Ageing And Employment Policies: Italy (Ageing and Employment Policies)

Italy

In the face of rapid population ageing and the trend towards early retirement, there is a need to promote better employment opportunities for older people. Much has been said about the need for reform of old-age pensions and early retirement schemes but this may not be sufficient to raise employment rates for older people significantly or to reduce the future risk of labour shortages. Both governments and firms will need to take active measures to adapt wage-setting practices to ageing workforces, to address the extent to which other welfare schemes act as pathways to early retirement, to tackle age discrimination and to improve the job skills and working conditions of older workers. In addition, older workers will need to change their own attitudes towards working longer and acquiring new skills. Little is known about what countries have been doing or should be doing in these areas.

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ISBN 92-64-01703-8 81 2004 14 1 P

Italy

This report on Italy is part of a series of around 20 OECD country reports that are intended to fill this gap. Each report contains a survey of the main barriers to employment for older workers, an assessment of the adequacy and effectiveness of existing measures to overcome these barriers and a set of policy recommendations for further action by the public authorities and social partners.

Ageing and Employment Policies

Ageing and Employment Policies

« Ageing and Employment Policies

Italy Vieillissement et politiques de l’emploi

Ageing and Employment Policies (Vieillissement et politiques de l’emploi)

Italy

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT

Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed: – to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy; – to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and – to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations. The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).

© OECD 2004 Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: www.copyright.com. All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.

FOREWORD –

3

FOREWORD

Older people offer tremendous potential value to businesses, the economy and society. Unfortunately, they often represent an untapped and discriminatedagainst resource, as many public policy measures and private workplace practices pose serious barriers to work, both paid and unpaid. Many of these policies and practices are relics from a bygone era. There is a need to look beyond traditional stereotypes about ageing in order to benefit from the growing numbers of older citizens, many of whom would, in fact, choose to work for longer given appropriate policies and workplace practices. The OECD has reported extensively on public pension and early retirement systems and the need for reforms of these systems to cope with population ageing. However, these reforms will not be enough to encourage later retirement and to reduce the risk of future labour shortages. Measures are also required to adapt wage-setting practices to greying workforces, to tackle age discrimination and negative attitudes to working at an older age, to improve job skills of older people and their working conditions, and to better “activate” older job-seekers. Relatively little is known about what countries have been, or should be doing, in these areas. Therefore, in spring 2001, the OECD Employment, Labour and Social Affairs Committee (ELSAC) decided to carry out a thematic review of policies to improve labour market prospects for older workers covering both supply-side and demand-side aspects. For the purpose of this thematic review, it was decided to define older workers as all workers aged 50 and over. The age of 50 is not meant to be a watershed in and of itself in terms of defining who is old and who is not. Perceptions about being old are inherently subjective and only loosely connected with chronological age. However, in many countries, the age of 50 marks the beginning of a decline in labour force participation rates by age. Moreover, to facilitate international comparisons, it is preferable to refer to the same age group for all countries. Thus, all references to “older workers” in this report should be taken as shorthand for workers aged 50 and over (or in some cases, because of data constraints, workers aged 55 and over), and should not be seen as implying that all workers in this group are “old” per se. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

4 – FOREWORD This report on Italy is one in a series of around 20 OECD country reports that will be published as part of the older worker thematic review, which has been developed by Raymond Torres. It has been prepared by Anne Sonnet from the OECD and Andrea Baranzini from the Geneva School of Business Administration, Jean-Marc Falter and Giovanni Ferro Luzzi from the University of Geneva. Technical and statistical assistance was provided by Alexandra Geroyannis and Clarisse Legendre. A draft of the report was discussed at a seminar in Rome on 9 March 2004 on “Ageing and Employment Policies in Italy”, which was organised by the Italian Ministry of Labour and Social Policies. Discussants at the seminar included representatives of the national authorities and the social partners, as well as several academics. The final report, which incorporates the comments received at the seminar, is published in this volume on the responsibility of the Secretary-General of the OECD. *** This report is based on the proceedings of a seminar and is published in English only. However, a French translation of the Executive Summary and Recommendations has been included in this volume (p. 19). ***

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

TABLE OF CONTENTS –

TABLE OF CONTENTS

EXECUTIVE SUMMARY AND RECOMMENDATIONS ........................ 9 The challenge ahead: a rapid ageing process and early labour market exit 9 What has been accomplished so far? ......................................................... 9 Areas where further reform is required ................................................... 11 RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS ............................... 19 INTRODUCTION...................................................................................... 31 Chapter 1. THE CHALLENGE AHEAD .................................................. 33 1. 2. 3.

The demographic challenge .......................................................... 33 Potential economic and social impacts.......................................... 36 Key issue: promoting higher rates of participation among older people and better employment opportunities ............ 41

Chapter 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS......................................................... 43 1. 2. 3. 4.

Activity and inactivity among older people .................................. 43 Employment situation of older workers ........................................ 46 Unemployment: a Southern, female and youth problem ............... 51 The transition to retirement: a complex picture............................ 54

Chapter 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES: THE ROLE OF THE WELFARE SYSTEM .. 57 1. 2. 3. 4. 5.

Main challenges faced by the Italian welfare system .................... 57 The reforms of the 1990s and the current situation ....................... 61 The complementary pension system ............................................. 73 Other social protection instruments .............................................. 77 Key issue: working longer ............................................................ 79

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6 – TABLE OF CONTENTS

Chapter 4. REMOVING DEMAND-SIDE BARRIERS............................ 83 1. 2. 3. 4.

Employment practices of firms..................................................... 83 Employment protection ................................................................ 85 Mobility and tenure ...................................................................... 89 Wage profile by age ..................................................................... 91

Chapter 5. STRENGTHENING EMPLOYABILITY................................ 95 1. 2. 3. 4.

Employment conditions................................................................ 95 Older people’s attitudes to work ................................................. 103 Educational attainment of older workers..................................... 106 Employment services for older people........................................ 116

Chapter 6. ENSURING POLICY COHERENCE AND COMPREHENSIVENESS.................................................... 119 1. 2. 3. 4.

Alternative ways to boost participation and employment............ 119 Are older workers working at the expense of other workers?...... 120 Ensuring policy coherence.......................................................... 122 Conclusion ................................................................................. 123

BIBLIOGRAPHY .................................................................................... 125

List of Boxes Box 3.1. Box 3.2. Box 3.3. Box 4.1. Box 4.2. Box 5.1. Box 5.2. Box 5.3. Box 5.4.

Reforms of the Italian pension system in the 1990s................. 63 Transferring the trattamento di fine rapporto (TFR) to complementary pension funds ............................................. 77 Current pension reform proposals (May 2004) ........................ 80 The Biagi Law ........................................................................ 88 High separation rates for older Italian workers ........................ 89 Literacy skills fall with age ................................................... 110 Vocational training programmes for older workers ............... 114 Promoting lifelong learning and vocational training among experienced workers: the new French agreement....... 115 The employment service network in Italy.............................. 118

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

TABLE OF CONTENTS –

List of Figures Figure 1.1. Figure 1.2. Figure 1.3. Figure 1.4. Figure 1.5. Figure 2.1. Figure 2.2. Figure 2.3. Figure 2.4. Figure 2.5. Figure 2.6. Figure 2.7. Figure 3.1. Figure 3.2. Figure 3.3. Figure 4.1. Figure 4.2. Figure 4.3. Figure 5.1. Figure 5.2. Figure 5.3. Figure 5.4.

Life expectancy at birth and total fertility rate in Italy, 1970-2050 ........................................................................... 34 Demographic and economic dependency ratios, 2000-2050 ........................................................................... 35 Labour force growth in Italy, 1970-2050 ............................. 37 Labour force growth in OECD countries, 1950-2050 .......... 40 Ageing labour force over the next 50 years in Italy ............. 41 Estimates of mobilisable labour supply in Italy and the OECD as a whole, 2001 ................................................ 46 Employment rates of older workers by gender in OECD countries, 2002 .................................................... 47 Employment rates by age and gender in Italy, 1983-2002 ... 48 Employment rates by gender and region in Italy, 2002........ 49 Unemployment rates by age and gender in OECD countries, 2002 .................................................... 50 Unemployment rates by age and gender in Italy, 1993-2002 ........................................................................... 51 Unemployment rates by age and educational attainment in Italy, 2001 ....................................................................... 53 Average effective age of retirement by gender in Italy, 1960-2002 .............................................................. 58 Effective and official age of retirement by gender in OECD countries, 1997-2002 ........................................... 59 Public expenditure on old-age pensions in some OECD countries, 2000-2050 .................................. 60 Job tenure by age and gender in selected OECD countries, 2000 ........................................................ 90 Age-earnings profiles by gender in Italy, 1991, 1995 and 2000 .............................................. 92 Age-earnings profiles by gender in selected OECD countries, early 2000s .............................................. 93 Manual workers by age and gender, 2002 ........................... 97 Part-time work by age and gender in OECD countries, 2002 .................................................... 99 Inactive persons of 55-64 who would like to work, 1997 .................................................................................. 105 Educational attainment of workers aged 50-64 by gender in some OECD countries, 2001......................... 107

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8 – TABLE OF CONTENTS Figure 5.5. Figure 5.6. Figure 5.7. Figure 5.8. Figure 6.1.

The rise expected in education level of older workers, 2000-2025.................................................. 108 Employment rates by age, gender and educational attainment in Italy, 2001................................. 109 Computer skills by age in Italy, 2000 ................................ 111 Incidence of job-related training for workers by age in selected OECD countries ................................... 112 Younger workers are not substitutes for older workers ...... 121

List of Tables Table 1.1 Table 1.2. Table 2.1. Table 2.2. Table 2.3. Table 3.1. Table 3.2. Table 3.3. Table 3.4. Table 3.5. Table 4.1. Table 5.1. Table 5.2. Table 5.3. Table 5.4.

Participation rates by age and gender, 2000......................... 36 Labour force growth under various scenarios in Italy, 2000-2050 ........................................................................... 38 Labour market status by age and gender in Italy and OECD, 2001................................................................. 44 Unemployment rates by age, gender and region in Italy, 2002 .................................................................................... 52 Incidence of long-term unemployment in some OECD countries, 2002 ........................................... 53 Decomposition of changes in old-age pension expenditures spending in OECD countries, 2000-2050 ............................ 62 Projected distribution of Italian pensioners under old and new schemes, 2002-2050 .............................. 65 The gradual increase in the requirements for seniority pensions in Italy .............................................. 68 Gross replacement rates of the pension system in Italy, 2003-2050............................................................................ 70 Importance of the complementary pension system in Italy, 2001 .................................................................................... 76 Overall strictness of protection against individual dismissals in OECD countries in 2003 ................................................. 86 Italian older employees by industry and occupation, 2001... 96 Temporary work contracts in some OECD countries, 2002 .................................................................................. 100 Measures of job satisfaction in Italy, 1995 ........................ 103 Changes in retirement expectations in Italy, 1989/91-1995/98 ............................................................... 105

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

EXECUTIVE SUMMARY AND RECOMMENDATIONS

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EXECUTIVE SUMMARY AND RECOMMENDATIONS

The challenge ahead: a rapid ageing process and early labour market exit A rapid process of population ageing is currently underway in Italy and is more pronounced than in most other OECD countries. Since the early 1970s, fertility rates have declined steeply and, today, are among the lowest in the world. At the same time, longevity has increased significantly. Together, these two factors explain why Italy currently has the highest old-age dependency ratio among OECD countries after Sweden. The old-age dependency ratio (number of individuals 65 and over as a proportion of population aged 20-64) reached almost 30% in 2000 and will more than double by 2050. Only Japan is expected to have a much higher ratio in 2050. These demographic trends are likely to result in slower long-term economic growth and will put increased strain on public expenditures that are already high by the standard of other OECD countries. Exacerbating these problems is the fact the Italian pension system is particularly expensive, and it still encourages early withdrawal from the labour market. Consequently, older workers in Italy tend to exit the labour market earlier than in most other OECD countries. Indeed, the employment rate of older people is particularly low in Italy. In 2002, only 56% of men aged 50-64 were employed and the corresponding proportion for women was 27%, 13 and 21 percentage points below the OECD average respectively. Italy is also one of the countries where the gap between the employment rate of older men and women is the largest. The pay-off to encouraging older workers to remain longer in the workforce could be considerable in terms of higher economic growth as well as financial sustainability and social adequacy of social protection systems. What has been accomplished so far? The 1990s were marked by three major pension reforms (1992, Amato Reform; 1995, Dini Reform; and 1997, Prodi Reform). As a result of these reforms, the new system, while remaining financed on a pay-as-you-go basis, AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

10 – EXECUTIVE SUMMARY AND RECOMMENDATIONS will make public pensions more neutral vis-à-vis work-retirement decisions. In particular, like in Sweden, the new pension system provides for a link between pensions and contributions. Pension entitlements will be close to being actuarially neutral and retirement arrangements are going to be periodically brought in line with longer life expectancy. Flexibility in the age of retirement is possible as retiring early means a smaller pension and retiring later a larger one. These reforms in the public system are accompanied by the launching of a complementary pension system. The prospective fall in pension replacement rates will be possibly offset by a lengthening of working lives and by the development of the complementary pension system. The pension reforms enacted in the mid-1990s represent important steps toward ensuring the financial sustainability of the system in the long run. However, there are major problems in the short term, including: a very long transition period (the full effects of the reforms will only be felt in 2035); discontinuities in entitlements due to the ten-year revision to account for longer life expectancy;1 and a lack of information available to individuals on the effects of the reforms on their pension rights. Thus, in the absence of further reforms, early retirement is likely to remain for some time to come a well-entrenched practice. In the longer run, the system’s social sustainability is in danger as, with unchanged retirement patterns, future retirees would well receive much lower pensions than the individuals currently retiring, so inflating the ranks of the elderly who will be reliant on the old-age safety net. The objective of new pension measures under discussion is to increase employment among older workers and not simply, as the reforms enacted during the 1990s, to safeguard the financial viability of the system vis-à-vis population ageing. The government intention is also to boost the slow development of complementary pension schemes. However, the design of these measures should comply with the overall coherence of the new pension system as shaped by previous reforms. In particular, while increasing the minimum age thresholds for retirement in line with prospective improvements in life expectancy appears to be a sound strategy, it also seems to be a sensible approach to preserve some flexibility in the age of retirement along the actuarially neutral lines introduced by the previous reforms. Softening abrupt discontinuities in the rules across cohorts is also a key issue for equity as well as for efficiency reasons, as the retirement incentives embedded into pension rules differ across cohorts because of the reforms enacted in the last decade. 1.

The first of such revisions, important in order to signal the well-functioning of the mechanism, is due in 2005. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

EXECUTIVE SUMMARY AND RECOMMENDATIONS

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Beyond the current debate, there is concern that reform discussions are too polarised on pension issues. Removing barriers to employment of older workers requires a comprehensive reform of all aspects of the welfare system and the labour market, which goes much beyond the reform of the pension system. Low employment among older people in Italy is the result of several factors: early access to pensions among men and principally in the Centre-North; and low employment at earlier stages of the life cycle among women, especially in the Mezzogiorno. The already enacted changes in the orientation of labour market policies determined by the Biagi Law are steps in the right direction. In particular, the progressive shift towards a more flexible labour market, with more flexible wage-bargaining institutions and more focus upon insertion and reinsertion policies and lifelong learning schemes, should improve employment chances for older workers. Areas where further reform is required The Italian authorities are well aware of the risk of a widening gap in employment rates with those European countries which have already launched a strategy to promote employment opportunities for older workers. Therefore, it is crucial for Italy to aim at a comprehensive and well co-ordinated set of policies, including not just pension reform but also effective labour market and social policies. This requires action on a number of fronts, on both the supply and demand sides. All barriers to the hiring and retention of older workers need to be tackled. It is vital that the employability of older workers be enhanced. The promotion of unemployment insurance and assistance benefits should be put higher on the policy agenda together with the development of effective employment services throughout the territory. Transforming undeclared work into regular employment should be actively pursued, particularly in the South. Action on all of these fronts clearly implies co-operation and co-ordination across a range of ministerial responsibilities and among central, regional and local authorities. In particular, it is necessary to: i) encourage employers to review their employment practices with respect to age and reduce other demand-side barriers; ii) promote the employability of older workers; and iii) ensure more effective employment services for older job-seekers.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

12 – EXECUTIVE SUMMARY AND RECOMMENDATIONS Tackling demand-side barriers Employers may be reluctant to hire or retain older workers for several reasons. First, employers may simply have negative perceptions about the work abilities of older workers and they may discriminate against these workers in favour of younger ones. The evidence suggests that there is a problem of age discrimination in Italy, although it is very difficult to determine how pervasive this problem is. By 2006, all EU countries will be required to comply with the EU Directive on non-discrimination, including on the grounds of age. At least implicitly, the Italian law already covers the age aspect. It is however crucial to critically review actual human resources practices related to age in implementing fully the EU Directive. Mutual learning based on good practices in companies in Italy and an exchange of views on the different strategies in OECD countries can help identify the most effective policies in this field. Second, wages, which are usually set through negotiations between the social partners, are generally linked to age or length of service. As a result, individual wages tend to grow with age, irrespective of productivity developments. For employers, seniority wages can serve a purpose of “tying” employees into the firm and discouraging them from quitting. For employees, seniority pay scales are meant to reward experience. However, when costs are judged to be excessive in relation to productivity, older workers are the first to be encouraged to leave. In some countries, such as Germany and Switzerland, seniority wages have become less important over time and greater weight is given to the skills and productivity of individual workers. Finally, while rising the average effective age of retirement is a desirable objective, it is important to consider the quality of the jobs that older people are able to occupy if they remain longer in the labour market. Long hours of work, which is an issue in Italy, may be particularly onerous for older workers. Gradual retirement transitions could be developed. There is a need to adapt the work environment and work tasks to the needs of older workers. More generally, improving occupational health and safety for workers of all ages will assist future generations of older workers to remain in employment longer. Thus, corporate practices should be reviewed on the following basis: •

Implement fully the European Directive on Age Discrimination in consultation with the social partners. The European Directive on discrimination, including on the grounds of age, should be implemented fully. The social partners should be consulted in the implementation of the legislation in order to ensure its effectiveness and minimise any additional costs to employers. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

EXECUTIVE SUMMARY AND RECOMMENDATIONS

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•

Improve working conditions. Working conditions have to be adapted to the needs of older workers in order to enhance their retention prospects and their ability to adapt to change. Firms should facilitate job rotation to better suit the needs of older workers. For example, older workers could be exempted from working night shifts.

