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A “Recovery-less” Job Growth in Italy?

Europe

“Jobless recoveries” are a well-known phenomenon in economics: especially in the initial stage of the recovery phase of the business cycle, GDP accelerates without generating new jobs, as employers want to see a well-established recovery before adding staff. In the last 40 years Italy has not been an exception in what economists call labor hoarding, i.e. a situation in which the employment response to output growth is low: in practice, if real GDP yearly grows by 3% employment tends to rise by much less, say at about 1% rate. This happened because it was hard to reduce the number of workers even in severe crisis periods. Firms retaliation was not increasing employment even when GDP was growing: thus, in both cases labor adjustment was low and mostly involving increasing working hours. Recently the situation notably changed since employment adapted much more to both good and bad times: for instance, in 2016 employment was even growing (0.8%) more the GDP is predicted (0.6%). As we have discussed in our recent analysis, public officials are also puzzled by what seems to be a new phenomenon, which we could label “recovery-less employment growth”. Among the possible explanations there are the new labor law (so-called Jobs Act), introducing more flexibility in industrial relations, or the regularization of workers coming from the unofficial labour market.