Why Italy’s Workforce Crisis Is Likely to Get Worse

a few minutes. But first we're going to Italy, a country once again cropping up in conversations about a possible crisis in the Eurozone. Now you don't have to worry, it's not happening yet, but there is a fear that as interest rates go up across Europe that's still very debt laid in economy will find it increasingly difficult to

make the sums add up. So it matters to all of us if Italy can't grow fast enough to stay on top of its accumulated debt in the years to come, it's not going to grow much at all if it can't coax more of its people back into work. Here has Bloomberg's economy reporter in Rome, Alsanda Miliaccio mort Italy's job market is currently very complex and it doesn't easily allow you to return to work once you've exited. This

is very discouraging and really quite sad. That was bat She might sound harmless enough, but the Governor of the Bank of Italy believes she represents one of the biggest threats facing the Italian economy, an army of people who

neither have a job nor are looking for one. In early March, speaking in front of the country's economically in the gold painted Shareholders Hall of the Bank of Italy, Governor in Natio Vis offered a long list of problems facing his country, but the most bleak was the two point six million people available for employment but not searching for jobs. That's more than the actual number of job seekers.

Policies for planning immgrestion flows, training intuition are lacking. The labor market participation rate is among the lowest, especially in southern Italy. Those figures said Italy apart from all its European peers, even Spain, where there are more unemployed people but almost all of them are actively seeking work. That means there's huge potential in the economy that isn't being unlocked.

It also means productivity could improve, especially in the country's southern regions, where unemployment figures are often double those on

the rest of Italy. In that same speech, Governor Visco said the country needs to find solutions, particularly in light of a population that is both aging and shrinking of the phatoric train and overcoming the factors that in the prolutivity growth has become even more necessary given the demographic projections which point to a downward trend in the labor force that can only partly be counted by an improvement in the immigration balance and by an increase in labor

market participation. Most present projections show that over the next fifteen years, the population aged fifteen to sixty four will fall by percent, or about five million people, half of wound in the south. Unlocking that job's potential trapped in the inertia of the Eurozone's third biggest economy is key to Italyast future prosperity. Some of the problems, the governor said,

is schooling and a low skilled labor force. According to Andre Apprenticeship, professor of Innovation Management and rector of Lewis Universe City in Rome, many people have absolute skills and are not sure how to retrain themselves. He also believes young people often don't have the right mindset they need to learn how to learn in order to face a

rapidly changing world. I mean this is not just the usual problem of market and demands, and also the idea of throwing money at the issue do not address it fully. So my understanding and fact my proposal will be to rethink the way we to education, because since they know the age of people will lengthen we need to make sure that students and the phone people we learn to learn new jobs. So a shift from content to methods to learn new jobs and invent new ones, or at

least craft them. According to the Bagaries of the market. Adapting to the changing labor market has been a challenge for Beatrica, a forty nine year old who has struggled to find a job since losing hers at an insurance company in Rome during job cuts in two thousand eighteen. Currently helping a friend with childcare, she says she may try to return to the fray of seeking work later

this year. After the pandemic struck, it got harder to find work at my skill level, and in the end I ended up helping out a friend with her kids, so I wasn't able to get back into the job market. It's a pity because I have other abilities and think it's a waste of both potential for me, because I have a great desire to work and for the country. Millions of people flocked to Italy at this time of year to enjoy la dolce vita, whether it's closed, the cars,

the food. Probably no country has done a better job of exporting its culture to the rest of the world. But if it can't find a way to sell its economy to its own city, isn't the next few years are going to be bleak. Indeed, in Rome, I'm alissandremactual form News. We have a few minutes now to discuss

Italy's plight with Rosam. She's an economist and lecturer in public policy at Rome's Louis University and an advisor to the O E c. D. Rosa, Maria, thank you very much for joining us, and we heard they're about the army of people in Italy who are of working age but are not looking for work. Now, as you know, there has been a lot of discussion in the US

and in Europe about the so called Great Resignation. How much of this Italian problem is related to the COVID pandemic and how much is due to more homegrown issues in Italy. Thank you Stephanie for having me and for discussing that is very interesting topic. The Great resignation vary with something that's happening in Italy. But the problem of high in activity in the labor market is a longstanding

problem and it's quite structural. But if you unpack this very large number in Italy is the most reason that I got from to thousand nineteen so well before COVID, and we noticed that the largest percentage, like thirty eight point three percent is people in education. And you will consis think that a lot of people study in Italy. But then if you then look at variables about tertiary education attainment or pizza results for high school, it's actually

not the case. Italians don't obtain more degrees than other countries. It's just that it takes longer. One of the reason is that school ages later and you finish the legal age of studying after and also university the way structured encouraged staying more year in education, and so I think there is a structural problem with the education system. The second larger percentage of people who are not actively searching for a job in Italy, it's because of family reason