•

Identify best practices among firms in Italy which promote employment opportunities for older workers. The social partners should publicise examples of best practice among firms towards older workers to illustrate the positive contribution of older workers to firm performance.

Beyond these practices, there are cases where wage practices and employment regulations may also affect labour demand for older workers. First, wage scales based on seniority may discourage firms from retaining older workers. Second, there is evidence of segmentation in the Italian labour market. Employment protection remains high for insiders, while a wide range of flexible contracts have developed and informal employment remains an issue, especially in the South. Young workers face serious difficulties in settling into good careers while, for older workers, the only mobility possible is to retire early, often with the encouragement of firms. The following course of action should be envisaged for collective bargaining practices: •

Review wage practices based on age or length of service. The social partners should take into account the adverse effects for the employment of older workers of scales linking wage to age or length of service. When fixing wages in a decentralised fashion, this link should be weakened by giving greater weight to the skills and productivity of individual workers. Establishing a more flexible and decentralised wage bargaining system should serve to facilitate this process.

•

Review employment protection legislation. The current rules of employment protection for workers on regular contracts are overly strict, while at the same time leaving workers on non-regular forms of employment with inadequate protection. The result is that older workers on regular contracts tend to be reluctant to move to other jobs, thereby affecting their employability. New forms of employment are not attractive enough to experienced and older workers. Therefore, there is a need for improving protection of new forms of employment, while easing some of the rules governing regular contracts.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

14 – EXECUTIVE SUMMARY AND RECOMMENDATIONS •

Minimise the individual risk of precariousness. The individual risk of precariousness and of a further segmentation of the labour market should be tackled as a priority in the new orientation of labour market policies under the Biagi Law.

•

Develop gradual retirement transition and part-time work. Opportunities for part-time work should be expanded and made more flexible in order to promote employment for older workers.

•

Facilitate transition to formal employment among early retirees. It is common knowledge that some early retirees continue to work informally at a pace that suits them in order to supplement their income. It is important to find ways of reintegrating this type of work into the formal labour market.

Enhancing the employability of older workers Up-to-date skills are key aspects of employability that will affect the ability of older workers to find and keep a job and influence their retirement decisions. The level of educational attainment for older workers is very low in Italy, compared with their younger counterparts. Furthermore, older workers engage in much less job-related training than younger ones. The reason could be the general unwillingness of older persons to undergo training, or the fact that the content or curriculum of designated courses may not be very attractive to them or that they do not see much “return” from it compared with their present situation of high wages and attractive pensions. Clearly the experience of workers at younger ages will have an impact on their labour market decisions and outcomes when older. For example, mid-career workers who have ample opportunities for upgrading their skills may be better placed in terms of labour market outcomes when older than those with fewer opportunities. Thus, some policy interventions should, in fact, focus on workers before age 50 in order to improve their labour market prospects when older. In general, there would appear to be scope to deepen and broaden the delivery of training opportunities. Promoting opportunities for employees to actually find time to participate in training is of great importance. The new measure to allow employees to get temporary leave from their job to pursue training is promising. Systems to recognise, certify and validate competences acquired on-the-job are also crucial to motivate workers to engage in training. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

EXECUTIVE SUMMARY AND RECOMMENDATIONS

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The following initiatives are recommended: •

Encourage upgrading of education levels and participation in lifelong learning. Higher education levels usually result in higher participation rates at older ages. Thus to reduce the use of early retirement, the government should seek to further encourage and support lifelong learning. It should involve a close co-operation between the social partners since some co-financing of training is called for, given that many of the returns to training accrue to individual firms and workers. The activity of the newly launched inter-occupational fund (Fondi interprofessionali) should be geared towards lifelong learning initiatives.

•

Develop systems to recognise, certify and validate experience. To develop the occupational competencies of older, relatively unskilled workers, it is vital to establish recognition, certification and validation systems for the work skills that they have gained, in many cases on the job.

•

Strengthen and expand training opportunities for mid-career and older workers. For adult and older workers, this may imply boosting the number of well-designed modular courses of vocational training which build on the existing qualifications of these workers. Employers should also re-organise work tasks so that workers have the time to participate in training. This may encourage greater take-up and may generate higher returns to training in the case of longer courses.

Mobilising older job-seekers through effective employment services In general, older workers do not face a larger risk of becoming unemployed than younger workers (partly because, if they lose their job, they may leave the labour market altogether). In Italy, while the unemployment rate of older workers is much lower than is the case with other age groups and the incidence of long-term unemployment is similar across age groups, the relative position of older people has worsened over time on both counts. Moreover, to the extent that pathways to early retirement are reduced, older workers who lose their job will be increasingly exposed to open unemployment. Therefore it is essential to strengthen re-employment services and to develop the unemployment benefit system of Italy. At present, only workers in the industrial sector are entitled to adequate unemployment benefits. However, the trattamento di fine rapporto (TFR) also serves as a cushion for all employees in case of job loss. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

16 – EXECUTIVE SUMMARY AND RECOMMENDATIONS The way the Italian Public Employment Service (PES) operates is not efficient in activating unemployed individuals, particularly older ones. There is some concern that the PES is still functioning as a mere provider of administrative certifications and that job-search enforcement mechanisms do not work well even for the relatively few benefit recipients. The Biagi Law has established the conditions for a transparent and well functioning job-matching market. In particular, financial incentives have been introduced for disadvantaged groups, including the older unemployed, through the contratti di inserimento, while in the past financial incentives were available only for youth. While many problems still exist, since establishing a transparent job-matching market and specific missions of the PES is a lengthy process involving the government, the regions and the social partners, this process should be strongly encouraged. Enhancing the efficiency of active employment programmes is another major issue. Active labour market measures tend to take the form of financial incentives favouring new hires, traditionally among youth, while there are relatively few active programmes or other service-oriented schemes to help job losers. There may be scope to extend “activation” policies to older job-seekers. Active labour market programmes should also be tailored to the individual needs of workers who have lost their job and risk becoming long-term unemployed. In-work benefits should likewise be introduced in order to avoid unemployment traps. In order to be effective, measures should avoid age stereotyping. Older people are a very diverse group and this is particularly true in Italy both in terms of their labour market situation regionally and by level of educational attainment. The abrupt and early transition from employment to retirement is more important in the Northern regions while the underground economy is particularly widespread in the South. This wide diversity among older people suggests that policies which are targeted on age alone risk being quite blunt instruments. Moreover, such policies may unintentionally give the wrong signal that older workers are generally less productive than younger workers. In order to address these issues, the following policy avenues should be explored: •

Reform the unemployment benefit system and provide adequate funding. A move towards a “modern” system of unemployment protection is urgently needed. It is crucial to implement a “mutual obligations” approach between a reinvigorated PES and the AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

EXECUTIVE SUMMARY AND RECOMMENDATIONS

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unemployed. This means that adequate benefits and re-employment services should be provided to the unemployed. Beneficiaries, in turn, should be looking actively for a job or risk facing a sanction. Resources freed up by the gradual phase-out of early retirement and, possibly, part of the TFR, could serve to fund this move. •

Review the role of the PES. As part of the reform of the system, job counselling, career consultation and effective placement services must be made available to unemployed workers in general, including older ones. This will require a major reorientation of the PES, including the recruitment of qualified personnel and a review of current practices.

•

Introduce in-work benefits for unemployed or inactive people who accept a job. This could be done by allowing unemployed workers who accept a job to keep their benefits for a certain period. Alternatively, beneficiaries who accept a low-paid job could receive an income supplement, while older workers with a low wage who postpone retirement might be granted deferred benefits in terms of better pension entitlements.

•

Ensure that the measures are properly targeted and evaluated. Measures intended to benefit older workers as a whole may be not targeted closely enough at the groups who need them most and may risk producing stereotypes and stigma. Regular evaluation of the programmes can help improve targeting. More generally, it can help identify the measures that work best and for whom.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS

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RÉSUMÉ ET PRINCIPALES RECOMMANDATIONS

Les défis à relever : vieillissement rapide et sortie anticipée du marché du travail L’Italie assiste actuellement à un vieillissement rapide de sa population, lequel est de surcroît plus prononcé que dans la plupart des autres pays de l’OCDE. Son taux de fécondité a diminué de façon marquée depuis le début des années 70 et figure aujourd’hui parmi les plus faibles du monde. En même temps, la longévité a fortement augmenté. La conjonction de ces deux facteurs explique pourquoi l’Italie enregistre aujourd’hui le rapport de dépendance des personnes âgées le plus élevé des pays de l’OCDE après la Suède. Ce rapport (nombre d’individus âgés de 65 ans et plus en pourcentage de la population âgée de 20 à 64 ans) atteignait près de 30 % en 2000 et va plus que doubler d’ici à 2050. Il ne devrait être dépassé à cette même date que par celui du Japon. Ces tendances démographiques vont probablement entraîner un ralentissement de la croissance économique à long terme et feront peser des pressions plus fortes sur des dépenses publiques déjà élevées par rapport aux autres pays de l’OCDE. Le problème est aggravé par le fait que le système de retraite italien est particulièrement coûteux et qu’il encourage toujours le retrait anticipé de la vie active. Par conséquent, les travailleurs âgés italiens sortent généralement plus tôt du marché du travail que ceux de la majorité des autres pays de l’OCDE. Le taux d’emploi des travailleurs âgés est en fait particulièrement bas en Italie. En 2002, 56 % seulement des hommes âgés de 50 à 64 ans exerçaient un emploi et le chiffre correspondant pour les femmes était de 27 %, soit respectivement 13 et 21 points de pourcentage de moins que la moyenne des pays de l’OCDE. L’Italie fait aussi partie des pays où l’écart entre le taux d’emploi des hommes âgés et celui des femmes âgées est le plus grand. L’incitation des travailleurs âgés à rester plus longtemps en activité pourrait avoir des effets positifs non négligeables car elle permettrait à l’Italie d’avoir une croissance économique plus forte, ainsi que d’assurer la viabilité financière de son système de protection sociale et de donner à celui-ci les moyens de répondre de manière satisfaisante aux besoins de la collectivité.

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Quelles mesures ont été prises jusqu’à présent ? Les années 90 ont été marquées par trois grandes réformes du système de retraite (1992, réforme d’Amato ; 1995, réforme Dini ; 1997, réforme Prodi). Celui-ci continuera d’être financé par répartition, mais les modalités de calcul des pensions servies au titre des régimes publics seront plus neutres par rapport aux décisions de départ à la retraite. En particulier, à l’instar de la Suède, les réformes instaurent un lien entre les pensions et les cotisations. Les droits à pension seront presque neutres sur le plan actuariel, et les dispositions relatives à la retraite seront revues périodiquement de manière à tenir compte de l’augmentation de l’espérance de vie. L’âge du départ à la retraite pourra être modulé, mais plus ce départ sera retardé, plus le montant de la pension s’élèvera, et vice versa. La mise en place de ces réformes dans le système public s’accompagnera de la création d’un système de retraite complémentaire. La baisse prévisible des taux de remplacement du salaire sera peut-être compensée par l’allongement de la vie active et par le développement de ce dernier dispositif. Les mesures de réforme du système de retraite adoptées au milieu des années 90 constituent une étape importante dans les efforts visant à assurer durablement la viabilité financière de ce système. Mais à court terme, des problèmes considérables se posent, notamment à cause de la très longue période de transition prévue (ces mesures n’exerceront pleinement leurs effets qu’en 2035), du caractère discontinu des droits en raison de la révision qui sera effectuée tous les dix ans afin de tenir compte de l’augmentation de l’espérance de vie2, et du fait que les intéressés ne soient pas suffisamment informés des conséquences de la réforme pour leurs droits à pension. Par conséquent, si d’autres mesures de réforme ne sont pas prises, le départ anticipé à la retraite risque de demeurer une pratique bien ancrée pendant quelque temps encore. A plus long terme, la viabilité du système du point de vue social est menacée car, faute d’une modification des comportements à l’égard de la retraite, il est très probable que les futurs retraités percevront des pensions beaucoup plus faibles que ceux qui se retirent actuellement de la vie active, et qu’ils viendront alors gonfler les rangs des personnes âgées qui dépendent du filet de protection sociale destiné à la vieillesse.

2.

La première révision, qui jouera un rôle important car elle indiquera si le nouveau mécanisme fonctionne bien, doit avoir lieu en 2005. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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Les nouvelles mesures concernant le système de retraite qui sont actuellement en discussion ont pour but d’accroître l’emploi chez les travailleurs âgés, et pas seulement de préserver la viabilité financière de ce système face au vieillissement de la population, comme c’était le cas des réformes mises en place au cours des années 90. Les pouvoirs publics souhaitent aussi stimuler le développement, trop lent, des régimes de retraite complémentaire. Cependant, la façon dont ces mesures seront conçues devrait être conforme à la logique globale du système de retraite issu de ces réformes. En particulier, s’il semble raisonnable de relever l’âge minimum du départ à la retraite de manière à tenir compte de l’augmentation attendue de l’espérance de vie, il paraît aussi judicieux de garder une certaine souplesse quant à l’âge de la retraite en suivant le principe de la neutralité des droits à pension sur le plan actuariel qui a été instauré par les réformes des années 90. Il est également essentiel d’atténuer la forte discontinuité que créent les règles de calcul des pensions d’une cohorte à l’autre pour des raisons touchant aussi bien à l’équité qu’à l’efficience, les réformes de la dernière décennie ayant intégré dans ces règles des incitations qui diffèrent selon les cohortes. Au-delà du débat en cours, d’aucuns craignent que la réflexion sur les réformes ne soit trop polarisée sur la question des pensions. Pour éliminer les obstacles à l’emploi des travailleurs âgés, il est nécessaire de modifier en profondeur toutes les composantes du système de protection sociale et du marché du travail, ce qui va beaucoup plus loin que la réforme du seul système de retraite. Le faible taux d’emploi des travailleurs âgés que connaît l’Italie est dû à plusieurs facteurs : un accès relativement précoce aux pensions chez les hommes et principalement dans la région du centre-nord, ainsi qu’un faible taux d’emploi enregistré durant le début de la vie active des femmes, particulièrement dans le Mezzogiorno. Les modifications déjà apportées à l’orientation de la politique du marché du travail conformément à la Loi Biagi vont dans le bon sens. En particulier, la mise en place progressive d’un marché du travail plus flexible, qui s’accompagne d’un assouplissement des dispositions régissant les négociations salariales et d’un accroissement de l’importance accordée aux mesures d’insertion et de réinsertion et aux dispositifs en faveur de la formation tout au long de la vie, devrait permettre d’améliorer les possibilités d’emploi des travailleurs âgés.

