🔨The Italian Labour Market Paradox: Record Employment Meets Shrinking Paychecks

Why Italy’s current low unemployment rate hides a two-decade crisis of stagnant wages and lost purchasing power.

The unemployment rate is dropping at record-breaking numbers, painting a picture of an economy finally absorbing its workforce. However, a deeper dive into the data reveals a much darker reality: Italian workers are making less money today than they did in the year 2000.

The unemployment trend looks like a massive win (see Figure 1). Over the past decade, Italy’s unemployment rate has steadily declined, converging towards the EU and G7 averages. However, this drop is not purely the result of robust job creation

• The indicator benefits from a distortion linked to the sharp increase in the ‘inactive’ population. By statistical definition, discouraged individuals who stop actively searching for employment are excluded from the labour force count, mathematically lowering the unemployment rate without them having actually found a real job (Source: 1)

• A significant portion of this surge in the inactive population is driven by discouragement among younger worker cohorts, who simply stop looking for a job (Sources: 1, 2)

• Furthermore, many of the new jobs driving this downward trend are precarious, part-time, or fixed-term contracts rather than high-value, stable employment (Sources: 1)

• Added to this is a demographic shift, where an ageing population retains older workers in the workforce (Sources: 1, 2)

Figure 1 - Unemployement rate over time - Italy vs EU vs Major EU Economies

Italy, however, remains a European anomaly: its real wages have actually fallen below 2000 levels. (Figure 2).

Figure 2 - Indexed Average wage growth

By 2024, the real wage growth in Italy was effectively negative compared to the baseline set in 2000.

An Italian worker today has less purchasing power than they did two and a half decades ago.

A trend largely driven by two key factors:

• Italy’s economic fabric is dominated by micro-enterprises that historically struggle to invest in innovation, technology, and advanced training. Without productivity growth, companies cannot generate the value-added margins required to support sustainable wage increases. (Sources: 1, 2)

• Recent global inflationary shocks have led to a severe erosion of real wages. (Source: 1, 2)

Italy is currently creating jobs, but it is failing to create value

The above statement is also supported by the fact that the indexed growth of Italy’s Gross Domestic Product (GDP) has increased at a much slower rate compared to the EU trend (Figure 3).

Figure 3 - Indexed GDP Growth (base 2000)

Until the country addresses the structural bottlenecks stunting its productivity, the gap between the number of people working and the value of their paychecks will probably continue to widen.

Sources: OECD data (1, 2, 3)

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