As a result of its longest and deepest recession since World War II, Italy's unemployment rate peaked at 13.1 percent in November 2014. Italy emerged from recession in 2015 and unemployment has since ebbed, but remained high, at 11.1 percent in January 2018 and above the eurozone average of 8.6 percent. The youth unemployment rate more than doubled during the financial crisis, exceeding 43 percent in 2014. Though youth unemployment has since declined, it remains elevated (31.5 percent in January 2018) and one of the highest among EU members. In 2017, there were an estimated 2.2 million young Italians not in education, employment or training (NEETs), more than 22 percent of all young Italians, which is one of the highest ratios in the EU. Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential. Official unemployment data do not account for temporarily laid-off employees who receive benefits from Italy’s “wage guarantee fund” (for struggling or restructuring companies).

Additionally, in the past many Italians dropped out of the unemployment statistics, as they became discouraged and stopped looking for work. Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young and the elderly. Low labor force participation has been partially attributable to the informal economy, which Italy’s statistics agency estimates as at least 12 percent of Italian GDP. The Italian government aims to alleviate youth unemployment through the EU Youth Guarantee Fund, as well as vocational programs. The downward labor-force-participation trend changed in 2016, during which 478,000 more working-age Italians reentered the labor pool than left it. This positive trend continued in 2017 and in early 2018. January 2018 marked the highest labor force participation rate in Italy since the data series began in 2004 (65.5 percent of working-age Italians). The shrinking pool of inactive Italians reflects increased optimism in their ability to find work, as reflected in the most recent confidence indicators. However, labor market survey results note that some previously inactive Italians also have resumed the job search due to financial need (e.g., a drawdown of savings or a spouse’s loss of employment).

The productivity of Italy’s labor force is below the EU average. Many Italian employers report an inability to find qualified candidates for highly-skilled vacancies, demonstrating significant skills mismatches in the Italian labor market. Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU agreements on freedom of movement to work in the United Kingdom, Switzerland, or Germany. There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government. Skilled labor shortages are a particular problem in Italy’s industrialized north.

On paper, companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position. In reality, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions. Work visas are subject to annual quotas, although intra-company transfers are exempt from quota limitations.

With the goal of modernizing Italy’s notoriously inflexible labor market, the 2014-2016 government led by Prime Minister Matteo Renzi enacted the Jobs Act as the centerpiece of its structural reform agenda. Passed by Parliament in December 2014 and implemented through legislative decrees in 2015, the Jobs Act is a package of structural reforms to Italy’s labor market. The Jobs Act removed a key obstacle to hiring new employees by removing employees’ unqualified right to seek reinstatement, almost always via lengthy court cases (known as “Article 18” of the Italian labor code). The new law provides greater legal certainty to employers by permitting employee reinstatement only in discrimination cases. Article 18 also discouraged employers from hiring employees on indefinite contracts, with employers preferring to hire temporary employees. Often, “temporary” employees were essentially permanent employees, as employers renewed the contracts repeatedly. The GOI introduced a hiring incentive in 2015 for employers to hire workers on indefinite contracts, granting them a three-year exemption from employers’ contributions to social security for each new permanent employee. In 2016, the exemption was reduced to two years and 40 percent of employers’ contributions. In December 2017, the GOI introduced new hiring incentives: a three-year 50 percent social security tax break for hiring young people up to the age of 29 (35 in 2018) for the period 2018-2021.

As of January 2018, the Jobs Act hiring incentives appear to have contributed to the Act’s stated goal of encouraging indefinite employment, mostly through a conversion of temporary contracts into open-ended contracts. Recent statistics show an increase in employment, but primarily through flexible or temporary labor contracts rather than indefinite labor contracts. There has also been a positive impact on youth employment, but it is still too early to know if the incentives will have a substantial impact on youth unemployment, which remains disproportionately high. The GOI labor plan seeks to reduce the average youth unemployment rate by four to five percentage points a year over the next three years in order to bring Italy’s youth unemployment rate in line with that of eurozone youth unemployment. The GOI’s latest forecasts estimate a downward trend in the unemployment rate, which is expected to return to single digits in 2020.

