Italy’s competitiveness at the expense of workers – Corriere.it

Forget the background noise on the National Recovery Plan. Last week’s most important economic news is summarized in the graphs (below) which I will explain shortly. No one has talked about it, but the other side of an event that has rightly had a lot of echo: the joint proposal of all the oppositions to arrive at a minimum wage by law of nine euros an hour.

The graphs you see above are published by the European Central Bank in its latest economic bulletin. They basically say one thing: Italy among the countries or the country of the euro that has gained more international competitiveness since 2019. And this gain in competitiveness is above all the result of a stronger containment of wages and profits than in almost all other economies. As a national community – consciously or not – we have chosen a strong compression of our purchasing power in order to maintain or generate jobs and in order to keep our companies open. During the flare-up of inflation, we agreed to get poorer in order to remain economically active. Today, with a bit of rhetoric, it is said: we are resilient.
Let me explain the graphs first.

The first (Chart B) shows on the horizontal axis how “unit labor costs” have changed from 2019 to 2022, i.e. the cost of labor – expressed in quantities of euros – for each total value produced. As can be seen, after Greece and Cyprus, Italy is the euro area country in which unit labor costs have grown the least. Since productivity certainly hasn’t exploded, it means that during the inflation we accepted a sharp cut in the real purchasing power of our wages and salaries: prices go up, but paychecks have remained (almost) the same.

On the vertical axis the same graph shows how the unit profits of firms have changed, i.e the entrepreneurs’ earnings in euros for each total value produced. Here too, the same story: with France and Portugal we are the country where unit profits rise the least, in monetary terms; therefore also Italian entrepreneurs agree to compress their margins in order to remain on the market. We have become ready to give up, virtuous and austere, almost Lutheran without realizing it: Wolfgang Schuble should be proud of us, because in this we behave in the exact opposite of how we did in the first ten years of the euro. The result of this transformation in the second graph of the ECB, below.

It shows that since 2019, together with Ireland, Italy has been the country that has gained the most competitiveness in the euro area (on the vertical axis, the countries with a minus sign are those that have reduced their unit costs compared to the others) . AND enjoys a very balanced position with foreign countries, not having debts greater than credits, n credits greater than debits (on the horizontal axis). In essence, we are solid. We are resilient, reaping the rewards of being austere during the great inflation. Precisely, the opposite of the Italian reality that Schuble and Jean-Claude Trichet criticized so much at the start of the euro crisis a dozen years ago. We have become very good at tightening our belts at least in private behavior, if not in those relating to public spending, evaded taxes or bonuses.

Where’s the catch? A hint: this note from the ECB comes just in the week in which the proposal for a minimum wage by law in Italy achieves the unthinkable: uend the opposition, from 5 Stars to Carlo Calenda’s Action. Pushing these forces together is the other side of the same that the ECB talks about, the fact that the problem of poor work is becoming endemic in the country. According to Eurostat data, Italy is the country in the European Union with the highest share of employed persons at risk of poverty (after Luxembourg and Romania), surpassed in recent years by Greece as well.
Employment increases, but 2.7 million people who work in Italy are “at risk of poverty”. And they would be many more, if one counted the undeclared work. It was foreseeable that the oppositions would unite in demanding that the minimum wage be established by law, so that work is paid with dignity.

The disconcerting aspect is that the positive news, which the ECB is talking about, and the worrying news, denounced by the opposition, are the same in hindsight. Two profiles of the same reality: we are becoming a solid, resilient country with healthy external accounts because we are also becoming a lower-cost country than other advanced economies. Not more efficient, just a little poorer. At this rate, we risk slipping halfway between a high-income economy like France and a middle-income one like – say – Poland. Balanced on one’s costs because overall we only know how to practice austerity in business and at work. Not because we become more efficient.

Is this the model of Italy we want? Symptoms of such tendencies are everywhere. Not only have we famously a share of graduates (20%) among the lowest among advanced and middle-income economies and the lowest graduate share, after Turkey, in digital sectors. Above all, despite the low starting point, in the last twenty years the share of graduates among young people (25-34 years) has been growing more slowly than in the rest of Europe: today they are just over one in four, against about one every two in Portugal, Greece and Spain. And public investment in education remains much lower, in proportion to the size of the country, than all the competitors we compare ourselves with.

One of the consequences of this delay is that we are already lagging behind in the knowledge-intensive and investment-intensive technologies of the future, those that make it possible to generate more added value. Much less is being invested in electric mobility in Italy than in the other major European economies. In biotech, the excellent Italian graduates with their excellent start-ups are rapidly absorbed by foreign realities, due to the lack of a suitable environment in the country. In semiconductors, the large Asian or American multinationals do not invest in us, but in Germany, Ireland or Poland.

There are exceptions and industry champions that contrast these trends, of course. But overall they do not make up enough critical mass to shift a national economic balance that rests on low education, low productivity (lost by tens of points over competitors from 1980 onwards), low wages, low consumption, low investments, low average size of firm, high accumulation of private savings. This is the profile of an inefficient but resilient country. the fact that we have a very low level of private debt for a rich country is in line with this picture. The companies have a lower debt than the French or German ones and yet, in proportion to the gross domestic product, they invest much less than the main European competitors. Household debt is also much lower than the average in rich countries (40% of GDP, against 73%), similar in this to the characteristics of an emerging country (where the average is 47% of GDP).

It was precisely having such solid private accounts that helped by helping Italians absorb the blows of the debt crises, of Covid, then of inflation. I wonder if we risk settling on a mediocre equilibrium: too much low-value-added employment in tourism or rental in AirBnB of the grandparents’ old apartment, but little innovation that makes productivity and company size leap forward.

Minimum wages and decently paid work are correct goals. But in order for them to last over time, they must correspond to a great capacity to create value through knowledge, in companies with modern processes and open to the skills and talents of young people. Not (only) a question of who is in government. We all have to answer one simple question: what are our ambitions?

(This article originally appeared in Federico Fubini’s newsletter Whatever it takes of Corriere della Sera. To receive it every week by email, just sign up here)

Subscribe to the newsletter of The Economy

Whatever it Takes by Federico Fubini

The challenges for the economy and markets in an unstable world

Europe Matters by Francesca Basso and Viviana Mazza

Europe, the United States and Italy that count, with innovations and important decisions, but also small important stories

One More Thing by Massimo Sideri

From the world of science and technological innovation, the news that changes our lives (more than we think)

And don’t forget the newsletters
The Economy Opinions and the Economy 6 pm