Success of Youth Guarantee will test credibility of new Italian government

From May 1st, the Italian government led by the youthful Matteo Renzi, now in office for two months, has committed to implementing the EU proposed Youth Guarantee of a job or training place for everyone under 25 within four months of leaving education or another job; and moreover to extending the guarantee to all those under 29. As the EU Youth Guarantee was supposed to come into effect on January 1st, the job or training opportunity should be provided very soon for most of the 900,000 estimated to be without employment or training. Directly responsible for implementing the guarantee is a not previously very well known man of 62, Giuliano Poretti, whose career had been in the co-operative movement, whose national association, Legacoop, he had been president of since 2002.

The challenge is the most tangible test of whether Renzi can fulfil the high expectations which he has built up of his ability to transform the Italian economy, which has been stagnant for over a decade and whose most glaring failing is its inability to provide career opportunities for young people, for whom the unemployment rate is 40% while most of those who have work are in limited duration contracts. As a result many young people go abroad in search of work opportunities. In March the government passed a new Jobs Act partly in the form of a decree with immediate effect whose main features were a a simplification of fixed term contracts up to 36 months and clearer rules designed to encourage apprenticeships. Other parts of the Jobs Act including one to encourage companies to offer more indefinite contracts by making them  less potentially crippling for those needing to make redundancies if facing a downturn in demand, is being steered through parliament with the hope that it is passed by the end of 2014 and comes into effect in the first six months of 2015.

Organisations like the OECD have long argued that the countries with the kind of labour market legislation which is less burdensome for employers as the Jobs Act tries to bring about is associated with much higher employment rates than those with restrictive labour market legislation as Italy’s used to be (the Jobs Act is the latest but not the only reform in this direction in recent years). However, the main body of the Jobs Act will not be operative till 2015 and, in any case, it is difficult to point to any clear cut time frame a change in labour market legislation and any beneficial effects on the demand for labour. Beneficial effects  are at best likely to be in the longer term if the economy remains weak and nothing else is done. In the meantime the public could quickly become disenchanted with the government which is formed by an uneasy coalition and does not yet have a direct popular mandate.

It is thus important for the credibility of the government that the Youth Guarantee proves effective and does so quickly. This will require a much greater degree of co-operation between central and local government and the private sector than has been normal in Italy, particularly in the south. Italy’s success or otherwise in creating jobs is also important for the euro zone. The euro zone has against the expectations of many observers, survived nearly five years of crisis, but the imbalance between job opportunities in Germany and smaller countries close to Germany and southern Europe has so far shown no sign of easing.

 

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