EurWORK European Observatory of Working Life

Effects of economic crisis on Italian economy

About

Country: 
Italy
Author: 
Diego Coletto
Institution: 
University of Milan

The recent economic slowdown is having a major impact on production in Italy, with gross domestic product falling and unemployment rising to 7.8%. Small companies, industrialised regions and production have been worst affected. In 2009, the Ministry for Economic Development launched over 150 discussion tables with the social partners to find solutions to corporate and sectoral crises involving more than 300,000 workers.

The economic recession has affected the Italian production system in its entirety, albeit to differing extents according to the economic sector, geographical area and company characteristics. In 2009, the Ministry for Economic Development (Ministero dello Sviluppo Economico) established more than 150 discussion tables with the social partners with the aim of finding solutions to corporate and sectoral crises involving more than 300,000 workers. In many cases, these crises have affected large-sized companies, with damaging effects on subcontractors and suppliers. Examples of such crises include the cases of: the telecommunication services provider Eutelia-Agile, the Termini Imerese plant in Sicily of the car manufacturer Fiat (IT1002019I), the home and professional appliances manufacturer Electrolux, the healthcare company Glaxo SmithKline, the bathroom suites manufacturer Ideal Standard, the fashion group IT Holding, the telecommunications companies Italtel and Motorola, the furniture manufacturer Natuzzi, the car components manufacturer Oerlikon Graziano, the steel pipes manufacturer Tenaris and the electronic and home appliances manufacturer Videocon (for details, see factsheets of the European Restructuring Monitor (ERM)).

Negative economic performance

In general, 2009 was characterised by widespread negative economic performance. Gross domestic product (GDP) in Italy decreased in real terms by five percentage points from its average value recorded in 2008. As signalled by the National Institute of Statistics (Istituto nazionale di statistica, Istat), a similar fall in GDP had not been recorded since 1971 – the year when surveys began in this regard.

The marked downturn in the sales of domestically produced goods and services had significant effects on employment: on average, in 2009, the number of people in employment declined by 380,000 (-1.6% on an annual basis), while the unemployment rate rose to 7.8% (+1% compared with 2008). Another indicator of the difficulties of the Italian production system is the number of hours authorised for the placement of workers on the Wages Guarantee Fund (Cassa Integrazione Guadagni, CIG). In 2009, recourse by companies to the CIG reached an all-time high, with about one billion authorised redundancy hours – representing an increase of 311.4% on 2008 (IT1002059I).

Employment trends

As mentioned above, Istat reported that in 2009 the number of employed persons decreased by 380,000: this reduction more significantly affected male workers (274,000 fewer men in employment compared with 2008) than female workers (105,000 fewer in employment). At territorial level, the decrease in employment has mainly concerned the south of the country (194,000 fewer workers) and northern Italy (-161,000 workers). At sectoral level, compared with 2008, employment has decreased most in industry (-4.3%) and services (-3.7%).

The number of dependent employees diminished by 169,000 (-1%) on the previous year, while the decrease among self-employed workers was 211,000, equal to a 3.5% decline. The loss of self-employed jobs has mainly affected the more industrialised regions of Italy and, in particular, the Friuli-Venezia Giulia region in northeastern Italy, Lombardy in the north and Veneto in the northeast.

However, the largest job losses have taken place among workers on temporary employment contracts. In these cases, a marked job reduction is recorded for both 2008 and 2009. In these two years, the number of workers on fixed-terms employment contracts decreased by 11%, while the proportion of project workers and employer-coordinated freelance workers dropped by about 16% (IT0509104F, IT0404303F, IT0307204F). This marks a reversal of trends regarding estimates in previous years of the number of non-standard workers: in fact, in 2006 and 2007, it was calculated that workers on these forms of contract amounted to between 3.9 and 4.8 million persons, equal to about 18%–19% of employment.

As regards the number of unemployed people, there was an increase in the unemployment rate in 2009, as in 2008, rising from 6.7% to 7.8%. In the same period, the number of economically inactive persons aged between 15 and 64 years also rose by an average of 2.3% on an annual basis (+329,000). Unemployment has continued to grow in the first months of 2010: in January and February 2010, the unemployment rate was 8.5%, representing an increase of 1.2 percentage points on February 2009. The increase has mainly affected the northern regions of the country, and it was closely linked to the growth in the number of job losses due to the economic crisis. Moreover, in January and February 2010, the youth unemployment rate rose to 28.2%, a growth of a 0.8 percentage point on the previous month and of four percentage points on February 2009. These figures confirm the greater vulnerability of those occupying the most disadvantaged positions in the labour market as a result of the economic recession.