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Domaines dans lesquels un effort de réforme plus grand s’impose Les autorités italiennes sont parfaitement conscientes du fait que l’écart avec les pays d’Europe qui ont déjà engagé une stratégie de promotion des possibilités d’emploi pour les travailleurs âgés risque de se creuser de plus en plus. Par conséquent, il est indispensable que l’Italie s’attache à mettre en place un ensemble complet et bien coordonné de politiques qui comprennent non seulement des mesures de réforme du système de retraite, mais aussi des dispositions efficaces concernant le marché du travail et le domaine social. A cette fin, elle doit agir sur plusieurs fronts, aussi bien du côté de l’offre que de celui de la demande. Elle doit s’attaquer à tous les obstacles qui s’opposent à l’embauche et au maintien dans l’emploi des travailleurs âgés. Il est indispensable d’améliorer l’employabilité de ces derniers. La promotion des prestations d’assurance chômage et d’aide aux chômeurs devrait être placée à un rang plus élevé dans l’ordre des priorités des pouvoirs publics, de même que la mise en place de services de l’emploi efficaces dans tout le pays. Tous les efforts possibles devraient être faits pour transformer le travail non déclaré en emploi normal, en particulier dans le sud. Il est évident que pour pouvoir agir sur l’ensemble de ces fronts, une coopération et une coordination devront être assurées entre diverses responsabilités ministérielles et entre les administrations centrale, régionales et locales. En particulier, il est nécessaire : i) d’encourager les employeurs à revoir leurs pratiques d’emploi concernant l’âge et de réduire les autres obstacles existant du côté de la demande ; ii) d’améliorer l’employabilité des travailleurs âgés ; et iii) d’offrir des services de l’emploi plus efficaces aux demandeurs d’emploi âgés. S’attaquer aux obstacles existant du côté de la demande Les employeurs peuvent hésiter à embaucher des travailleurs âgés ou à les garder pour plusieurs raisons. Premièrement, ils peuvent tout simplement se faire une idée négative des aptitudes professionnelles de ces travailleurs, et exercer par conséquent une discrimination à leur encontre en leur préférant des personnes plus jeunes. Les faits montrent qu’un problème de discrimination fondée sur l’âge se pose en Italie, mais il est très difficile d’en apprécier l’ampleur. D’ici à 2006, tous les pays de l’Union européenne vont devoir se

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conformer à la Directive du Conseil de l’UE relative à l’interdiction des discriminations, notamment celles qui sont liées à l’âge. La législation italienne tient déjà compte, du moins de façon implicite, de la question de l’âge. Il est toutefois indispensable de soumettre à un examen critique les pratiques de gestion des ressources humaines constatées en ce qui concerne l’âge pour assurer la pleine application de cette Directive. Le partage de l’information sur les bonnes pratiques en vigueur dans les entreprises en Italie ainsi qu’un échange de vues sur les différentes stratégies adoptées dans les pays de l’OCDE peuvent aider à déterminer les politiques les plus efficaces à mettre en œuvre dans ce domaine. Deuxièmement, les salaires, habituellement fixés dans le cadre de négociations entre les partenaires sociaux, sont généralement fonction de l’âge ou de l’ancienneté. Ils ont donc tendance à augmenter avec l’âge, indépendamment de l’évolution de la productivité. Pour les employeurs, la rémunération à l’ancienneté peut être un moyen d’« attacher » les salariés à l’entreprise et de les dissuader de la quitter. Quant à ces derniers, la progression du salaire avec l’ancienneté est destinée à rétribuer l’expérience. Cependant, lorsque les coûts sont jugés trop élevés par rapport à la productivité, ce sont les travailleurs âgés que l’on incite en premier à partir. Dans certains pays, comme l’Allemagne et la Suisse, la rémunération à l’ancienneté a perdu de son importance avec le temps et une attention plus grande est désormais portée aux compétences et à la productivité de chaque travailleur. Enfin, s’il est souhaitable de relever l’âge effectif moyen de la retraite, il importe de s’intéresser à la qualité des emplois que les travailleurs âgés sont capables d’occuper s’ils restent plus longtemps en activité. Les longs horaires de travail, qui posent un problème en Italie, peuvent être pour eux particulièrement pénibles. Les possibilités de passage progressif à la retraite pourraient être développées. Le cadre de travail et les tâches devraient être adaptés aux besoins de ces travailleurs. D’une manière plus générale, l’amélioration des conditions de santé et de sécurité au travail pour tous les salariés aidera les futures générations de travailleurs âgés à rester plus longtemps dans l’emploi. Par conséquent, les pratiques des entreprises devraient être revues de la manière suivante : • Mettre pleinement en pratique la Directive européenne sur l’interdiction des discriminations liées à l’âge, en consultation avec les partenaires sociaux. La Directive européenne concernant les discriminations, notamment celles qui sont fondées sur l’âge, devrait être pleinement

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appliquée. Les partenaires sociaux devraient être consultés lors de la mise en œuvre de la législation correspondante, afin d’en assurer l’efficacité et de réduire au minimum les coûts supplémentaires que les employeurs auraient éventuellement à supporter. •

Améliorer les conditions de travail. Celles-ci doivent être adaptées aux besoins des travailleurs âgés afin d’accroître leurs chances d’être maintenus dans l’emploi et leur faculté d’adaptation au changement. Les entreprises devraient faciliter la rotation des postes pour mieux tenir compte des besoins de ces travailleurs. Par exemple, ces derniers pourraient être dispensés du travail de nuit.

•

Recenser les bonnes pratiques des entreprises en Italie qui permettent de développer les possibilités d’emploi des travailleurs âgés. Les partenaires sociaux devraient diffuser des exemples de bonnes pratiques que les entreprises ont adoptées à l’égard de leurs salariés âgés, afin de porter témoignage de la contribution positive que ceux-ci apportent aux résultats de l’entreprise.

Au-delà de ces stratégies, il existe des cas où les pratiques concernant les salaires et la réglementation relative à l’emploi peuvent aussi influer sur la demande de travailleurs âgés. Premièrement, le fait que l’échelle des salaires soit fondée sur l’ancienneté peut décourager les entreprises de garder les travailleurs âgés. Deuxièmement, on constate une segmentation du marché du travail italien. La protection de l’emploi reste forte pour les travailleurs « intégrés », mais on a vu aussi apparaître un large éventail de contrats correspondant à des formes d’emploi flexibles, et l’emploi informel demeure un problème, surtout dans le Sud. Les jeunes travailleurs ont beaucoup de difficulté à trouver une situation professionnelle satisfaisante, alors que pour les plus âgés, la seule forme de mobilité possible est le départ anticipé à la retraite, souvent avec les encouragements de l’entreprise. La démarche suivante devrait être envisagée dans le cadre des pratiques de négociation collective : •

Revoir les pratiques salariales basées sur l’âge ou l’ancienneté. Les partenaires sociaux devraient tenir compte des effets négatifs qu’exerce sur l’emploi des travailleurs âgés la progression de la rémunération avec l’âge ou l’ancienneté. Lorsque les salaires sont fixés selon une approche décentralisée, une moindre importance devrait être accordée à ces critères au profit des compétences et de la productivité de chaque travailleur. La mise en place d’un système de négociation salariale plus flexible et décentralisé devrait faciliter ce changement.

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•

Revoir la législation relative à la protection de l’emploi. Les dispositions en vigueur concernant la protection de l’emploi sont trop rigoureuses s’agissant des travailleurs sous contrat permanent, mais n’assurent pas en revanche une protection suffisante aux travailleurs exerçant des formes d’emploi atypiques. Par conséquent, les salariés âgés sous contrat permanent hésitent généralement à changer d’emploi, ce qui nuit à leur employabilité. Les nouvelles formes d’emploi n’ont pas assez d’attrait aux yeux des travailleurs plus âgés et expérimentés. Par conséquent, il est nécessaire de faire bénéficier celles-ci d’une meilleure protection tout en assouplissant certaines des règles qui régissent les contrats permanents.

•

Réduire au minimum le risque individuel de précarité. Il faudrait s’attaquer en priorité au risque individuel de précarité et d’accentuation de la segmentation du marché du travail dans le cadre de la réorientation de la politique d’emploi prévue par la Loi Biagi.

•

Développer les possibilités de départ progressif à la retraite et de travail à temps partiel. L’accès au travail à temps partiel devrait être élargi et ses modalités assouplies afin de favoriser l’emploi des travailleurs âgés.

•

Faciliter le passage des préretraités à l’emploi dans le secteur formel. Il est bien connu que certains préretraités continuent à travailler de façon informelle au rythme qui leur convient afin de compléter leur revenu. Il est important de trouver les moyens de réintégrer ce type d’activité sur le marché du travail formel.

Améliorer l’employabilité des travailleurs âgés Le fait de posséder des compétences à jour est une condition essentielle de l’employabilité qui influera sur la capacité des travailleurs âgés de trouver un emploi et de le garder, ainsi que sur les décisions qu’ils prendront quant à leur retraite. En Italie, les travailleurs âgés ont un très faible niveau d’instruction par rapport à leurs homologues plus jeunes. De plus, ils participent beaucoup moins souvent que les seconds à des activités de formation liée à l’emploi. Cette situation s’explique peut-être par le fait que les travailleurs âgés sont généralement peu disposés à suivre une formation, ou que le contenu ou le programme des stages qui leur sont expressément destinés peuvent ne pas leur paraître très intéressants, ou encore qu’ils ne pensent pas en tirer grand profit en regard de leur situation actuelle caractérisée par un salaire élevé et des conditions avantageuses de retraite.

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Il est manifeste que le vécu des travailleurs lorsqu’ils sont jeunes aura une incidence sur les décisions qu’ils prendront sur le plan professionnel et leur devenir en la matière lorsqu’ils seront plus âgés. Par exemple, les travailleurs en milieu de carrière qui ont de nombreuses possibilités d’améliorer leurs compétences connaîtront sans doute une meilleure situation sur le marché du travail lorsqu’ils seront âgés que ceux pour lesquels ces possibilités sont moindres. Certaines interventions des pouvoirs publics devraient donc être axées sur les travailleurs de moins de 50 ans, afin de leur assurer de meilleures perspectives en matière professionnelle lorsqu’ils auront dépassé cet âge. D’une manière générale, il y aurait, semble-t-il, intérêt à développer et diversifier les possibilités de formation. Il est très important de faire en sorte que les salariés trouvent effectivement le temps de suivre des stages de formation. La nouvelle mesure qui les autorise à prendre un congé pour ce motif est intéressante. Les systèmes permettant d’assurer la reconnaissance et la validation des compétences acquises en cours d’emploi ont aussi un rôle essentiel à jouer pour encourager les travailleurs à participer à des activités de formation. Les initiatives suivantes sont recommandées : •

•

Favoriser l’élévation du niveau d’instruction et la participation à la formation tout au long de la vie. En règle générale, plus les travailleurs ont un niveau d’instruction élevé, plus leur taux d’activité est important lorsqu’ils sont âgés. Par conséquent, afin de réduire le recours à la retraite anticipée, les pouvoirs publics devraient s’efforcer d’encourager et de soutenir davantage la formation tout au long de la vie. A cet égard, il faudrait qu’une coopération étroite s’instaure entre les partenaires sociaux, la formation devant être financée dans une certaine mesure de façon conjointe étant donné qu’une grande part des avantages qui en découlent va à l’entreprise et au travailleur qui l’a suivie. L’action du fonds interprofessionnel (Fondi interprofessionali) récemment mis en place devrait être axée sur des initiatives en faveur de la formation tout au long de la vie. Créer des systèmes qui permettent d’assurer la reconnaissance et la validation des acquis de l’expérience. Afin de développer les aptitudes professionnelles des travailleurs âgés relativement peu qualifiés, il est indispensable de mettre en place des systèmes qui permettent de reconnaître et de valider les compétences professionnelles qu’ils ont acquises, dans bien des cas, sur leur lieu de travail.

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Renforcer et accroître les possibilités de formation des travailleurs en milieu de carrière et des travailleurs âgés. Cette démarche peut consister à augmenter fortement le nombre de stages modulaires de formation professionnelle de qualité conçus pour étoffer les compétences que possèdent déjà ces travailleurs. Les employeurs devraient aussi réorganiser les tâches de façon à donner à leurs salariés du temps pour suivre ces stages. Ces mesures peuvent contribuer à faire progresser la participation à ces activités et permettre aux intéressés de tirer de plus grands avantages de leur formation s’ils peuvent suivre des stages de longue durée.

Mobiliser les demandeurs d’emploi âgés grâce à des services de l’emploi efficaces En règle générale, les travailleurs âgés ne sont pas plus exposés au risque de devenir chômeurs que les travailleurs plus jeunes (en partie parce que s’ils perdent leur emploi, ils peuvent totalement mettre fin à leur activité professionnelle). S’agissant de l’Italie, le taux de chômage des travailleurs âgés est beaucoup plus faible que pour les autres groupes d’âge et la fréquence du chômage de longue durée est comparable d’un groupe d’âge à l’autre, mais la situation relative des travailleurs âgés s’est aggravée avec le temps sur ces deux plans. En outre, dans la mesure où les possibilités de départ anticipé à la retraite deviendront moins nombreuses, les travailleurs âgés qui perdront leur emploi seront de plus en plus exposés au chômage déclaré. Par conséquent, il est essentiel que l’Italie renforce ses services de réinsertion et développe son système d’indemnisation du chômage. A l’heure actuelle, seuls les travailleurs de l’industrie peuvent percevoir des prestations de chômage convenables. Cependant, le trattamento di fine rapporto (TFR – indemnité de fin de carrière) permet aussi à tous les salariés qui perdent leur emploi d’amortir les effets de ce changement. Le Service public de l’emploi (SPE) italien ne fonctionne pas de façon assez efficace pour orienter activement les efforts des chômeurs, en particulier les plus âgés, vers leur réinsertion. Certains craignent qu’il n’ait toujours pour rôle que de délivrer des certificats administratifs et constatent avec inquiétude que les mécanismes destinés à assurer le respect de l’obligation de recherche d’un emploi ne marchent pas bien, même pour le nombre relativement faible de bénéficiaires de prestations. La Loi Biagi a créé les conditions nécessaires à la création d’un marché du placement transparent et efficace. En particulier, des

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mesures d’incitation financière ont été prises à l’intention des catégories défavorisées, notamment les chômeurs âgés, avec les contratti di inserimento (contrats d’insertion), alors qu’auparavant ce type de disposition n’était destiné qu’aux jeunes. Un grand nombre de problèmes continuent certes de se poser, étant donné que la mise sur pied d’un marché du placement transparent et de missions spécifiques pour le SPE constitue un processus de longue haleine auquel sont associés le gouvernement, les régions et les partenaires sociaux, mais cette démarche devrait néanmoins être vivement encouragée. Accroître l’efficience des dispositifs actifs en faveur de l’emploi constitue un autre problème majeur. Les mesures actives du marché du travail revêtent généralement la forme d’incitations financières destinées à favoriser les nouvelles embauches, le plus souvent parmi les jeunes, alors qu’il existe relativement peu de programmes actifs ou autres dispositifs axés sur les services pour les personnes qui ont perdu leur emploi. Or, il y aurait peut-être intérêt à étendre les politiques d’« activation » aux demandeurs d’emploi âgés. Les mesures actives du marché du travail devraient aussi être adaptées aux besoins particuliers des travailleurs qui ont perdu leur emploi et risquent de connaître le chômage de longue durée. De même, des prestations liées à l’exercice d’une activité devraient être créées, afin d’éviter que ces travailleurs ne tombent dans le piège du chômage. Pour que les mesures prises dans ce domaine soient efficaces, il faudrait les élaborer en évitant les stéréotypes fondés sur l’âge. Les travailleurs âgés constituent un groupe très divers, ce qui est particulièrement vrai en Italie où leur situation du point de vue du marché du travail diffère aussi bien d’une région à l’autre que selon leur niveau d’instruction. Le phénomène du passage brusque et précoce de la vie active à la retraite est plus important dans les régions du nord, alors que l’économie informelle est particulièrement développée dans le sud. Par conséquent, il y a lieu de penser que des politiques centrées uniquement sur l’âge risquent d’avoir des effets assez superficiels. De plus, elles peuvent laisser involontairement entendre, à tort, que les travailleurs âgés sont de façon générale moins productifs que ceux qui sont plus jeunes. Afin de s’attaquer à ces problèmes, il conviendrait d’étudier les possibilités d’action suivantes : •

Réformer le système d’indemnisation du chômage et lui assurer un financement suffisant. Il est urgent d’agir pour mettre en place un système « moderne » de protection contre le chômage. Il est indispensable d’adopter une approche consistant à instaurer des « obligations mutuelles » entre un SPE revitalisé et les chômeurs. Autrement dit, il faudrait offrir aux

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seconds des prestations suffisantes et des services de réinsertion satisfaisants. Les bénéficiaires de ces prestations et services auraient quant à eux à rechercher activement un emploi sous peine de sanction. Les ressources dégagées par la suppression progressive des dispositifs de préretraite et, éventuellement, d’une partie du TFR, pourraient servir à financer cette action. Revoir le rôle du SPE. Dans le cadre de la réforme du système, des services efficaces de conseil et d’orientation professionnels et de placement doivent être mis à la disposition des travailleurs privés d’emploi en général, et des chômeurs âgés en particulier. Il faudra à cette fin réorienter en profondeur le SPE, notamment en recrutant du personnel qualifié et en réexaminant les pratiques en vigueur.

