Real unemployment in Italy is higher than you could imagine
Unemployment and statistics from the latest Parliamentary Budget Office report
This article by Franco Calistri and Roberto Romano was originally published on “il manifesto” on 6 August 2021.
The Parliamentary Budget Office (UPB) is the third-party body assessing (and validating) the macroeconomic framework of the government's Economic and Financial Document (DEF). It presented the "August 2021 Note on the Economy" on 3 August. The government and much of the public stressed that GDP growth would be close to 6%.
Obviously, a major achievement, but overstated. After the 9% GDP collapse in 2020, 6% growth for 2021 is a fraction of what would have been possible. We understand the support for Draghi, but the measure is a good way to assess reality. However, the UPB did another and in our opinion more important job: to some extent it recorded the real unemployment rate of the country. No one has discussed this important and fundamental information.
The report states: "This evolution would reflect the extreme gradualness of the labour market adjustment process, marked by a large degree of under-utilisation of the labour (amounting to about a quarter of the extended labour force on the basis of Eurostat data); especially among people available for work but not looking for work".
What does it mean? The real unemployment rate in the country is between 23-25% of the potential workforce. Quite a mess. The information is not new to decent economists.
As former experts of the Industry Commission of the Senate and the Chamber of Deputies between 1996-2000, we had pointed out the question. Although it was the time of policies aimed at entering the euro, intelligence was still a hallmark of ministers (Ciampi for those who had not yet understood).
Others worked on the real unemployment rate and were often “derided” for the method and approach used. Think of A. Fumagalli in "Lavoro male comune", Riccardo Sanna during some communications as economic manager for CGIL (Italian biggest trade union, ed.), Roberto Romano as an economist for CGIL Lombardia - never taken seriously. Now the UPB offers a picture that should be kept on the desk of all economists. But how was it possible for the unemployment rate to vary so much in the official statistics?
We are men of the last century. But rummaging in the drawers of our memory, we remember that in the second half of the 1960s an interesting debate opened since an essay by Giuseppe De Meo, the then president of ISTAT (Italian official institute of statistics), precisely on how ISTAT measured unemployment, just as we remember the interventions of Giorgio La Malfa, Marcello De Cecco, Luca Meldolesi and Enrico Pugliese. The discussion is not at that level, there are not the same interlocutors, but the terms of the discussion are identical.
Over time, in the 1990s, ISTAT introduced an even narrower definition of unemployment, meaning a person who had made concrete job search actions in the week of reference of the survey. Suddenly unemployment in the South halved. And what can we say about the fact that among the employed, ISTAT considered workers in mobility and zero-hour lay-offs?
The criterion for measuring unemployment is much closer to the one pointed out by the UPB (the only remark is that we would not include the underemployed, which is a rather slimy category).
Then we have the detractors, i.e. those who only think of the natural rate of unemployment, an economic concept developed by Milton Friedman and Edmund Phelps in the 1960s. It represents the hypothetical unemployment rate consistent with the potential level of aggregate output and the optimal price level, disregarding the fact that innovation reduces prices.
Perhaps it is time for reformers who are taken seriously, as well as representatives of social forces, to remember what the actual unemployment rate really is and make it the measure of market failures. Having a third of the potential workforce not in work is a very serious economic policy problem that cannot be circumvented by statistical techniques, even if they are internationally certified.
The question that should be asked of the government as well as of the institutions of capital could be: how do you intend to reduce the real unemployment rate that is now permanently above 20%?