Effects of economic recession

Medium-sized companies more resilient

A recent survey (in Italian) by the Bank of Italy (Banca d’Italia) has reported that Italian companies in general have suffered a marked worsening of their revenues since the second half of 2008. In particular, the study pointed out that, between October 2008 and July 2009, demand decreased significantly, especially in more export-oriented branches of manufacturing industries. Moreover, it was highlighted that, in order to tackle the economic crisis, companies have mainly taken action to reduce their costs. Other studies, promoted by public and private research institutes, have shown a certain differentiation in the impact of the economic recession on the various manufacturing subsectors, company types and geographical areas.

According to a survey by Mediobanca and the Italian Union of Chambers of Commerce, Industry, Artisans and Agriculture (Unione Italiana delle Camere di Commercio, Industria, Artigianato e Agricoltura, Unioncamere), medium-sized companies with 50–499 employees have to-date been better able than others to cope with the negative effects of the crisis. In general, companies in this category achieved the best economic performance in terms of profitability in 2006–2007. These positive conditions have helped to dampen the negative consequences of reduced sales volumes in 2009: in fact, average decreases of 12% in turnover and 10% in exports seem to have only partially affected the economic and financial structure of such companies.

Stronger impact on small enterprises

However, the Italian production system is not primarily made up of medium-to-large companies, but rather of small companies, which represent about 95% of enterprises in the country and around 50% of employment. In the case of small enterprises, various research institutes have emphasised a widespread situation of economic weakening. For instance, the Invind survey by the Bank of Italy has estimated that, in 2009, the recession has had the greatest impact on small companies in terms of turnover, investments and, to a lesser extent, employment.

According to the Crisis Barometer survey (Barometro della Crisi), conducted by the National Crafts Confederation (Confederazione Nazionale dell’Artigianato, CNA), 2009 recorded, on average, a marked reduction in the profitability of small companies. The difficulties of smaller-sized enterprises have been confirmed by a survey on the creation and closure rates of companies, conducted by Unioncamere. At the end of 2009, the lowest rate of small enterprise creation was recorded since 2003 (at 0.28% compared with the previous year). The overall balance, however, for the first time comprised a negative balance for crafts enterprises, among which closures increased by 3.7% compared with 2008. The difficulties of smaller companies seem to derive mainly from: their lower access to credit; the fewer resources available to undertake reorganisation; and the difficulties of the larger companies to which small enterprises often act as suppliers.

Geographical areas worst affected

The geographical areas with the highest densities of small companies have been particularly hard hit by the negative effects of the economic recession. In 2009, Lombardy and Veneto recorded the largest number of bankruptcies, at 1,963 and 880 bankruptcies respectively. The large majority of these companies had turnovers amounting to less than €2 million, according to data from the Italian Confederation of Workers’ Unions (Confederazione Italiana Sindacati Lavoratori, Cisl). In the northeast of the country, the crisis of small companies has led to extreme situations: in just over one year, 14 small entrepreneurs committed suicide because of the economic problems arising from the recession. In the same area, other suicides have resulted among people made jobless by the crisis.

Sectoral impact

As regards sectors, the economic recession has impacted negatively on almost all branches of production. In particular, mechanical engineering seems to have been worst affected by the crisis. A survey on economic trends – carried out by the Italian Federation of Metalworking Industries (Federazione Sindacale dell’Industria Metalmeccanica Italiana, Federmeccanica) – reports that, in 2009, output fell by 27.1% on the previous year, corresponding to a 23.8% fall in exports. The decreases have led to the strong underuse of plants and a decline in employment levels, although this has so far been limited by the use of ‘social shock absorbers’ (mainly the CIG but also job-security agreements).

Reactions of social partners

The government and the social partners have expressed concerns about the negative effects of the economic crisis on employment – notwithstanding their emphasis on the importance of the ‘social shock absorbers’, which have considerably reduced the number of dismissals.

According to the Minister of Labour and Social Policy, Maurizio Sacconi:

‘the impact of the crisis on the cessation of employment relationships has been cushioned by the decision to use instruments like job-security agreements and the CIG. It is estimated that around one million people have benefited from the “social shock absorbers”, which have guaranteed continuation of their employment relationships.’

However, according to the main trade union confederations, the favourable performance of the Italian ‘social shock absorbers’ system is not enough to recover from the economic crisis. For this reason, they have asked the government for interventions – such as a new tax system that reduces taxes on workers and measures offering better protection to younger workers – in order to boost employment and encourage investment.

Diego Coletto, University of Milan