•

Mettre en place, à l’intention des chômeurs ou des personnes inactives, des prestations dont le bénéfice est subordonné à l’exercice d’une activité. Cette mesure pourrait consister à autoriser les chômeurs qui acceptent un emploi à continuer d’être indemnisés pendant un certain temps. Un complément de revenu pourrait également être accordé aux bénéficiaires de prestations qui consentent à occuper un emploi faiblement rémunéré, tandis que les travailleurs âgés qui ont un salaire peu élevé et retardent leur départ à la retraite pourraient recevoir des prestations différées sous la forme d’une majoration de leurs droits à pension.

•

Veiller à ce que les mesures adoptées soient correctement ciblées et évaluées. Les mesures destinées à l’ensemble des travailleurs âgés risquent de ne pas viser assez précisément les catégories qui en ont le plus besoin, ainsi que de renforcer les idées reçues et de produire des effets de stigmatisation. Une évaluation régulière de ces mesures peut permettre de mieux les cibler. D’une manière plus générale, elle peut aider à déterminer celles qui sont le plus efficaces et pour quels types de travailleurs.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

INTRODUCTION

– 31

INTRODUCTION

Italy already has one of the oldest populations of OECD countries. The working age population (aged 20-64) has begun to contract and will have to bear an increasing burden of supporting the dependent and elderly population. By 2050, more than one in three Italians will be over the age of 65. This could result in a slow-down in economic activity, pressure on the sustainability of social protection systems and labour shortages in certain occupations. The scale and timing of these developments will depend crucially on future trends in the mobilisation of potential labour supply. Increasing female participation rates and maintaining older workers in the labour market will be of particular importance. Although reforms in the pension system enacted in the mid-1990s were important steps toward ensuring the sustainability of the system in the long run, the level of public spending on pensions is still one of the highest in OECD. Among other effects, this reduces available resources for other social programmes. The pension system has also resulted in early retirement and low employment rates among older workers. There is some evidence that older workers in Italy are experiencing a number of difficulties in the labour market. Improving their skills and employability should become an essential policy objective. Therefore, it is important that appropriate measures be taken now to encourage older workers to remain in the labour market and to improve their working conditions. The main purpose of this report is to reflect on the different avenues for reform that will need to be pursued in order to meet this objective. Chapter 1 highlights the demographic challenges facing Italy and underlines the importance of increasing labour force participation rates. Chapter 2 examines in more detail the current labour market situation of older workers and identifies some of the key problems that they are facing. The next three chapters explain how the current situation can be improved to address the challenges ahead. Chapter 3 discusses the extent to which reforms of social benefits may raise work incentives, thus encouraging older workers to AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

32 – INTRODUCTION participate in the labour market. But removing supply-side barriers to employment is not enough. Action on the demand side is also needed. Thus, Chapter 4 examines those factors which negatively affect the attitudes of employers towards older workers. Chapter 5 looks at barriers that workers themselves face to gaining access to better jobs. Finally, Chapter 6 emphasises the importance of policy coherence in implementing reforms.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

– 33

Chapter 1 THE CHALLENGE AHEAD

In Italy, the ageing process is well underway. The old-age dependency ratio is already one of the highest in the OECD countries in 2000 and will continue to rise steeply. If participation patterns remain unchanged, the labour force will start to decline between 2005 and 2010. In light of these demographic trends, it would appear that increasing the labour force participation of older people is a crucial policy objective. 1.

The demographic challenge

The Italian population is ageing very rapidly as a result of low fertility rate and rising life expectancy. The total fertility rate has fallen from almost 2.5 in 1970 (i.e. above the replacement rate of 2.1) to 1.24 in 2000 (Figure 1.1). It is projected to increase slightly in the early 2000s to reach 1.4 in 2005, in line with the complete fertility rate, and to remain constant thereafter.3 While Italy has one of the lowest fertility rates in OECD, life expectancy is among the highest. In 2000, life expectancy at birth was 76.3 years for men and 82.4 years for women. Life expectancy is projected to further increase to 81.4 years for men and to 88.1 years for women in 2030, with most of the projected rise being concentrated among elderly cohorts. Later on there is no further projected rise. Finally, immigration policy also will shape the outlook for population growth. The assumption here is that net migration flows will remain constantly positive, around 120 000 persons.4 3.

The population projections used in this report are based on the main variant of the population projections produced by the Italian Statistical Office (ISTAT).

4.

Among OECD countries, Italy has a low but growing share of foreigners in the total population and labour force. In 1998, the population share of foreigners in Italy was only 2.1%, while that of Switzerland was 19% (OECD, 2001a, Chapter 5). This share was only 1.1 % in 1988.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

34 – CHAPTER 1. THE CHALLENGE AHEAD Figure 1.1. 90

Life expectancy at birth and total fertility rate in Italy, 1970-2050 Actual

Female life expectancy at birth

85

80

Male life expectancy at birth

75

2.2

1.9

1.6

70

Total fertility rate

65

Fertility rate

Life expectancy at birth

2.5

Projected

1.3

19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

1.0

Source: OECD Health database and ISTAT.

In Italy, life expectancy at age 65 has increased considerably. Currently, for workers retiring at age 65, they can expect to receive the old-age pension for around 16½ years in the case of men and for around 20½ years in the case of women. A broad indicator of the rising economic burden that an older society may place on the working-age population is given by the old-age dependency ratio, i.e. the ratio of the population aged 65 and over to the population aged 20 to 64.5 At around 29% in 2000, Italy currently has the highest old-age dependency ratio among OECD countries next to Sweden (Figure 1.2). However, Italy’s population is projected to age more rapidly than in most other OECD countries. Its old-age dependency ratio is projected to reach 43% in 2025 and 67% in 2050. These changes in the old-age dependency ratio tell only part of the story about the additional burden that may result from population ageing. The economic dependency ratio measures the burden of all forms of non-employment and is defined as the ratio of persons not in the labour force to those in the labour force. For Italy if participation rates remain constant, the 5.

The old-age dependency ratio is conventionally defined with respect to the population aged 15 to 64. However, in most OECD countries, teenagers aged 15 to 19 are more often than not still in school and so it was decided for the purpose of this report to exclude this group from the definition of the working-age population. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

– 35

economic dependency ratio is projected to rise significantly over the next 50 years. In fact, it would remain one of the highest among OECD countries. In 2000, there was around one person not in the labour force for every person in the labour force and this ratio would increase by 30% by 2050.6 Figure 1.2.

Demographic and economic dependency ratios, 2000-2050 Percentages

80

A. Old age dependency ratioa

150

B. Economic dependency ratiob Hungary

140 Japan 70 Italy

130

Italy

110 Japan 50 Italy Sweden France EU

40

EU France OECD Sweden

Turkey Italy Hungary

100 90

Sweden Italy France EU OECD

France

France

EU

80

Turkey

70

France EU

60

OECD Japan

20

50 Turkey 40

10

Turkey Hungary

EU

OECD 30

Turkey

Italy

120

60

OECD

OECD

Japan Japan Sweden

Sweden

Switzerland

Switzerland

Sweden Switzerland

Iceland

Mexico Iceland

30 Iceland 0 1975

2000

2025

2050

20 1975

2000

2025

2050

a) b)

Ratio of the population aged 65 and over to the population aged 20-64. Ratio of persons not in the labour force to those in the labour force. The labour force projections assume that participation rates by age and gender remain constant at their 2000 levels. Source: National Population Projections; EUROSTAT Population Projections (1999 Revision); UN, World Population Prospects 1950-2050 (2000 Revision); and OECD estimates based on labour force surveys.

6.

Of course, these trends will be sensitive to the assumptions made about future changes in participation rates. Under the “average” scenario as discussed in the next section, the economic dependency ratio would remain practically constant over the period. But under the “maximum” scenario, it would be cut by more than half.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

36 – CHAPTER 1. THE CHALLENGE AHEAD 2.

Potential economic and social impacts

The ageing of the population in Italy will have serious economic and social repercussions. Some policy interventions in the 1990s have already acted towards curbing the severe strain on public pension expenditure. Chapter 3 will present them into detail. One of the most prominent ones will be to inversely link pension entitlements to life expectancy. Yet future increases in public pension expenditures would come on top of the current situation in which social protection expenditure is heavily concentrated on pensions. The associated hikes in taxes and social security contributions that will be required to finance them and the reduced pension entitlements which would result for retirement at a given age could give rise to a number of intergenerational inequities and tensions. Much of this extra burden of taxation will fall on the working-age population, and more precisely on those in the labour force. The demographic changes now underway could also have a negative impact on labour force growth. However, the future size of the labour force will depend not only on demographic changes but also on how participation rates change over time. Participation rates are low in Italy, especially for women and older workers (Table 1.1). In 2000, the participation rate of older workers in Italy was among the lowest in OECD. Table 1.1 Participation rates by age and gender, 2000 As a percentage of population in each age group Men

Women

50-64

65-69

25-49

Italy

92.0

57.3

10.6

60.9

25.1

2.8

76.5

40.8

6.4

Sweden

90.6

79.8

17.8

85.5

73.8

11.4

88.1

76.8

14.5

United States

92.4

75.6

30.1

77.3

61.0

19.4

84.7

68.0

24.4

Japan

97.2

89.1

51.1

66.1

56.8

25.4

81.8

72.6

37.5

Germany

94.1

64.1

7.4

77.8

45.1

2.8

86.1

54.6

5.0

EU

93.5

66.6

12.4

75.2

43.2

5.7

83.7

53.8

6.9

86.5

50.0

3.1

28.6

22.1

1.3

60.8

40.4

2.2

OECD Minimum

a

OECD Average OECD Maximum

b

50-64

Total

25-49

65-69

25-49

50-64

65-69

93.6

70.2

21.2

73.3

46.6

10.4

81.2

60.3

19.3

97.2

95.2

65.5

87.5

83.2

38.0

91.9

89.2

51.2

a)

The data refer to Hungary for men aged 25-49 and 50-64 and to Turkey for women aged 25-49 and 50-64. For the 65-69 age group, the data refer to Belgium for men and the Slovak Republic for women. b) The data refer to Japan for men aged 25-49 and to Iceland for women aged 25-49, 50-64 and 65-69 and men aged 50-64. For men aged 65-69, the data refer to Mexico. Source: European Labour Force Survey and national labour force surveys. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

– 37

Participation rates are not easy to predict with much accuracy. Therefore, a number of scenarios have been developed which make different assumptions about how participation rates could change over the next half century (Figure 1.3): •

In the “constant” or baseline scenario, participation rates by age and gender are assumed to remain constant at their 2000 levels. Accordingly, Italy’s labour force is projected to start contracting within the next decade and will decline to around 16.8 million in 2050, down from 23.6 million in 2000.

•

In the “average” scenario, participation rates for the older population are assumed to converge over the period 2000-2030 to the OECD average levels of 2000 and remain constant thereafter. In this scenario, the labour force starts contracting after 2015. Consequently, the labour force is projected to be 18.9 million in 2050.

•

Finally, in the “maximum” scenario, participation rates by age and gender are assumed to converge over the period 2000-2030 to the corresponding maximum rate observed across OECD countries in 2000 and remain constant thereafter. In the case of Italy, this results in a particularly steep increase in participation rates for all age groups. Under this scenario, the labour force peaks at a level of around 32.5 million in 2030 before declining to around 27 million in 2050.

These scenarios show a wide range in the size of the labour force over the next half-century but they point to a risk that the labour force will already begin to fall in absolute terms over the next decade if labour force participation rates remain constant. Under the “constant” scenario, labour force growth is projected to decline over 2000-2010 by 0.23% per annum (Table 1.2 and Figure 1.4). Alternatively, under the “average” scenario, an increase in participation rates for the older population would result in the labour force increasing at a low but positive rate of 0.10% per annum over the next decade.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

38 – CHAPTER 1. THE CHALLENGE AHEAD Figure 1.3.

a

Labour force growth in Italy, 1970-2050 Millions, projections after 2000

Historical

Maximum

Constant

Average

35 33 31 29 27 25 23 21 19 17

19 70 19 75 19 80 19 85 19 90 19 95 20 00 20 05 20 10 20 15 20 20 20 25 20 30 20 35 20 40 20 45 20 50

15

a)

The “constant” scenario assumes that participation rates by five-year age groups and gender remain constant at their 2000 levels. The “average” scenario also assumes constant participation rates up to and including the age group 45-49 but for the older age groups they are projected to increase such that by 2030 they reach the OECD average recorded in 2000. The “maximum” scenario assumes that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD member countries in 2000 and remain constant thereafter. Source: OECD estimates based on labour force surveys and ISTAT demographic projections for Italy (main variant).

One of the economic consequences of such a steep contraction in the Italian labour force is likely to be slower economic growth. Under the constant scenario, real GDP growth could decline by about 0.7 percentage points per annum over the next 50 years, relative to the growth rates experienced over the period 1950-2000.7 The decline under the “average” and “maximum” 7.

In accounting for output growth, the contribution from labour growth is often given a weight of around 0.65. The slowdown in labour growth of 1.07 percentage points – the difference in the average annual growth rate over the period 1950-2000 (0.4%) and the projected growth rate over the period AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

– 39

scenarios would be around 0.5 and 0.1 percentage points, respectively. The impact of slower or negative labour force growth on economic growth could conceivably be offset by either a decline in the unemployment rate, a rise in total factor productivity growth or faster growth in capital inputs. Nevertheless, a shrinking labour force could lead to severe labour shortages in certain occupations, especially in those areas such as nursing and long-term care where labour demand will expand as a consequence of rapid growth in the elderly population. Table 1.2.

Labour force growth under various scenariosª in Italy, 2000-2050 Average annual growth

Constant

Average

Maximum

2000-2010

-0.23

0.10

1.41

2010-2020

-0.67

-0.21

1.02

2000-2020

-0.42

-0.03

1.25

2020-2050

-0.84

-0.71

-0.32

2000-2050

-0.67

-0.44

0.30

a)

The “constant” scenario assumes that participation rates by five-year age groups and gender remain constant at their 2000 levels. The “average” scenario also assumes constant participation rates up to and including the age group 45-49 but for the older age groups they are projected to decline such that by 2030 they reach the OECD average recorded in 2000. The “maximum” scenario assumes that participation rates by age and gender converge by 2030 to the corresponding maximum rate observed across OECD member countries in 2000 and remain constant thereafter. Source: OECD estimates based on labour force surveys and ISTAT demographic projections for Italy (main variant).

Using the same assumptions about participation rates remaining constant at their 2000 levels, these changes in labour force growth can be compared across OECD countries (Figure 1.4)8. Over the next two decades, labour force growth will

2000-2050 (-0.67%) – means that annual average potential growth would mechanically decline by around 0.7% (0.65x1.07). 8.

The limitations of using as baseline the constancy of the 2000 participation rates by five-year age groups need to be underlined. In the case of Italy, there are two important cohort effects with a positive impact on future labour supply: better- educated younger female generations are likely to have higher participation

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

40 – CHAPTER 1. THE CHALLENGE AHEAD be much slower in Italy than on average in the EU or in the OECD area as a whole. Over the period 2020-2050, this gap may even widen further since the rate of decline in Italian labour force could be particularly steep. Promoting higher rates of labour force participation rates for older people will therefore play a key role in responding to the economic challenges raised by population ageing. Figure 1.4.

a

Labour force growth in OECD countries, 1950-2050 Average annual percentage growth

1950-2000 -1.2

-1.0

-0.8

2000-2020 -0.6

-0.4

-0.2

0.0

0.2

2020-2050 0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0.4 Italy

-0.4 -0.8 0.6

Sweden

0.1 0.0 1.2

Japan

-0.5 -1.0 1.6

United States

0.6 0.5 0.5 -0.2

Germany -0.7

0.6 -0.1

EU -0.5

1.1 0.4

OECD 0.0

a)

The projections of labour force growth over the period 2000-2050 assume that participation rates by five-year age groups and gender remain constant at their 2000 levels. Source: OECD estimates.