and it's striking Italy. I think it's the lowest female labor market participation in Europe. And as a recent MoMA discussing with moms as well as a scholar, I realized very deeply that is strongly related to the fact that welfare in Italy strongly realized and privately family provided solutions one of the lowest provision of child care services. So getting a kid, especially if you live in the south

of Italy, really kicks you out of the market. Italy is known for having an aging popular action and that obviously affects the workforce directly because you have lots of people retiring. But I guess there's also an indirect effect

because there's a lot of old people to look after. Yes, there are more people to look after, so the elderly who used to help families still do it a lot in childcare now become part of the responsibilities of families and that means usually of women that have to require more flexible contracts and take less less our, bring less hour into the job market, and that usually makes it much harder for them to find the proper location and

find the sustainable job. You and I have both even just to negotiate this this meeting, we've both had our family negage obligations to navigate. So we understand that pretty well. But does the government understand it? And people like the Governor of the Bank of Italy understand that how you could address this need for childcare? It sounds like more than anything, so Italy is lacking behind and provide and provision of childcare services. So and that's especially true in

southern part of Italy. And this is for more, let's say, an adoptible discussion and some readings that by being a mom and talking with other moms and even when they can place their kids in childcare, which usually if public close at four pm, that requires them to get a part time or a quite flexible job. And that's not the hr culture in Italy getting flexible jobs and not I don't think even the COVID pandemic and all the work from home solution has changed that. And also it's

a regulatory issue. We have a we are accountry with very high taxes on income. So for somebody who hires a person hiring a single person or two part time, it's very different. It's a rigid market with very small firms, so usually part time jobs are not offered very easily. Even though recent governments have tried to improve the all active labor market services with this cent ridicule. Loo comment to hiring people to help unemployed people to get jobs,

the results are quite uh striking for their ineffectiveness. So I will tell you this. This job when I was younger, my dad so you should go and register to the unemployment office. And I was okay, I mean I don't really know why, but if you say this is something I just finished school, I should go there. I went there and I told them about myself. So what's your qualification and I said, well, I'm an economist and they were like, I don't know what to do with that.

That was just right. That so that's something whatever I told them, Well you can see that they can make it if there's a job opening for like that. They're very very uneffective for these kind of jobs. Well, it sounds like you get a particular perspective as an economist from also living some of these situations. But I know we're going to run out of time because your own child is going to be coming back to the house.

So let me just ask you for people listening. We often talk about because Italy has so much debt, and people are starting to talk about, well, maybe it'll be increasingly difficult for Italy to still service its debt pay the interest on its debt because interesting rates are going up.

I don't want to get into all that, but if there's not enough people willing to work who are inactive in Italy, how does that hurt Italy's economic situation and potentially make it harder for the government to deal with higher interest rate? What's the cost for the economy and for growth. Well, I always think as a GDP as the income of a family or a very large family. If my income keeps shrinking, and of course I will not be able to repay my mortgage. So this is

pretty much the situation in Italy. But I just want to make one point. I really don't think that Italian people who are inactive don't want to work. I think they are not in the position to work. I think the Italian economic system is not able to accommodate and give them a job, so they don't even botter registering to the unemployment office. So because they know that it's not going to be there, and they try informal ways

that they don't get there. And this is not sustainable in the long term because basically you're taking off all these energy and creativity and ability and getting get stay stale and cold, and they're not going to be able to contribute to what this country needs to go back and to go back to a future of growth. And you know, Italy has been stagnating for decades now and

the only solution is from the people. So we have to find a solution that I think that our political leaders need to find a way to understand what in our institutional framework is letting all these energy and creativity being chained and wasted instead of literally used. We mentioned at the end of the piece because it's an interesting puzzle for people in the rest of the world that if you look, there's so much about Italian culture and

food that has taken over the world. You know, a cappuccinos and uh, we aspire to kind of Italian standards of design and the cars and adult vita and everyone wants to go there on holiday, and yet somehow the country has not managed to capture the benefits of that global success in all its ideas. Isn't out of There's also about companies seeing that potential that you're talking about, that sort of on the sidelines, not able to be

playing an active part in the economation. Shouldn't some of these fantastic Italian companies be finding a way to employ these people. I think that there is definitely a weakness in the industrial structure of Italy and many firms are too small to be updated, usually family runs, so they don't have any managerial real managerial qualification, and that affects growth,

of course. But then as policy alious, you have to step back and ask why Italian firms are not competing anymore, are not growing anymore like they used to do in the sixties and in the boom area. And as you as you might know, Italy is one of the few countries in which salaries are getting smaller instead of increasing over time. And this is not because each worker is paid less, just because Italian firm used to be on

