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Europe’s Next Bump: Italy’s Youth Unemployment

Europe’s Next Bump: Italy’s Youth Unemployment

Italy is a country known for its amazing food, culture, and cities -- making it a top destination for travelers across the globe. What most people don’t realize, however, is that Italy is experiencing heavy economic distress. One of the major factors responsible for this downturn is Italy’s high level of youth unemployment. That being said, the unemployment rate for ages 16 to 25 is the second highest in both Europe and the developed world after Greece, at 33%. Before diving deep into the specifics, it is necessary to understand Italy’s economic background. In 2017, Italy’s nominal Gross Domestic Product (GDP) was equal to $1.935 trillion, making it the 9th world power in terms of GDP. Although Italy’s economic standing is well above average, the country’s rich history tells another story, one of long-term decay.

The current standing of Italy’s economy is directly attributed to the economic boom post-WWII.  In this so-called “Età dell’Oro”, or golden age, between 1950 and 1973, Italy was able to convert from an agrarian economy into the fourth most industrialized and influential economy of the globe.  During this time, the per capita GDP increased on average by 5.3%, while industrial production and work productivity rose on average 8.2% and 6.2%, respectively. This rapid growth came from the flourishing of international technologies, which allowed Italian industries to acquire machinery for the distribution and manufacturing of raw materials. In the years following the “Età dell’Oro,” Italy saw a steady decrease in the growth rate of its economy. Eventually, Italy’s real GDP stalled at a growing average of 0.84% per year.  

Since the year 2000, Italy’s economy has continued to stagnate. In the past 17 years, Italy’s nominal GDP has grown by a cumulative 2.6%. When comparing its growth to the Eurozone’s average cumulative GDP of 3.9%, it is evident that the stagnation of the Italian economy is a result of severe problems in the country’s socioeconomic structure.

One of the major issues that has affected the nation in the past few decades has been the high rates of youth unemployment. As of the year 2018, the unemployment rate for youth ages 15 to 24 is at 34.7%. Such high index tends to result in a slowdown of GDP and is generally associated with a dying economy. Also, a high youth unemployment rate can result in a pessimistic outlook on the future for a country, causing a lack of business confidence and international incentive to invest. This is seen in the portfolio outflows in the month of May and June of 2018, which balanced at almost $70 Billion in retirements, as international investors fled the scene. In other words, without the efficient use of its resources like human capital, an economy can quickly see its assets turn into liabilities.

So why is youth unemployment a problem for Italy’s economy? With Italy’s high rate of youth unemployment over time, it has been increasingly difficult to motivate the younger generation to earn degrees in higher education. This generational apathy manifests itself in the emigration of Italy’s youth workers, their unwillingness and inability to spend or cycle their money back into the economy, and general lack of productivity in the jobs they can find. Because household consumption makes up “nearly two-thirds” of Italy’s GDP, and the ability for household consumption to grow is so severely stunted by the nation’s youth leaving the country, the rate of increase of Italy’s GDP is continuously shrinking.

Moreover, Italy’s inability to make sizeable increases in real GDP directly affects the possibility to contribute to the European economy as a whole, leading to political discourse and an unsteady position in the European Union. In an attempt to increase consumer spending, Italy’s new “coalition government” has proposed a “universal basic income for the poor,” which supposedly has the potential to change the future course of Italy’s struggling youth. By supplementing the income of younger workers, Italy not only increases government expenditures, but also increases the opportunities available to its youth. Then they would have more financial freedom to engage in continued education, and overall ability to become more desirable workers.

However, such measures would come at a major cost to the government, one which the European Union does not want.  At present, Italy is warring with the Brussels-based European Commission over Italy’s proposed budget, as it would “violate EU rules forbidding any member state from running deficits in excess of 3.0% of its gross domestic product”. This represents yet another roadblock to regulate Italy’s youth unemployment problems.

Considering Italy’s current debt, as well as their tension with the EU due to decreasing rates, increasing government spending truly seems like an impossible, or rather hurtful move. Therefore, instead of wasting money in creating jobs for the youth, some suggest Italy should enforce a lower tax bracket for the younger generation that would allow for the educational and professional growth of the country. In turn, this would encourage the youth to remain in the country, eradicating the high youth unemployment rate in the long run. Although this solution is seemingly simple, there has been no feasible or outlined plan to get this done as such actions would cause lower tax revenues for Italy, hurting their short-term GDP growth.

Clearly, the issue involving Italy’s youth has become yet another puzzle for the EU to solve. In the past, countries like Spain and Greece have entered long-term depressions on the basis of high youth unemployment, causing even lower levels of business confidence in today’s economy. Additionally, the EU’s reluctance to fund any more of Italy’s governmental splurges and Italy’s lack of productivity provides for a good reason to disinvest. With no signs of improvement, Italy could be on the verge of a recession.  

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