Population ageing will also result in a greying workforce in Italy (Figure 1.5). Currently, older workers (i.e. aged 50 and over) account for around 18% of the labour force. Assuming participation rates by gender and five-year age groups do not change, 26% of the labour force will be aged 50 and over in 2030 and 23% in 2040 and 2050.

rates than previous cohorts of women, and, in general, workers now in their thirties and forties with a higher level of education are likely to retire later than workers now in their fifties and sixties because they will have accumulated less seniority rights. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 1. THE CHALLENGE AHEAD

Figure 1.5.

– 41

Ageing labour force over the next 50 yearsª in Italy Percentage of the total labour force

15-24

25-49

50-64

65+

100 1.4 18.2

1.5 19.8

1.8

2.3

2.5

2.8

24.9

25.6

22.6

22.6

63.3

61.4

64.6

64.6

80

60

69.0

69.1

40

20

11.4

9.7

10.0

10.7

10.0

10.3

2000

2010

2020

2030

2040

2050

0

a)

The projection of labour force growth assumes that participation rates by five-year age groups and gender remain constant at their 2000 levels. Source: Italian Labour Force Survey and OECD estimates.

3. Key issue: promoting higher rates of participation among older people and better employment opportunities Promoting higher rates of labour force participation among older people should be a key issue in responding to the economic challenges raised by population ageing in Italy. A number of changes in employment practices and in institutional arrangements in the labour market to cope with the inevitable ageing of Italy’s workforce will also be required. The next chapter will review in more detail the current labour market situation of older workers and identify areas where outcomes can be improved.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

– 43

Chapter 2 CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

There is a new concern in Italy about the employment prospects of older workers. In the past, the main policy goal was to curb youth unemployment. However, over time, it has been acknowledged that policies that encourage withdrawal from the labour force of some groups (older workers) in order to make room for others (youth) are counter-productive. The result is that, today, Italy has a very low employment rate, in general, and for women, in particular. Further, there are important regional differences in labour market outcomes and the presence of a large underground economy. 1.

Activity and inactivity among older people

It is helpful to have a broad picture of the main status characterising older people in Italy and in OECD countries on average (Table 2.1). The decline in employment of both men and women from the 50-54 age group accelerates when reaching the age groups 55-59 and 60-64. These drops are almost translated one-to-one into a rise of retirement flows. This contrasts strongly with the OECD average, where the transition from employment to inactivity is not so pronounced. A.

Substantial inactivity because of early retirement

Inactivity is much more widespread in Italy than on average in OECD countries. This is particularly true for people aged more than 60. Between the ages 60 and 64, only one out of five persons is still working. However, inactivity is also quite diffuse among prime-age persons, especially women, since less than two-thirds are either working or looking for a job.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

0.1 0.0 1.3 0.4 6.3 100.0

0.3 0.0 2.8 0.3 3.9 100.0

0.5 0.0 2.9 14.6 5.1 100.0

76.9 71.4 5.5 23.1

1.4 0.0 1.1 25.7 9.5 100.0

86.1 5.8 8.1

92.7 87.8 4.9 7.3

62.3 54.9 7.4 37.7

91.9

Women

0.4 0.0 2.9 7.4 4.5 100.0

84.8 79.6 5.2 15.2

1.2 13.1 7.9 100.0

77.1 70.5 6.6 22.9 0.8 0.0

Total

0.7 18.6 9.0 0.4 3.2 100.0

68.1 64.9 3.2 31.9

0.5 36.2 4.0 0.8 1.6 100.0

54.7 2.2 43.1

56.9

Men

1.0 22.1 9.0 17.9 2.7 100.0

47.3 45.1 2.2 52.7

3.4 22.0 4.0 42.6 2.1 100.0

24.6 1.3 74.1

25.9

Women

50-64

0.9 20.3 9.0 9.2 3.0 100.0

57.7 55.0 2.7 42.3

2.0 29.1 4.0 21.7 1.9 100.0

39.7 1.8 58.6

41.4

Total

0.6 3.5 6.3 0.3 2.1 100.0

87.3 84.1 3.2 12.7

0.3 11.1 2.7 0.7 2.0 100.0

80.5 2.7 16.8

83.2

Men

1.1 3.6 7.2 15.9 3.7 100.0

68.5 65.5 3.0 31.5

3.4 7.4 2.9 40.6 2.7 100.0

40.8 2.2 57.0

43.0

Women

50-54

0.8 3.6 6.8 8.1 2.9 100.0

77.8 74.7 3.1 22.2

1.9 9.3 2.8 20.7 2.4 100.0

60.7 2.5 36.9

63.1

Total

1.0 13.8 9.5 0.3 2.6 100.0

72.7 69.7 3.0 27.3

0.5 39.8 4.6 0.9 1.9 100.0

49.9 2.4 47.7

52.3

Men

As a percentage of population in each age group

1.3 18.1 8.7 18.8 4.4 100.0

48.7 47.1 1.6 51.3

3.8 19.2 4.6 46.2 1.8 100.0

23.1 1.3 75.6

24.4

Women

55-59

0.8 44.2 10.0 0.3 1.9 100.0

42.8 41.7 1.0 57.2

0.8 62.0 4.8 0.7 1.5 100.0

28.8 1.4 69.8

30.2

Men

60-64

0.6 40.1 8.7 17.9 4.1 100.0

28.5 28.0 0.5 71.5

3.1 40.7 4.7 41.4 2.0 100.0

7.9 0.2 91.9

8.1

Women

0.7 42.2 9.3 9.4 3.1 100.0

35.4 34.6 0.8 64.6

2.0 51.4 4.8 21.1 1.8 100.0

18.4 0.8 80.9

19.2

Total

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

1.2 16.2 9.1 9.7 3.5 100.0

60.4 58.1 2.2 39.6

2.2 29.5 4.6 23.6 1.8 100.0

36.5 1.9 61.7

38.4

Total

Labour market status by age and gender in Italy and OECD, 2001

a) The OECD average excludes Australia, Canada, Japan, Korea, Mexico, New Zealand and Turkey. Source: European Labour Force Survey and national labour force surveys.

Discouraged Retired Illness or disability Family responsabilities Other Total

OECDa Active Employed Unemployed Inactive

Active Employed Unemployed Inactive Discouraged Retired Illness or disability Family responsabilities Other Total

Italy

Men

25-49

Table 2.1.

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

– 45

Retirement is the main reason for inactivity among Italian males aged 50 to 64, as it is the case in the OECD average, but the proportion is much higher in Italy, accounting for two-thirds of all inactive men aged 50-54. Illness and disability among older workers are less prevalent in Italy than on average in OECD countries. Family responsibilities are the major factor behind inactivity of Italian women, even among those aged 50 to 64, a result that seems to support the still highly prevalent traditional separation of family tasks between men and women. These low participation rates also stem from different causes across regions. It is mainly due to relatively early exit and retirement for males in the Northern regions and to low employment rates in general for females and for all persons in the Mezzogiorno (Southern Italy). B.

Large labour reserve among older people

Although a high proportion of individuals aged 50-64 are inactive, it is important to stress that many of them can be mobilised. Total “mobilisable” labour supply is measured on the basis of estimates of “excess” inactivity and “excess” unemployment, relative to international benchmarks.9 Contributions to the total mobilisable labour supply are broken down by four different groups: youths (15-24); prime-age (25-49) men; prime-age women; and older (50-64) workers. It emerges that Italy has a rate of mobilisable labour supply amounting to 21% of its working-age population (Figure 2.1). In other words, effective labour supply could be over one-fifth higher in Italy, should labour market behaviour move in line with best OECD practise. This is the second highest rate in the OECD area after Turkey (OECD, 2003b). The average OECD rate of mobilisable labour supply is 12%. In Italy, nearly all (90%) of these mobilisable resources can be found in inactivity. Older workers account for 40% of this excess inactivity compared to 29% for the OECD average. This suggests that there is scope in Italy for large improvements in participation rates, particularly among people aged 50-64. 9.

Excess inactivity is defined as the difference in inactivity rates between each country and the country with the third lowest inactivity rate in the OECD area. Excess unemployment is defined as any positive excess of unemployment above 5%. The countries used as benchmarks are the third best performing countries in the OECD area and are the following: for men aged 15-24, Denmark and Luxembourg; for men aged 25-49, Iceland and Mexico; for men aged 50-64, Switzerland; for women aged 15-24, Norway; for women aged 25-49, the Slovak Republic; and for women aged 50-64, Norway.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

46 – CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Figure 2.1.

Estimates of mobilisable labour supply in Italy and the OECD a, b as a whole, 2001 Percentages of the population aged 15-64 Italy

OECD

25

20

15

10

5

Older persons

Prime-age women

Prime-age men

Youths

Excess unemployment

Excess inactivity

Total mobilisable labour resources

0

a)

Mobilisable labour supply is the sum of excess inactivity and excess unemployment, both relative to international benchmarks. Youth (ages 15-24) enrolled in school were not included in the calculation of excess inactivity or excess unemployment, even if they were classified as inactive or unemployed by the national labour force survey. b) The OECD average is the population-weighted average for 28 countries. Source: OECD (2003b), Employment Outlook.

2.

Employment situation of older workers

A.

Employment rates of older people remain low

The proportion of individuals of age 50-64 who are employed (the employment rate) is very low by OECD comparison (Figure 2.2). In 2002, the employment rate among older women was the lowest in OECD after Turkey, and it was the 7th lowest in the case of older men. Italy is also one of the countries where the gap between the employment rate of men and women is the largest. By contrast, in the Nordic countries the gender gap is very small.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

Figure 2.2.

– 47

Employment rates of older workers by gender in OECD countries, 2002

As a percentage of population in each age group

Men aged 50-64

Women aged 50-64

ISL MEX CHE JPN NZL NOR KOR SWE USA DNK IRL PRT GBR OECD CAN CZE NLD AUS ESP GRC EU FRA FIN DEU LUX ITA SVK AUT TUR BEL HUN POL

0

20

40

60

80

100

ISL SWE NOR DNK CHE NZL USA FIN GBR JPN CAN KOR PRT AUS FRA OECD CZE DEU EU NLD IRL AUT HUN POL SVK MEX GRC LUX BEL ESP ITA TUR

0

20

40

60

80

100

Source: European Labour Force Survey and national labour force surveys.

The employment situation of older workers has improved somewhat (Figure 2.3). For women aged 50-64, there has been a steady but slow increase from an employment rate of 20% in 1983 up to 27% in 2002. This increase is attributed only to women in their fifties. By contrast for older (50-64) men, the employment rate first decreased sharply from 1983 to 1997 – from 68% to 53% – and slowly improved thereafter, reaching 56% in 2002. The recent gains have been most significant in the 50-54 age group and negligible in the older age groups.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

48 – CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Figure 2.3.

Employment rates by age and gender in Italy, 1983-2002 As a percentage of population in each age group Men

100 90

50-54

80 70 60

50-64

50

55-59

40

60-64

30 20 10

19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02

0

Women

100 90 80 70 60 50 40 50-54 30

50-64

20 55-59

10

60-64

19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02

0

Source: Italian Labour Force Survey.

The factors behind these recent trends include the fact that a larger proportion of the cohorts now in their fifties entered the labour market in their late twenties, partly because they stayed longer in the school system. They have therefore accumulated less years of work seniority and are gradually confronted AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

– 49

with more stringent retirement rules. As Marano and Sestito (2004) point out, this should result in a positive legacy for the years to come in terms of higher participation rates. B.

Large regional differences The Italian situation is also characterised by strong regional differences (Figure 2.4). Men typically enter employment only very gradually in Southern Italy and before the age of 55 their employment rates remain lower than those in Northern Italy, where they have fewer problems finding a regular job early in their career but tend to retire earlier. The evidence is that the abrupt and early employment-retirement process is more important in the North where there is a massive drop in employment rates even before age 55. The fall in employment is much more gradual in the South. A similar pattern can be observed for women with the obvious difference that the peak in employment rates is much lower than for men. These figures do not necessarily take fully into account the fact that many workers are employed in the hidden economy. Therefore, the decline in employment rates after age 50 may be over-estimated somewhat, especially in the South.10 Figure 2.4.

Employment rates by gender and region in Italy, 2002 As a percentage of population in each age group

100 90

Men North

80 70 60

Women North

Men South

50 40 Women South

30 20 10 0

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75+

Source: Italian Labour Force Survey.

10.

According to ISTAT, the hidden economy may account for 15% of total employment and up to 18% for self-employed workers. The hidden economy is also much more prevalent in the South (22%) than in the North (11%).

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

50 – CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Figure 2.5.

Unemployment rates by age and gender in OECD countries, 2002 As a percentage of the labour force

Men aged 50-64

Men aged 25-49 TUR DEU FIN FRA CAN ESP EU ITA BEL OECD HUN GRC USA AUS CZE JPN SWE GBR IRL NZL PRT DNK KOR NOR AUT CHE NLD ISL LUX MEX

0

5

10

POL SVK

POL SVK

15

DEU FIN CAN TUR JPN FRA ESP EU OECD SWE CZE AUT USA AUS GBR HUN DNK GRC PRT ITA NZL BEL IRL ISL KOR NOR NLD CHE MEX LUX

20

25

0

5

10

SVK ESP GRC

FIN FRA EU CZE GRC CAN BEL OECD AUT ITA PRT USA JPN DNK NZL SWE NLD HUN GBR AUS IRL CHE NOR ISL TUR LUX KOR MEX

ITA FRA CZE EU TUR DEU BEL FIN OECD CAN PRT JPN HUN USA AUS DNK NZL SWE GBR AUT LUX CHE IRL NLD NOR ISL KOR MEX

10

15

25

SVK POL ESP DEU

POL

5

20

Women aged 50-64

Women aged 25-49

0

15

20

25

0

5

10

15

20

25

Source: European Labour Force Survey and national labour force surveys.

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CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

3.

– 51

Unemployment: a Southern, female and youth problem

Total unemployment is still relatively high by international standards. Yet it is not the case for older workers (Figure 2.5). Traditionally, youth unemployment has been the most serious source of concern for the Italian labour market authorities. Indeed, the low employment rate of Italian older workers is mainly attributable to direct transitions from employment to pensions. However, as the retirement age will be progressively increased, if higher participation is not matched by a similar increase in demand for older workers, higher unemployment among these workers cannot be excluded in the future. Therefore, it is important that this at-risk group should become the target of preventive active labour market measures to help them to stay in their job or to find rapidly another job. Figure 2.6.

Unemployment rates by age and gender in Italy, 1993-2002 As a percentage of the labour force

16 14

Women 25-49

12 10 8 Men 25-49 6

Women 50-64

4 Men 50-64 2 0 1993

1994

1995

1996

1997

1998

1999

Source: Italian Labour Force Survey.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

2000

2001

2002

52 – CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Figure 2.6 indicates that unemployment increased for all workers between 1983 and 1998 before declining. The incidence of unemployment is very heterogeneous not only between young and older workers but also across regions and gender. As shown in Table 2.2, unemployment can be three to four times higher in the South as compared to the Centre and the North.11 Unemployment is very high for young workers in the South, where more than two young men and three young women out of five who are in the labour force are looking for work. Table 2.2.

Unemployment rates by age, gender and region in Italy, 2002 As a percentage of the labour force Men

Women

15-24

25-49

50-64

15-24

25-49

50-64

Italy

24.6

6.0

3.5

31.4

11.3

4.5

North and Centre

11.8

2.8

1.8

16.5

6.3

3.3

South

42.6

12.5

6.4

59.5

25.2

7.4

Source: Italian Labour Force Survey.

The incidence of long-term unemployment is quite high in Italy by comparison to other OECD countries (Table 2.3). What is striking in the Italian case is the absence of significant difference in the incidence of long-term unemployment between young and older workers. Typically, in most OECD countries, older workers have more difficulty in finding a new job and are therefore disproportionately affected by long-term unemployment. However, one has to bear in mind that the Italian picture predominantly reflects the high incidence of long-term unemployment in the South, where it is particularly concentrated among youth. In the other regions, the picture is one in which elderly people suffer most from long-term unemployment.

11.

Brandolini et al. (2003) recently show that the unemployment rate might be even higher in the South by including among the unemployed people out-of-the-labour force with significant search intensity. Relaxing the ILO requirement of four-week search intensity would increase only marginally the unemployment rate in the North and the Centre. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

Table 2.3.