Though Jobs Act labor reforms aimed to encourage indefinite labor contracts, employers have also taken advantage of temporary labor contracts—though that trend slowed in 2017. In 2016, 3.74 million temporary contracts were signed, up 0.8 percent from 2015 and up 11.0 percent from 2014, with most taking advantage of the most flexible labor tool available: job vouchers. Employers can buy vouchers to pay for piecemeal, seasonal, or occasional work without a labor contract. Though the tool was created in 2003 to bring agricultural workers into the formal labor market and extended to other sectors of temporary work by the Fornero-Monti labor reform of 2012, employers have expanded the use of vouchers considerably. In 2016, employers bought 133.8 million vouchers at EUR 10 each, up 23.9 percent from 2015. Unions have been highly critical of job vouchers, noting the recipients of the vouchers (1.7 million workers in 2015) do not receive benefits, training, or job security. The use of labor vouchers was more limited in 2017, and this generated an increase in temporary labor contracts, and according to analysts, more underground employment as well.

According to official GOI statistics, overall employment in Italy increased by 156,000 (i.e., 0.7 percentage points) from January 2017 to January 2018, primarily related to increased employment among those in the age cohort 15-24 and those over 50 years of age. Despite the recent improvement, the GOI and the European Commission continue to forecast that Italy’s unemployment rate will remain in double digits until 2020, as employers increasingly seek to improve worker productivity and increase hours for existing workers, rather than hire additional new workers.

Indefinite employment contracts signed before March 2015 are governed by the June 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments. Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal. In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of prolonged legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.

Open-ended employment contracts signed since March 2015 are governed by the new rules under the labor market reform (Jobs Act), which provides employment contracts with protections increasing with job tenure. During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons. Under the new Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited.

Regardless of the reason for termination of employment, all former employees are entitled to receive mandatory severance payments from their employer (TFR - trattamento di fine rapporto), equal to 7.4 percent of the employee’s annual gross compensation for each year worked.

Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six). The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers. The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of national active labor market policies remains in process. Italy also offers other social safety net protections to all residents, designed to tackle poverty. The GOI is implementing an anti-poverty plan (reddito di inclusione) aimed at providing some financial relief and training to homeless individuals and people with income below the poverty level. In late March 2018, INPS reported that in the first three months of 2018, 250,000 Italian households, corresponding to 870,000 people, benefitted from national and regional anti-poverty measures. The amount of the benefits ranged from EUR 177 a month for singles to EUR 429 for a family of six or more.

The GOI must still implement remaining Jobs Act measures, including a statutory minimum wage. (Italy does not currently have a national minimum wage, as wages are set through sector-wide collective bargaining.) An agency for Job Training and Placement (ANPAL) was established in 2016 to coordinate with Italian regions, which after the defeat of the December 2016 constitutional reform referendum, remain in charge of implementation of many labor policies. ANPAL is following the implementation of the Assegno di Riallocazione (the "reallocation check”), an initiative related to the Jobs Act aimed at providing unemployment benefits, such as the special wage guarantee fund (Cassa Integrazione Straordinaria) and retraining to find a new job. The “reallocation check” funds are dispersed to the agency in charge of the retraining and job placement only after the candidate gets a new job.

Italy does not waive existing labor laws in order to attract or retain investments. All the benefits, including the old hiring incentives in the 2015, 2016 and 2018 budgets, were and are available to all eligible companies operating in Italy.

Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate (e.g., more than 25 percent in Calabria, at the southern end of the peninsula) than northern and central Italy (e.g., approximately 4 percent in Bolzano, a northern region bordering Austria). Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country. Immigrants from Eastern Europe and North Africa often supplement the shortages in the north of unskilled and semi-skilled labor.

Italy is an International Labor Organization (ILO) member country. Terms and conditions of employment are periodically fixed by collective labor agreements in different professions. Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers' Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL). The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL). The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.

Collective bargaining is widespread in Italy, occurring at the national-level (primarily to reflect inflation and cost-of-living adjustments) and industry-level (to reflect productivity and profitability). Firm-level collective bargaining is limited. The Italian Constitution provides that unions may reach collective agreements that are binding on all workers. There are no official estimates of the percentage of the economy covered by collective bargaining agreements. A 2014 estimate from union officials projected collective bargaining coverage at 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements. Collective agreements may last up to three years, though recent practice is to renew collective agreements annually. Collective bargaining establishes the minimum standards for employment, through employers retain the discretion to apply more favorable treatment to some employees covered by the agreement.

Labor disputes are handled through the civil court system, though they are subject to specific procedures. Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.

In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.

There were no strikes during the last year that posed investment risks. The Italian Constitution recognizes an employee’s right to strike. Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern. In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments. In addition, frequent strikes by employees of local transportation providers may limit citizens’ mobility.