Policy Article

Italy: A Crisis Country of Tomorrow? Insights from the Italian Labor Market

Kiel Policy Briefs

We analyze the shortcomings of the Italian economy and of the labor market in particular against the backdrop of the widespread fear that Italy could turn into a second Greece and could trigger some kind of domino effect. The analysis shows that Italy is not a second Greece but the Italian economy is losing ground towards the majority of EU countries. The labor market is a mirror of Italy’s lingering crisis: Mass unemployment, lack of perspective for young people, low labor force participation and a dwindling competitiveness. The labor market reforms which had been initiated to enhance labor mobility, to increase the incentives to work and to improve the employability of the unemployed are regarded as adequate but they should be completed to achieve the desired success. A delay of labor market and other essential structural reforms would hamper structural change and thereby diminish the prospects for economic growth that is required for the sustainability of Italy’s debt burden.