– 53

Incidence of long-term unemployment in some OECD countries, 2002 As a percentage of unemployment Total 25-49

Men 50-64

25-49

Women 50-64

25-49

50-64

Italy

60.1

60.6

59.0

62.8

61.0

57.2

Belgium

53.3

73.0

50.4

60.8

61.0

86.4

Germany

45.1

62.5

43.4

60.7

47.2

64.9

France

28.7

38.3

27.3

38.2

29.9

38.5

United Kingdom

26.6

35.7

31.8

40.8

19.2

26.2

EU

41.1

51.9

39.7

51.8

42.5

52.1

OECD 35.7 38.9 33.0 38.9 38.9 Source: European Labour Force Survey and national labour force surveys.

Figure 2.7.

38.9

Unemployment rates by age and educational attainment in Italy, 2001 As a percentage of the labour force

Less than secondary

Secondary

Upper secondary

Tertiary

30 25 20 15 10 5 0 20-24

25-29

30-34

35-44

Source: Italian Labour Force Survey.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

45-54

55-64

54 – CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS Education also plays a significant role. Workers with low skills are more at risk of falling into unemployment (Figure 2.7) and long-term unemployment.12 While the low employment rate of older workers may have been dominated by supply-side factors in the recent years, the relatively low level of skills of Italian older workers may prove a greater source of concern in the future, as attempts are made to rise the effective age of retirement. 4.

The transition to retirement: a complex picture

According to recent studies of retirement decisions of Italian workers, the route from employment to retirement is far from linear (Contini and Fornero, 2003). In fact, the authors note that successive transitions oscillating between employment and unemployment to self-employment, inactivity and eventually retirement are not exceptional. Quite a few older workers experience spells of unemployment followed by attempts to find a job as self-employed or else become inactive (voluntarily or not). Another finding is that labour market behaviour has responded to reform measures, although not always in the direction that was predicted when these reforms were passed. The mid-1990s, characterised by pension reform, were marked by large and sudden increases in early retirement. Contini and Fornero (2003) show for instance that workers aged less than 55 accounted for around a fifth of all male retirement flows until 1991. The proportion jumped to 35.6% in 1992, dropped to 15.9% in 1993 and then increased again to 28.6% in 1998. For women, the variability in the proportion of retirement taken by workers younger than 55 was even greater. Miniaci (1998) finds that more educated and self-employed workers retire relatively late and that employees in the public sector do not retire significantly earlier than their private-sector counterparts. Brugiavini and Peracchi (2003) also analyse the determinants of retirement for a sample of workers aged 50-69 years over the period 1977-1997. Their study confirms that workers tend to retire as soon they are entitled to. Furthermore, blue-collar workers seem more prone to early retirement than 12.

The inverse relationship between educational attainment and unemployment rate is somewhat less clear-cut for younger workers, since those with tertiary education face a quite high unemployment. This may reflect the difficulty in finding a first job with little or no working experience or queuing while waiting for a good job opportunity. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 2. CURRENT LABOUR MARKET SITUATION OF OLDER WORKERS

– 55

white-collar ones. These authors also find that financial variables have the expected impact on the probability to retire, namely that future earnings decrease the probability of retirement, while the opposite is true for pensionable earnings and a measure of “social security wealth”. Mastrogiacomo (2002) focuses on the joint decision to retire that takes place within couples. As a consequence of the greater participation of women in the labour market for younger generations, the share of households where only the husband works has gone down from 46% to 34% over the period 1984-1998 across a panel of households where the husband is aged 50 to 65. Over the same period, and while the proportion of couples where both are employed has remained almost stable (from 20% to 22%), couples where both are out of the labour force have increased their share from 30% to 35%. A similar pattern can be observed for women. In any case, there is some co-ordinated behaviour toward retirement between spouses, so that any reform or measure aiming at increasing participation should certainly take into account this aspect of the retirement decision.

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CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

57

Chapter 3 PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES: THE ROLE OF THE WELFARE SYSTEM

Social protection is a major determinant of the labour market participation of older workers. Individual decisions to work depend highly on benefit levels and eligibility criteria within the pension system and other social security schemes. Finding a balance between guaranteeing an adequate income for the elderly, while not undermining work incentives, is a challenge facing all OECD countries. This chapter stresses the main challenges faced by the Italian welfare system and discusses the likely impact of institutional arrangements on the retirement decision of older workers. 1.

Main challenges faced by the Italian welfare system

In Italy, the pension system has long been very favourable to early retirement, a key factor behind the very low employment rates observed for workers aged 50 and over. By contrast, there is little use of unemployment or invalidity benefits as pathways out of the labour market. The public authorities have been confronted for many years by two main challenges: i) to increase the effective retirement age; and ii) to ensure the financial sustainability of the pension system. A.

Increasing the effective retirement age

Over the past few decades the effective age of retirement13 has fallen significantly. Between the early 1960s and the mid-1990s, the effective retirement age of Italian men has fallen nearly five years to reach the age of 59 13.

The effective age of retirement refers to the average age at which people aged 40 and over withdrew from the labour force over any given five-year period. It is estimated using information on participation rates and effectively assumes that no exits from the labour markets occur because of death and that the population structure by age remains constant over time. There are a number of alternative ways of calculating effective retirement ages. However, while a different method may change the actual values for each country it does not change greatly the rankings of countries.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

58 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES (Figure 3.1). For Italian women, the effective retirement age has fallen from almost 62 years in the mid-1980s to 57 years in the mid-1990s. The fall recorded until the mid-1990s is the result of policies undertaken in previous decades when early retirement was used to support companies in crisis and to favour the employment of younger workers. Figure 3.1.

Average effective age of retirement by gender in Italy, a 1960-2002

65 64

Men

63 62 61

Women

60 59 58 57 56

702

499

19 9

297

19 9

095

19 9

893

19 9

691

19 8

489

19 8

287

19 8

085

19 8

883

19 8

681

19 7

479

19 7

277

19 7

075

19 7

873

19 7

671

19 6

469

19 6

267

19 6

19 6

19 6

065

55

a)

Estimated average age at which individuals older than 40 left the labour force during any given five-year period. The estimates are derived using pseudo cohorts by five-year age groups for persons initially aged 40 and over. They are calculated by weighting the average age of each cohort over a given five-year period by its share of the total decline in participation rates for all cohorts between the beginning and end of the period. Source: OECD estimates.

Since the mid-1990s, the general trend towards early retirement seems to have reversed.14 A more disaggregated analysis shows that the change of behaviour can mainly be ascribed to the reduced number of very early retirements, concerning workers aged less than 55 (Ministry of Labour and Social Policies, 2002a). Moreover, the increase in the effective age of retirement also varies across occupations. For example, self-employed workers have 14.

As explained later, some early retirement flows have clearly been strongly driven by announcement effects during the reforms of the 1990s. Workers retired as soon as they could in order to avoid being locked into a new (less generous) pension entitlement regime. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

59

experienced a large increase in their effective age of retirement by around 3 to 4 years. What is clear is that the gap between men and women has been dramatically reduced. However, the current effective age of retirement in Italy is low in comparison to other OECD countries, especially for men (Figure 3.2). Figure 3.2.

Effective and official age of retirement by gender a in OECD countries, 1997-2002 Men Effective

Official

75 70 65 60 55 50 France

Belgium

Hungary

Belgium

Slovak Republic

Hungary

Austria

Slovak Republic Czech Republic

Luxembourg Austria

Poland

Poland

Finland Netherlands

Germany Finland

France

Italy

Netherlands Luxembourg

Spain Italy

Germany

Czech Republic Australia

Turkey

Greece Greece

Canada

United Kingdom

Australia

Norway

Sweden

New Zealand

Ireland

United States

Portugal

Denmark

Korea

Switzerland

Japan

Iceland

Mexico

45

Women 75 70 65 60 55 50

United Kingdom

New Zealand

Spain

Canada

Turkey

Sweden

Denmark

Norway

United States

Portugal

Switzerland

Japan

Ireland

Korea

Mexico

Iceland

45

a)

Estimated average age at which individuals older than 40 left the labour force during the period 1997-2002. The estimates are derived using pseudo cohorts by five-year age groups for persons initially aged 40 and over. They are calculated by weighting the average age of each cohort over the period by its share of the total decline in participation rates for all cohorts between the beginning and end of the period. Source: OECD estimates.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

60 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

B.

Ensuring the sustainability of public expenditure on pension

Partly because of the substantial reduction in the effective age of retirement recorded until the mid-1990s, expenditure on public pensions as a percentage of GDP is one of the highest in the OECD (Figure 3.3). Currently, expenditures on public pensions in Italy account for about 14% of GDP. Figure 3.3.

Public expenditure on old-age pensions in some OECD a, b countries, 2000-2050

Levels as a percentage of GDP, changes in percentage points Levels in 2000

Change between 2000 and 2050 Italy France Germany Poland Austria Spain Sweden Belgium Finland Portugal Japan Czech Republic Denmark Hungary Netherlands Canada Norway New Zealand United States United Kingdom Australia Korea

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

a)

It includes all old-age pension spending, all early retirement pension spending which is an integral part of the public pension system, and survivors and minimum pensions. b) For France, the estimates refer to the period 2000-2040. Source: OECD (2001c), Economic Outlook.

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CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

61

Long-term projections of public expenditure on old-age pensions based on assumptions of unchanged policy15 are shown in Figure 3.3 for the period 2000-2050. Projections for Italy are for a stabilisation of expenditure relative to GDP, partly reflecting the 1990s reforms (see Box 3.1). Public pension expenditure is estimated to peak at about 16% of GDP around 2030, and should fall thereafter to about 14% of GDP in 2050, when the new pension system becomes fully implemented. The impact of the reforms of the 1990s can be better appreciated by looking at the four key factors driving the change in public pension spending between 2000 and 2050. The greater demographic dependency ratios would imply an increase of public pension expenditure by 10.1 percentage points of GDP between 2000 and 2050 (Table 3.1). Taking into account the reforms already enacted in the 1990s, such an increase would be almost fully compensated by employment gains (reducing expenditure by 3.2 percentage points), lower average benefit entitlements (-5.5 percentage points) and stricter eligibility requirements (-1.5 percentage points). This forecast highlights the crucial role of employment growth, and in particular that of older workers. As already mentioned in Chapter 2, this would imply a relatively radical departure from current labour market features, characterised by relatively low employment rates, particularly among women, older people and in the South. Further, the postponement in the age of retirement would gradually improve the balance between contributions paid and pension entitlements adjusted on the lengthening of life expectancy. In the absence of any postponement in the age of retirement, (future) pension adequacy would become a very relevant issue for the cohorts of retirees starting from around 2015 (and particularly so from around 2025). 2.

The reforms of the 1990s and the current situation

In the early 1990s, the Italian authorities began to take action to prevent that large future cohorts of retirees would jeopardise the already fragile financial situation of the pension system. The Italian pension system has been substantially reformed as a result of agreements between public authorities and social partners. Previously, the system was highly fragmented and based on earnings related (or defined-benefit, DB) rules.

15.

Interventions that have already been legislated are taken into account.

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62 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES Table 3.1.

Decomposition of changes in old-age pension expenditures spending in OECD countries, 2000-2050 Changes in percentage points of GDP Total change 2000-2050

Australia Austria Belgium Canada Czech Republic Denmark Finland a France Germany Hungary b Italy b

1.6 2.2 3.3 5.8 6.8 2.7 4.8 3.8 5.0 1.2 -0.3

Old-age dependency ratio

2.5 7.6 4.7 5.1 8.2 2.7 5.2 7.6 6.4 2.9 10.1

Contributions of: Employment Benefit ratio ratio

-0.1 -1.9 -0.7 0.0 -0.8 -0.3 -0.1 -0.5 -0.7 -1.0 -3.2

-0.5 -1.1 -1.6 -0.6 -0.1 -1.5 -0.2 -3.4 -2.7 -0.3 -5.5

Eligibility ratio

-0.2 -2.4 1.0 1.3 -0.1 1.7 0.0 0.4 2.1 -0.4 -1.5

Japan Korea Netherlands New Zealand Norway Poland Spain b Sweden b United Kingdom United States

0.6

5.1

-1.2

-3.9

0.9

8.0 4.8 5.7 8.0 -2.5 8.0 1.6 -0.7 1.8

4.8 3.8 4.7 3.0 7.3 8.6 3.9 1.7 2.4

-1.0 -0.5 -0.1 0.1 -1.3 -2.6 -0.5 0.1 -0.1

0.2 0.2 1.0 3.9 -5.9 0.0 -2.1 -2.5 -0.2

5.0 1.4 0.0 1.2 -2.1 2.0 0.4 0.1 -0.3

Averagec

3.4

5.2

-0.8

-1.3

0.5

a) b)

For France, the data refer to the period 2000-2040. For these countries, the number of pension recipients and average pensions were estimated by the OECD Secretariat, except for Italy where the data refer to the number of pensions and not the number of pensioners. c) Average of above countries. Source: OECD (2001c), Economic Outlook.

Pension benefits were computed on the basis of the average wage received by the worker in the last years of his/her working career and were indexed to the growth of average wages. Contribution years were generously estimated taking into account a number of non-employment spells and access to retirement as from the age of 50 through seniority pensions was easy.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

Box 3.1.

1.

63

Reforms of the Italian pension system in the 1990s

Amato Reform (1992)

The goal of this reform was to secure immediate financial sustainability by cutting pension outlays. The key element with an immediate impact on the cost of the system was the indexing of benefits to consumer prices, instead of contractual wages. Other important changes were:

2.

•

A gradual lengthening of the reference period used to calculate benefits: to include an individual’s entire work history rather than the last few years of employment.

• •

An increase in the minimum requirements for seniority pensions.

•

A progressive increase in the statutory age of retirement from 60 for men and 55 for women to 65 and 60 years respectively.

•

Workers with 15 years of contributions as of 1992 were not covered under the new rules, apart from the new rule on indexing.

A gradual abolition of the generous special provisions applying to public sector workers.

Dini Reform (1995)

This reform aimed at improving longer-term fiscal sustainability and labour market incentives. The most profound change was to switch from a defined-benefit (DB) system to a “notional” defined-contribution (NDC) system. A similar reform has been implemented in Sweden (OECD, 2003f). A key feature was the link between the pension contributions made over an individual’s life-time and the sum of the benefits an individual is expected to receive in retirement. Each individual has an “account” in which contributions – equal to 33% of earnings for employees and 20% for the self-employed – accumulate. Contributions for each year are re-valued using a five-year moving average of nominal GDP growth. On retirement, which can be taken as early as 57, the sum of the contributions (re-valued by nominal GDP growth) at the time of retirement is multiplied by a “transformation coefficient” to convert it to a pension (annuity). The size of the “transformation coefficient” and the corresponding pension benefit depend on the age at which retirement is taken. In other words, those retiring earlier receive smaller pensions because they will be receiving it for a longer time period. The “transformation coefficients” were laid out in the Pension Act. While they take into account the expected lifetimes of the new pensioner on retirement and a discount factor (equal to an estimate of real GDP growth set at 1.5%), there is no further rise in the transformation coefficients for those continuing to work beyond 65. The coefficient has to be adjusted by the Ministry of Welfare every ten years (the first occasion being 2005) on the basis of updated demographic data and of the comparison between the actual dynamics of GDP growth and the growth rate of wage incomes (from which effective contributions come from). The new computation of pension benefits is applied to all labour market entrants from January 1996 and on a pro rata basis for workers with less than 18 years of contributions. Workers with more than 18 years of contributions remain covered by the old system, which in their case is to some extent the pre-Amato regime (see above).

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64 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

Box 3.1.

3.

Reforms of the Italian pension system in the 1990s (cont.)

Prodi Reform (1997)

Since the Dini reforms were insufficient to achieve a prompt stabilization of pension spending as a percentage of GDP, a number of amendments were introduced under the Prodi government in November 1997. These included:

• • •

An acceleration of the harmonization of the public and private pension regimes. A gradual increase in the contribution rates for the self-employed to 19% given that they are credited with 20% on their “account”. A further gradual tightening of the conditions governing access to seniority pensions. Blue collar workers and “equivalent” workers who started their careers between 14 and 18 years of age, and those on Cassa integrazione guadagni, were granted till 2006 better pension access rules.

In addition, the rules for various special schemes were harmonised with those for private employees in terms of contribution rates, yield coefficients, and eligibility criteria for seniority pensions.

4. After 1997 Certain features of the system have been reinforced since 1997:

• • •

A.