the edge of the frontier of international competition. Now they are shifting to business sectors that are less attractive, less innovative, and can provide lower wages. And so definitely I think there's a lacking of entrepreneurial and managerial current and ability to grow. You're making the example of the cappuccino, but the Italian style coffee has been made very popular in the world by Starbucks, not by an Italian company who then went back to meet to Milan and built a

museum of coffee. But that's pretty much it. Tall is very beautiful to be in vacational. It seems like I cannot be working on their owner. Thank you so much, Rosa Maria. That's been wonderful. Now, something else that Italy has been quite good at exporting to the rest of world is economist Mario Drug was an export that went home. Rabini still roams the world and is probably almost as famous for his gloomy but often preseent analysis of what's

going on in the world. I had a conversation with New Real at the catar Economic Forum the other day. Here are the highlights we are seeing and experiencing something we haven't experienced at least in many of the developed economies for a long time inflation, significant inflation, and we're using a phrase or a word that we haven't used also for a long time stag inflation. So new Rabini.

You're not always known for your optimism about the global economy, but listening to an interview you gave this morning, you seem not just long term gloomy but short term gloomy. You think we're headed inevitably for a recession. So I guess my first question to you is is a hard landing now inevitable? And if so, when did we go past the point of no return? When did you think, oh, this isn't going to end well. Well, people and myself were old enough remember than d in seventies when you

had two major all sharks. They were in seventy three between Israel and Arab States, and then in seventy these labing revolution in Iran. They led to oil embargo, spike in all prices, high inflation, and recession. And I think, unfortunately this time around, we have both the man factors and supply factors that are causing stagflation and high inflation.

On the the men side, of course, we had loose monitor and physical policies during COVID with excess savings are now leading to pend up demand, But there were a series of negative supply shocks, first impact of COVID lockdown, the inductual supply of labor plobal supply chain prob limbs, but easy with also to other negative supply sharks, the brutal Russian invasion of Ukraine, rising energy prices, food fertilizers,

and industrial metals. And now the zero COVID policy of China's leading to slow down growth of China and further bottlenecks on the global supply. So we have a situation similar to the seven is excessive agree demand and negative

supply sharks. Now, central banks hope that they can raise rates just enough to slow down economy to bring back inflation to but the history of the last forty years suggests that whenever at least in the US inflation is above five percent and right now is eight and a half, and when unemployment is below five percent right now is three and a half, any attempt by the Fed to essentially raise rates to fight inflation causes a hard landing

rather than a soft landing. That's why my baseline scenario right now is of hard landing for the US for the Eurozone, for the UK and most advanced economies. Well, I was going to ask you quickly about that. So as far as your concern, the recession that we would see in the US will inevitably be followed by or come with the recession elsewhere. Well, it's gonna be followed

by recession elsewhere for two series of reasons. First of all, when the US needs is the rest of the world that gets it, called US is large enough that what happens economically, as in terms of financial markets in US that affects the global economy to the same factors that are leading to recession US are occurring also in the Eurozone, Europe, and the United Kingdom. If anything, Actually, I would say Europe is more exposed to Russia in terms of energy.

Europe is more exposed to the slow that of China, given trade with China, the US falling in value and that inflationary and the recovery of Europe was more annavy than the United States. So in some sense, Europe, Eurozone and UK has fragile, if not more fragile then the United States. We have some understanding about what the FED is going to do. But would you say that Europe potentially has more or less room in terms of the central bank response. I mean they don't face the same

kind of demand issue. Well. In terms of levels of inflation rates, the levels in the Eurozone right now are as eyes the United States. Um in the UK is even worse than that. Among advanced economy is the only one that has much lower inflation is still Japan. That explains why the BOJ policy is very different. And it's true that the nature of inflation and Europe may be

slightly different. More exposure to energy and Russia more of headline inflation rather than core because of that, slightly less strong wage dynamics, more supply shocks rather than aggregate am shocks. But in a world where you have this stack fraationary shock, whether you're the Fed, d c B, the b O A, SMB R, r b A, you name it, you're in trouble because whenever you have the stacflationary shocks, inflation is higher,

growth is lower. If you care about inflation and not the anchoring inflation expectation, you have to exit and normalize sooner and faster. But that increases the risk of a hard learning and if instead you care also, but economic

growth and you'll normalize more slowly. Then the risk is that you're gonna have the anchoring of inflation expectation, and whether the shock is supply or the man, in some sense it doesn't matter even in the presence of a supply shock, like we learned from the seventies, if you don't fight inflation, inflation expectation getting the anchored, and you end up with stackflation, not just with inflation but also recession.

