance and evasion which, according to recent estimates, amounts to about 120 billion euros per year. If this sum were made available to public finances, it would take only a few years to reduce both the national debt and tax pressure on low income earners. However, the government’s much heralded campaign against tax avoidance and evasion is proving to be an uphill struggle. The self-employed (especially those engaged in private practice) and small entrepreneurs operating in trade, craft and even manufacturing sectors, are thought to have been avoiding and evading tax for decades. Rumour has it that some medium and large-sized industries are also involved in massive tax evasion. Instead of condemning these fiscal crimes, Berlusconi’s government publicly justified them, with ensuing obvious effects on the cultural attitudes of the population. Mario Monti’s government has announced a number of measures in this field, but it is reasonable to expect that Mr. Berlusconi’s party, the PDL (the Popolo della Libertà, or People for Freedom), will oppose them, and at the present time, it is difficult to assess the eventual impact of such provisions.

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