Several increases in the minimum values of social security and social assistance pensions have been implemented. Incentives to postpone retirement for those workers who have reached the minimum threshold for a seniority pension have been introduced. This scheme remains little utilised and further reforms are planned (see Box 3.3, p. 80). Restrictions to the possibility to cumulate labour income with pension income have been gradually eased.

The 1990s reforms

Three main reforms have been carried out during the 1990s (Box 3.1): in 1992 (the Amato Reform), in 1995 (the Dini Reform) and in 1997 (the Prodi Reform). Some parametric changes in the system were implemented nearly immediately through the Amato and the Prodi reforms. By contrast, the Dini Reform – which moves the pension system towards a notional defined-contribution (NDC) rule – implies a long transition period before it is fully implemented. The NDC rule is fully relevant only to new labour market participants as from the 1st of January 1996. Workers with at least 18 years of contributions in 1996 have their pension calculated according to the old system (DB rule) while those having contributed less than 18 years have a mixed regime. The AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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impact of the Dini Reform on the overall stock of retired workers will only be important after 2030 (Table 3.2). In 2050, it is estimated that 46% of retirees will still receive a pension calculated entirely or partially with the rules of the old system. Table 3.2. Projected distribution of Italian pensioners under old and new schemes, 2002-2050 Percentages

Formula used (at retirement age) to calculate pension

2002 2005 2010 2020 2030 2040 2050

Old (defined-benefit, New (notional definedMixed regime DB) rule contribution, NDC) rule 98.4 1.6 0.0 96.6 3.4 0.0 92.0 7.7 0.3 71.1 27.2 1.7 40.0 51.9 8.1 17.9 54.4 27.7 4.9 41.4 53.7

Source: Ministry of Labour and Social Policies (2002a).

According to the Dini Reform, the retirement age ranges from 57 to 65, but workers need to have a contribution period of at least five years and may not retire earlier than 65 unless the level of the pension benefit exceeds 1.2 times the old-age allowance (see Section B). In any case, at age 65, all Italians will be at least entitled to such a benefit, if they are not able to earn any other income (pensions included). Workers can thus choose to retire at an earlier age or postpone retirement up to 65 years and thus increase their pension entitlements. Pension benefits estimated through the NDC rule are strongly related to the age of retirement: the lower the age, the lower the pension and vice versa. Indeed, the new computation formula takes into account the amount of pension contributions paid throughout the whole working life, capitalised at the five-years average of the annual nominal GDP growth rate. Pensions are also adjusted to life expectancy (averaged across gender) of the pensioner at retirement age, according to actuarial equivalence.

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66 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES The transformation coefficient will be updated every 10 years by the Ministry of Labour and Social Policies (in agreement with the Ministry of Economy and after hearings that have to take place with the Committee for Public Spending on Social Security (Nucleo di valutazione della spesa previdenziale), the social partners and the relevant Parliamentary Commissions to account for changes in demographic parameters and the evolution of long-term GDP growth relative to pension contributions. B.

Main pension provisions in 2003

The current Italian pension system is composed of a compulsory pay-as-you-go (PAYG) public system for all workers16 and a complementary private pension system. The latter is still in its infancy (see Section 3 below). The Italian pension system includes also a number of means-tested measures to protect old people against poverty and to decrease inequalities, in particular the minimum pension supplement (trattamento minimo, TM), the old-age allowance (assegni sociali, AS) and the social assistance supplement (maggiorazione sociale). Pensioners who have a social security pension of an amount lower than a given minimum (TM) are entitled to a supplement (integrazione al minimo) in order to bring the pension up to the TM.17 In 2002, the amount of the minimum annual pension corresponded to 24% of the average production worker earning. The old-age allowance (AS) is paid to citizens over the age of 65 who are

16.

For more than two thirds of the workers, the public pension system is administered by the social security institute for the private sector (INPS). This covers most private sector employees and the self-employed (artisans, farmers and shopkeepers). Some categories of professionals have their own institutions, which are supervised by the Ministry of Labour and Social Policies. About a fourth of the public pension system is administered by the social security institute for the public sector (INPDAP) and the remaining part is administered by a number of small institutions. Compulsory pension expenditure is monitored by the nucleo di valutazione della spesa previdenziale, which publishes an Annual report. The medium and long term projections are updated every year by the Department of General Accounting of the Ministry of Economy.

17.

Supplements are given only if individual income is below two times the TM or not above four times the TM when cumulated with the spouse’s income. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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without income or face particularly difficult circumstances18 and in 2002, corresponded to 21% of the average production worker earning, which is just slightly more than the absolute poverty line defined by ISTAT. The social assistance supplement (maggiorazione sociale) depends on other received benefits, on the age and the income of the recipient. Under the budgetary laws for 2002, the current government modified the social assistance supplement. Now all pensioners (including those receiving the old-age allowance and other social measures, e.g. linked to disability pension) who are at least 70 years-old and with an annual income lower than a threshold (currently equal to 31% of the average production worker earning) will receive the social assistance supplement up to this amount. As far as the public pension system is concerned, there are currently two main pension entitlements, i.e. the old-age pension (pensione di vecchiaia) and the “seniority” pension (pensione di anzianità). Workers receive an old-age pension when they reach the age of 65 for men and 60 for women (previously 60 and 55, respectively) with a minimum contribution period of 20 years. Workers can receive a seniority pension at a younger age based on joint requirements related to age and years of contributions. Seniority pensions will progressively disappear with the gradual extension of the NDC system.19 In 2004, private employees were entitled to seniority pensions at the age of 57 with at least 35 years of contributions (Table 3.3). The minimum years of contributions, regardless of age, are 38 years for employees and 40 years for the self-employed. On top of the gradual increase in the minimum thresholds already legislated for and shown in Table 3.3, the new measures currently under discussion in the Parliament would further increase the age thresholds related to seniority pensions from 2008 onwards (see Box 3.3, p. 80).

18.

To be entitled to the old-age allowance, the individual income must not be above the AS or twice the AS when cumulated with the spouse’s income.

19.

In 1998, according to ISTAT, beneficiaries of a seniority pension represented 14% of all the beneficiaries of a pension (all categories included). Among them there were also “baby-pensioners” (privileged workers who had retired as young as 40), a possibility suppressed by the reforms previously depicted.

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68 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES Table 3.3.

2001

a b

2002 2003 2004 2005 2006 2007 From 2008

The gradual increase in the requirements for seniority pensions in Italy

Non-manual workers Private Public 37 37 56 and 35

55 and 35

Manual workers Self-employed 37 40 54 and 35

58 and 35

a

37

37

37

40

b

57 and 35

55 and 35

55 and 35

58 and 35

a

37

37

37

40

b

57 and 35

56 and 35

55 and 35

58 and 35

a

38

38

38

40

b

57 and 35

57 and 35

56 and 35

58 and 35

a

38

38

38

40

b

57 and 35

57 and 35

56 and 35

58 and 35

a

39

39

39

40

b

57 and 35

57 and 35

57 and 35

58 and 35

a

39

39

39

40

b

57 and 35

57 and 35

57 and 35

58 and 35

a

40

40

40

40

b

57 and 35

57 and 35

57 and 35

58 and 35

a) Requirements in terms of minimum contribution period only – regardless of age. b) Requirements in terms of joint minimum age and minimum contribution period. Source: Marano and Sestito (2004).

C.

Potential impacts during the transition period

Because the Dini Reform is only fully applicable to the flow of new retirees as from 1996, its impact will show up over the medium to longer run. There are also effects in the short term related to the Amato and Prodi parametric changes affecting the whole stock of retirees. As already mentioned in Box 3.1 along with the indexing of pensions to consumer prices, eligibility requirements are being tightened and an increase in the minimum age of retirement is gradually being phased in. Further changes are in the pipeline through the measures currently under discussion in the Parliament (see Box 3.3, p. 80). As they refer to an enabling bill, still approved only by one branch of the Parliament, the implementation acts having to be defined subsequently by the Government, the following description mostly refers to the rules and changes that have already been enacted. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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Three sets of statutory age of retirement Three different sets of statutory ages of retirement need to be considered during the transition period (Marano and Sestito, 2004). Two sets refer to the workers still covered fully or partially by the old system (DB rule), and one set for workers under the new system (NDC rule): •

For the old-age pension in the old system, the legal age is from 2001 60 years for women and 65 years for men, along with a minimum contribution period of 20 years. The same ages apply to compulsory retirement in the public sector, although in practice public employees have been granted since 1992 the option to work until age 67. In the private sector, although retirement is not compulsory in the strict sense, the age limit for the old-age pension appears to be binding in practice (i.e. very few continue working after 65), while women have been recognised the right to continue working until the age limits applying to men i.e. 65.

•

For the seniority pension and for workers still in the old system, gradually until 2008, the contribution requirement for all workers will reach 40 years (regardless of age) or 35 years and 57 and 58 years of age for employees or self-employed, respectively (Table 3.3).

•

For the old-age pension in the new system,20 the legal age of retirement ranges from 57 to 65 with a contribution period of at least five years. While the latter requirement is likely to be unimportant, a more binding constraint should derive from the requirement that the pension benefit exceeds 1.2 times the old-age allowance an individual would be entitled at 65 years of age.

The official increase in the minimum retirement age for seniority and old-age pensions and the lower accumulation of seniority rights of the future and more educated cohorts should progressively lead to a rise in the effective age of retirement. However, the incentives to postpone retirement during the long transition periods are weak, so that the actual age of retirement may not rise in parallel to life expectancy. Even after the long transition period, it would remain possible to retire at a relatively early age, albeit with rather low pension benefits. In order to strengthen the incentives to postponement, the current Government has proposed a new policy package to further reform the pension system (see Box 3.3, p. 80). 20.

Seniority pensions do not exist in the new system.

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70 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES Trend in replacement rates During the transition period, employees will experience a relatively important decrease in the replacement rate for a given age and seniority at retirement (Table 3.4). Further reductions in the replacement rate will occur largely as a result of adjustments for longer life expectancy (see Box 3.1 and below). However, as Table 3.4 makes clear, the fall in the replacement rate (at least for employees) could be partially avoided by postponing by five years the age of retirement. Indeed, due to the “mixed” regime of the calculation, postponing retirement by five years could significantly contribute to maintaining the level of entitlements, due to the combination of the five additional years of contributions as well as actuarial adjustments. a

Table 3.4. Gross replacement rates of the pension system in Italy , 2003-2050 Year of retirement 2003 2010 2020 2030 2040 Retirement at 60 with 35 years of contributions and average earnings b st 1 pillar 70.0 67.9 58.1 51.7 49.4 Private sector employees d c 0.0 4.4 8.6 13.1 15.0 2 pillar Total 70.0 72.3 66.7 64.8 64.4 st Self-employed workers 1 pillar 69.4 66.7 43.0 32.0 29.9 d c 0.0 4.4 8.6 13.1 15.0 2 pillar Total 69.4 71.1 51.6 45.1 44.9 Retirement at 65 with 40 years of contributions and average earnings b st Private sector employees 1 pillar 79.9 77.6 74.3 69.5 65.6 d c 0.0 5.0 9.8 14.9 19.5 2 pillar Total 79.9 82.6 84.1 84.4 85.1 st 79.2 76 56.3 46.2 39.8 Self-employed workers 1 pillar d c 0.0 5.0 9.8 14.9 19.5 2 pillar Total 79.2 81.0 66.1 61.1 59.3

2050 49.0 15.0 64.0 29.7 15.0 44.7 64.6 19.5 84.1 39.2 19.5 58.7

a)

Macroeconomic assumptions: real wages and productivity are assumed to grow by 1.8%; the real GDP growth rate is 1.4%; the inflation rate is 2%. b) Results for public sector employees are similar. c) The 2nd pillar refers to complementary pension funds. The assumption is that the worker entered the pension fund in 2000. Source: Direct submission from national authorities.

Self-employed workers will experience a much larger cut in the replacement rate than is the case for employees. This is mainly due to the lower contributions paid by self-employed in the new pension system – around 17% compared to 32.7% paid by dependent workers. The replacement rates will also be lower in case of career interruptions (when no contributions are paid) and this will disproportionately affect female workers. The new regime involves considerable flexibility in the choices individuals can make regarding retirement decisions, which may occur at any time between AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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the ages of 57 and 65. This flexible mechanism in itself provides an incentive to postpone retirement, since delaying retirement from the age of 60 (having paid contributions for 35 years) to the age of 65 (having paid contributions for 40 years) will lead to a significant increase in the replacement rate. Revision process due to changes in the demographic coefficient To guarantee the financial sustainability of the new pension system based on the NDC rule vis-à-vis demography, it is crucial to revise pension entitlements according to life expectancy at retirement. The revision at ten-year intervals of the demographic coefficient will take place for the first time in 2005. But in that year the change will obviously have almost no effect as less than 1% of pension benefits are concerned (Table 3.2). The law dictates the variables to be considered in order to update the transformation coefficients and establishes a social dialogue procedure. D’Amato and Galasso (2002) have observed that introducing discretion in such a process might well put the financial sustainability of the reform in danger as there might be political pressures from the elderly who represent a growing share of the voters. The infrequency of such revisions, due at ten years intervals, may also create inequities and incentives to anticipate retirement. Marano and Sestito (2004) stress the fact that such a discontinuity may imply jumps in entitlements leading individuals to retire immediately before coefficients are modified in order to avoid drastic and unpredictable changes in entitlements. An issue debated is whether to have a more frequent revision of coefficients. Although the revision of the demographic coefficient will have almost no effect in 2005, in the future, increasing life expectancy will have a negative impact on the replacement rate and progressively more pensioners will be concerned by the adjustment of this coefficient. In view of the possible resistance it may cause, one could question whether the adjustment would be more acceptable if done every year, so becoming more gradual. In Sweden for instance, the adjustment is automatic (OECD, 2003c). Work and pension The possibility for a pensioner to cumulate pension benefits with other sources of income is an important factor affecting retirement decisions. In Italy, the prevailing rules will also have some consequences on workers in the underground economy, which seems to attract pensioners who wish to continue working but do not want to lose their right to a pension. In the past, several AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

72 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES regulations limited the possibility to cumulate pension and work income. Currently, the possibility to cumulate both incomes is limited in some cases and forbidden in others, mainly depending on the category of pension (disability, seniority or old-age), the kind of income (employed or self-employed activity), the years of contribution (less or more than 40), the age of retirement and the regime (earnings-related, mixed or contributions-based). Thus after the changes enacted in 2000 and in 2002, seniority pension retirees may cumulate work and pension income if they retire after 58 years of age and with a contribution period of at least 37 years. Such a possibility provides an incentive to postpone retirement beyond the current minimum requirements and up to these thresholds above which work and pension income may be cumulated. However, it nullifies whatever incentive there may be to further postpone retirement beyond these thresholds. Undeclared jobs and pension The Employment Taskforce (2003) stressed that transforming undeclared work into regular work was a particular challenge for Italy. It is widely presumed that a large share of undeclared jobs are held by older workers who are working illegally so as to cumulate wages with pension benefits. It is also possible that many of these older workers have the same type of job they held before being entitled to pension benefits. To counter this problem, the government is implementing fiscal advantages for individuals who remain in the formal labour market and receive a pension. The government eased the rules to draw pension and work income, both in 2000 and 2002. As a general rule, people receiving a seniority pension are free to cumulate a pension and a work income when they reach 37 years of seniority and 58 year of age. Drawing pension and work income is allowed always for people retired with 40 years of seniority and for old-age pensioners. Furthermore, the self-employed that are not allowed to cumulate a pension with work income, can nevertheless do so paying a penalty of a maximum of 30% of their work income. Finally, in 2003, a measure has been introduced that gave all pensioners the right to cumulate a pension and work income without conditions upon the payment of a small fee. These new rules should encourage older workers receiving a pension to declare any work income they may be receiving. In any case, the new pension reform aims at further easing these rules.

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3.

The complementary pension system

A.

The new complementary pension funds

73

During the 1990s, the government has tried to develop complementary “pillars” supplementing the public “pay-as-you-go” pillar. The development of a complementary pension system appeared necessary to compensate for the expected fall in public pension entitlements (see Table 3.4). Before the 1992 reform, only a few sectors characterised by above average wages (e.g. the banking sector, insurance and investment companies) had some forms of complementary pensions.21 Starting in 1993, the reforms have provided a framework for the creation of both collective and individual complementary pensions in all sectors and for each category of workers, i.e. private and public employees and the self-employed. The main principles applying to the new pension funds are:

21.

•

All funds are defined contribution (DC) funds and contributions are capitalised on an individual basis.

•

Participation in a pension fund is voluntary and individual, although it may occur in the context of collective agreements.