And I would say U D C B is as much in a pickle as the FED given the exposure to Rush, are given exposure to China, given the more an emic recovery, given that the US falling in value, and therefor you're gonna have more important inflation. So the

problems are similar. And when you think about the sort of global knock on effects of this, or we would call it the spillovers we had years after the global financial crisis where we talked about currency wars, and the game in currency wars to was to depreciate your currency and try and import some inflation because inflation was too low. What's the risk now or how much are we already seeing the reverse of that? The stronger the US in

effect trying to export inflation through a stronger dollar. Yeah, as stronger dollar implies that inflation is higher in Europe, is the inflation is higher in other advanced economies. More importantly, inflation is also much higher in emerging markets. We're spoken about advanced economies about in some sense the situation of emerging market is more difficult. Of course, you have to make a caveat there are some emerging markets that are

energy and or commodity exporters. Those are doing well, like in the region that there are some emerging markets that have stronger macroeconomic fundamentals with lower inflation. But you know, the typical em that is net commoted importer. Now it's facing raising rates in the United States with weakening of their currencies. That lead is too higher inflation and with

higher borrowing costs. It has in terms of trade shock because especially in Asia, but also in many other emerging markets, there are net commodity importers, and for them, the rise in energy, food fertilized and that the metal is a major economic shock. Of course, if you're in very poor countries, you get to the point in which they have to worry about hunger, if not famines like in Sub Saudan Africa.

And the third shock for emerging market is the slow down of China that is now significantly also affecting negatively especial economic growth in Asia that is connected to the glo sub black chains of of China. So you got the fat shock, you get the dollar shock, you get the terms of straight shock, you get the China shock. So that's why folks at the World Bank of the MF say, for many emergent markets of poor country this is not a COVID recession, is a near depression that

they have to worry about. I knew we're going to run out of time, but you have spoken quite a lot about crypto in the past, and I was interested given it's been a pretty turbulent ride for a lot of the crypto occurrencies in the last few months. How how are you looking at the the future? Was it a fat or is it the future? Or are you changing your view? Well, from the peak of the last November, Bitcoin has lost about of its value. Other cryptocurrency have

lost eight of them. You know that study suggest that of all I c o s were scams of one sort or another. I think, however, the most important point is that calling cryptocurrencies currencies is a missnumber. Anybody who knows about monetary theory and policy like his excellency, and knows that for something to be money, orcurrency is to be unit of account. Nothing is a price, and bitcoin it has to be a scalable um means of payment. With bitcoin you can do seven transactions for cycles. With

the Visa network you can make fifty. It has to be a stable store of value. Here you have an asset can go up and downe in value overnight by not even crypt or conforences accept big one as a means of payment or a store of value and has to be a single numera so you can price the raty price of goods and services. If every good and services different talken, it's like going back to barter, or you cannot even see their realty price. So calling them

currencies is really a missnumber. But if it was a misunderstanding, what's happened in the last few months of people will people come to their sense? Is do you think, well, there was a huge bible, there was a fear of missing out, there were ponds of schemes, many people about their peak, and now they've lost effortune whether in the cryptocurrency crypto assets defiance on I think that's in this space.

If you want stuff that's going to be not vapor, where you need to find asset back tokens on one sort or another that are backed by real assets or financial assets. Otherwise those that are based on essentially vapor

where are going to be disappearing over time. I hesitate to ask this final question to you, Nual, but I was looking at my notes, and the last time we spoke, which was more or less in the middle of COVID, you were predicting that there would be some inflation coming out of COVID that would cause policy mistakes and you would then have a ten year depression in most of the world economy. People take, are we more or less

on course for that or can we expect something lightly better? UM. I certainly worry about stack fish in the short run. But the thing that the factors that might lead into mediocre growth are not just short term. If you look at medium term, there whole series of other negative supply shocks. We have the globalization and protection is we're restoring of manufacturing from low cost by cost. You have aging of populations, You have a restriction to migration. You have this decoupling

between US and China. You have global climate change in many channels is stactulationally reducing growth and increasing cost of production. You have unfortunately recurrent pandemics. You have cyber warfare. You have a backlash against income and wealth inequality. You have the weaponization of the US dollar. These are all factors that are not short term, that over time may reduce growth,

increase cost of production and being stag fationary. So unless we're addressed this issue, we could end up not with a mild recession about something more like depression. We've inflation, men get deeper, slack inflation redes Yes, ladies and gentlemen, dr do thank you very much. Well, that's it for this episode of Stephanomics. Will be back next week, but in the meantime, do please rate the show if you like it, and check out the Bloomberg News website for

more economic news and views on the global economy. You can also follow at economics on Twitter. This episode was produced by Summer Sadi and Young Young, with special thanks to Nuriel Roubini, the Catar Economic Forum, Rosa Mariaetti and Alessandra Meliaccio. Mike Sasso is the executive producer of Stephanomics THO