•

The management of funds is generally given to a specialised third party (e.g. banks, insurance companies, financial intermediaries), but the pension fund itself maintains the legal ownership of the assets under management.

•

Pension fund contributions receive a fiscal advantage of the ETT kind (i.e. Exemption of contributions, Taxation of accumulation and Taxation of benefits), built in such a way to avoid double taxation and thus replicating in many aspects an EET system.

These covered about 600 000 individuals in so called “fondi preesistenti”.

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74 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES In 1993, two types of funds were introduced: the so-called “closed or contractual funds” (fondi chiusi or fondi negoziali or fondi contrattuali) and “open funds” (fondi aperti). The main characteristics of those funds are the following: •

Closed pension funds. They concern primarily, but not exclusively, employees and are created on the basis of collective agreements among the social partners, so that the fund may cover a sector or a company, at the regional or national level. In the case of self-employed workers, a closed fund is created under the initiative of their corresponding associations. The legal status of a closed fund is an association or a foundation, often non-profit and in general with an autonomous legal status.

•

Open pension funds. They concern any category of workers, dependent or self-employed. They may be established by financial intermediaries specialised in asset management like banks and insurance and investment companies. Participation in these funds may be at the individual or collective level.22

In 2000, contribution plans funded by individuals’ savings based on life insurance (piani individuali pensionistici – PIP) were included in the system of complementary pensions. In 2001, the PIP have been granted the same fiscal advantages as closed and open funds, provided that they have the same conditions for benefit entitlement. When people decide to draw either their seniority or old-age pension, they can also draw the supplementary private benefits under the following conditions: •

22.

For workers drawing their seniority pensions, it is the age required in the obligatory public regime, with a minimum of five years of contributions to the pension fund.

However, open funds are not very interesting for the majority of wage and salary earners because fiscal advantages are granted to them only if: i) there is not a sector closed fund to which the worker may adhere to; and/or ii) the TFR is conferred to the open fund by a collective contractual agreement (see Box 3.2). AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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•

For workers drawing their old-age pension, the access is at termination of working activity with a minimum of 15 years of adherence to the pension fund and an age difference not greater than ten years from the age required by the public old-age pension.

•

For those individuals who are not subject to a legal age of retirement, the age of entitlement to benefits is 57.

In some specific circumstances, it is however possible to receive part of the capital (so-called riscatti, for individual funds). For instance, this is possible in case of extraordinary health expenditures, to finance a first house for the recipient or the recipients’ children and so on. In this case, it is necessary to have contributed to the fund for at least eight years. Since the 1990 reforms implied such a substantial change in the Italian pension system, an accompanying legislative framework has also been set up in order to enhance trust in the new “private” pillars. Several elements were introduced, in particular the creation of a specific authority in charge of supervising the transparent and correct administration and management of the complementary pension funds (the COVIP – Commissione di vigilanza sui fondi pensione, under the Ministry of Labour and Social Policies). Investments in pension funds should follow the principle of a “prudent person”, and administrative and transaction costs should be minimised. In general, the regulatory rules applied to the management of complementary pension funds in Italy are in line with those described in the EU Directive relative to complementary pension funds. B.

Subscription to the complementary pension funds

As already mentioned, the Italian complementary pension regime is relatively young. As a result, the pension funds presently cover only a small segment of the labour force, but they should contribute significantly to supporting the income levels of pensioners in the future. In particular, complementary pension funds have been relatively slow in taking off (the first fund became operational in 1997) and have received little support from younger workers. Presently, about two million workers (about 10% of workers) have subscribed to the various types of complementary schemes available, including the individual pension plans (Table 3.5). There are still many problems with respect to civil servants, for whom no pension funds have been established so AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

76 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES far despite the fact that the legislation extended to the public sector the same provisions as for the private sector (Vernière, 2003a). Table 3.5.

Importance of the complementary pension system in Italy, 2001

Dependent workers private public Self-employed Total

Total workers

Coverage

(thousands)

(% of employment)

1722

10.9

1722 0

13.8 0

265 1987

3.7 8.7

Source: Ministry of Labour and Social Policies (2002a).

In order to encourage the development of the complementary pension system, the 1993 reform tried to transfer the annual flow of the deferred wage (TFR) to the complementary pension funds (Box 3.2). Any decision about the precise terms of the transfer was left to the social partners. This transfer was meant to generate substantial funding for the development of the private pension system, since the TFR stock has been estimated at 130 billion euros, while the current annual flow of contributions is close to 15 billion euros or 1.3% of GDP (Bosi and Guerra, 2002). The transfer of the TFR to the complementary pension funds met with strong opposition and the new funded voluntary complementary pension schemes has not taken off until now, even after more favourable tax incentives. Although the 1995 reform proposed particular tax treatments to encourage the development of the complementary pension regime, a radical reform of the fiscal treatment of complementary pension funds took place in 2000. As a result, a single tax regime currently applies to all forms of pension funds and fiscal allowances are harmonised across different funds, without favouring the TFR or any other pension fund. These benefits are of course subject to several conditions, in particular i) a minimum of 15 years of contributions is needed; ii) a maximum of one half of accumulated savings can be withdrawn as capital at retirement and; iii) pensions benefits can be drawn as from retirement age only.

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Box 3.2.

77

Transferring the trattamento di fine rapporto (TFR) to complementary pension funds

The TFR may be interpreted as a sort of deferred wage. It was introduced in the 1920s, based on an agreement between the social partners, within the field of private sector industrial relations. According to the laws governing this scheme, firms accumulate in their book reserves corresponding to about one month salary per year for each worker (6.91% of payroll on average). At the retirement date or in the case of quit or layoff, the employee is granted back the accrued contributions, capitalised at a rate of 1.5%, plus 75% of the inflation rate. The TFR can be anticipated in case of unusual expenses, e.g. to buy a house. All workers within the private sector benefit from the TFR. For public sector employees, the issues and the (on-going) discussions around the TFR are particularly complex. Until 1993, the TFR was non-existent in the public sector. Instead, various forms of deferred wages were in place. In order to apply the same framework as in the private sector and to boost the complementary pension regime in the public sector, it is proposed to transfer the various forms of deferred wages regimes in the public sector to the TFR regime. For workers, the replacement of the TFR with a complementary pension fund is advantageous, as long as the latter assures higher returns than those guaranteed with the TFR. However, the TFR possesses fewer constraints than pension funds and may operate as a useful cushion during periods of unemployment, in particular because unemployment benefits are insufficient in Italy. From the employers’ point of view, the abandonment of the TFR regime implies the loss of a low-cost source of funds.

4.

Other social protection instruments

A.

Unemployment

Unlike in some other OECD countries, there is little risk of unemployment benefits (UB) being used as a pathway to early exit from the labour market in Italy. Expenditure on unemployment benefits remains modest in Italy. In 2001, it represented 0.5% of GDP compared with 1.4% in France and 2.1% in Germany (OECD, 2003b). The basic scheme provides benefits amounting to 40% of the previous wage for a period of six months only. This period is extended to nine months for individuals older than 50. Benefits are available only to workers who are definitively out-of-work and who do not maintain any link with their previous work. Workers individually or collectively laid-off must have at least 52 weeks of contributions.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

78 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES More generous and longer-term benefits (12 months extending up to three years for people over 50) apply only to collective dismissals in firms (with more than 15 employees) in the industrial sector (so called “mobility indemnities”). Moreover, this scheme very often intervenes after people have already received benefits from the Cassa integrazione guadagni or CIG, which covers workers expect to be re-hired in the same firm in the future. In some cases, the mobility schemes may be allowed to accompany the dismissed worker up to retirement (so extending beyond the three years maximum with a special contribution paid by the firm). Both the mobility and the CIG benefits are equal to 80% of the former wage, up to a ceiling which is however approximately equal to 60% of the earnings of the average production worker; mobility benefits are also gradually reduced after the first 12 months. A bill to reform the unemployment benefit system is currently pending in Parliament. This reform aims at increasing the maximum duration of unemployment benefits, but with a degressive replacement rate (60% for the first six months; 40% for the following quarter; 30% for the last quarter). B.

Disability

Unlike in some other OECD countries, disability is no longer a route to early withdrawal from the labour market in Italy. Access to disability benefits has been severely tightened in Italy during the past 20 years. At 12.7%, benefit recipiency among the working age population in 1980 was higher than in any other OECD country. After the drastic reform of the contributory benefit programme in 1984, benefit recipiency has fallen rapidly.23 The reform tightened the requirements to benefit eligibility. In particular, it is no longer possible to take into account the economic environment. Disability pension entitlements depend exclusively on the physical and psychological conditions of the applicant. Two kinds of disability pensions were introduced, depending on whether the reduction of ability to work is 60% (assegno di invalidità) or 100% (pensione di inabilità). The former is subject to a check every three year and allows the pensioner to work. The latter is incompatible with labour income, while the pension calculation rules are more generous.

23.

More details and international comparisons are available in the OECD comprehensive study on invalidity (OECD, 2003a). AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

79

These restrictive measures have put a halt to the previous widespread use of disability benefits in the depressed South. There has also been an increase in means-tested benefits from about 10% of recipients in 1975 to about 70% currently (OECD, 2003a). By 1999, the recipiency rate stood at 55 per 1 000, about the OECD average. Italy stands out clearly as one of the few countries where invalidity expenditures have come under control. The proportion of GDP devoted to invalidity benefits has gone down from 1.7% in 1990 to 1% in 1999, while for the OECD, the ratio has increased from 1.2% to 1.3% over the same period. Taking into account all disability-related programmes, Italy spent 1.8% of its GDP in 1999, while the OECD average was 2.4% and the EU average was 2.7%. 5.

Key issue: working longer

A.

The current debate

The government has presented new proposals for reform of the pension system which are currently under discussion in the Parliament (Box 3.3). The stated objectives are to provide further incentives to workers to remain in the labour force at older ages and to accelerate the development of the complementary pillar. The government faced strong opposition from trade unions to the proposals when they were initially announced. Since December 2003, a dialogue was initiated between the government and the social partners to explore the possibility of an agreement on an overall package.

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80 – CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES

Box 3.3.

Current pension reform proposals (May 2004)

An enabling-act had been approved by one branch of the Parliament and two redrafts strengthening it further have been presented by the government to the Parliament in October 2003 and February 2004. Further amendments have been presented and approved by the Senate in May 2004. Subsequently, the provisions will have to be transcribed, if approved by both branches of the Parliament, into actual legislative decrees by the Government The main current pension reform proposals include:

•

A further easing of the rules governing the accumulation of labour income and pension income.

•

Providing incentives, in the period up to 2008, to continue working for workers who are entitled to a seniority pension through: a) the certification of pension access rights regardless of future reforms, so as to avoid anticipated retirement flows induced by fears of future reforms; and b) the option for private employees who continue to work to fully cash in, on a tax favoured basis, the pension contributions they and their employers would have had to pay, while future pension entitlements are frozen (in real terms) at the value the worker is entitled at the moment of choice (the same option is also envisaged at a later stage for public employees). More broadly, the use of part-time work as an alternative to the seniority pension should be eased.

•

Increasing, from 1st January 2008, the age and contribution requirements for the seniority pension: together with the already scheduled rise to 40 years of the requirement based on the length of the contribution period only, the second access rule, based on 35 years of contribution and the reaching of a certain age, will see an increase of three years with respect to what is currently forecast for that year (Table 3.3), so that employees will need to reach 60 and self-employed, 61 years. Two further increases of one year each of the age requirement are scheduled for 2010 and 2014.

•

Reducing, from 1st January 2008, from four to two the possible dates to actually start benefiting from a seniority pension during the year, which will imply that actual retirement will take place in average 9 and 15 months after reaching the requirements for employees and self-employed respectively, compared with the current average of 4.5 and 7.5 months.

•

Increasing, from 1st January 2008, to 65 years (60 for women) the minimum retirement age in the new system, with an exception holding only for those reaching 40 years of contribution or 35 years of contribution and an age of 62 years (employees) and 63 years (self-employed) since 2014 (such age limits are two years lower during 2008 and 2009 and one year lower during 2010-2013).

•

Transferring on a principle of silent consent the employees’ TFR to private pension funds.

•

Harmonising the regulation of collective and individual pension funds, increasing competition and levelling the playfield.

Source: Marano and Sestito (2004) and submissions from the national authorities.

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CHAPTER 3. PROTECTING PEOPLE WHILE ENHANCING WORK INCENTIVES –

B.

81

Encouraging older workers to continue working longer

Reforms to the pension system will take a long time to bear their fruit in terms of social and financial sustainability. Meanwhile, it will be necessary to retain in employment older workers who will otherwise continue to retire relatively early and in large cohorts (Inglese, 2003). It is particularly important to develop without delay the social protection safety net in case of unemployment. The progressive set-up of a multi-pillar pension system is clearly a positive step to ensure the adequacy of pension income but some measures to incite mainly younger workers to adhere to complementary pension funds may be necessary in view of the low attractiveness of these funds currently. In general, initiatives aimed at better informing workers on the future of their pensions are lacking. Only a minority in a representative sample of the population aged 16-80 understand how a pay-as-you-go system operates (Boeri et al., 2002). In Sweden where the NDC reform was introduced in 1998, information to individuals has been a crucial component in the implementation of the pension reform (Sunden, 2003). The corner stone of this information policy is the “orange envelope” sent out annually to every Swedish citizen. It contains an annual statement of their present and future pension entitlements.24 Increasing the knowledge among people of how their pensions are determined and what affect them seem to have changed in Sweden peoples’ views on early retirement substantially. However, reforming the social protection system will not be sufficient. To ensure that older workers stay longer in the labour market, measures should also go beyond the traditional debate in Italy over pension reform (INPDAP, 2002). More and better policies need to be implemented in order to increase the employability of older workers and to convince firms to hire and retain them. These issues are discussed in the following chapters. 24.

These projections are based on their current and historical income register along with variables such as the age of retirement and the life expectancy at that time, the average growth in the economy, the return on their funds, the expectations of the increase in incomes, the indexation of their pensions, etc. To retain simplicity and comprehensibility, the scenarios in the envelop people receive is limited to assumptions on increases in real average income (0% and 2%), real return on funds (3.5% and 6%) and age at retirement (61, 65 and 70 years). For these different scenarios people can have an estimate of how their monthly old-age pension may be influenced from retiring at 61 instead of 65.

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CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

– 83

Chapter 4 REMOVING DEMAND-SIDE BARRIERS

Neither the pension system nor other aspects of the social security system currently provide strong incentives for Italian workers to postpone retirement, and many employers have exploited these institutional arrangements to shed their older employees. However, if older workers are to be encouraged to continue working longer, it is crucial that firms are willing to hire or retain them. This chapter describes first the employment practices of firms with respect to older workers. It then looks at the reasons why many employers appear to be reluctant to retain workers beyond a certain age. 1.

Employment practices of firms

Employer attitudes and perceptions play a fundamental role in determining the employment outcomes of older workers. Older workers continue to be subject to a range of negative attitudes by employers, some of whom appear to believe that substituting younger workers for them will be positive for the firm. A.

Employers’ views of older workers

There is no comprehensive survey in Italy of employers' attitudes towards older workers. According to Confindustria (the principal employers' association representing mainly industrial firms), the current strategy of Italian firms is to favour younger workers (Confindustria, 2002). Indeed, younger workers are considered as more capable than older workers to adjust to technological change and demand shifts. Confindustria stresses the need to improve older workers' human capital and to integrate more fully older people into the labour force. However, employers feel that higher participation rates of older people can only be achieved with a less rigid labour market and with lower social contributions. The latter point reveals the perception that older workers are too costly. Moreover, lowering social contributions may help reduce the shadow economy in the short term.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

84 – CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS Other employers seem to have a somewhat different perception, at least in principle. According to Confcommercio (an employers’ organisation representing small businesses and services), its affiliates wish to keep their older workers in order to ensure that older workers transmit firm specific skills to younger workers. This point is somewhat supported by Confartigianato (an organisation representing self-employed craft and trades workers) who think that older workers should be used as tutors to younger generations. The picture here is one where there is low substitutability between younger and older workers because of specific human capital accumulated by the latter. It is however worrying that the diffusion of good practices towards older workers among firms does not seem to be yet a reality.25 The only example mentioned in Italy’s National Action Plan 2002 is the reference to a programme undertaken by the Milan City Hall aiming at enhancing the professionalrelations expertise of pensioners working in libraries (Ministry of Labour and Social Policies, 2002b). It is important that examples of good practice be better publicised to illustrate the positive contribution of older workers to firm performance. For example, Paulli and Tagliabue (2002) mention the case of new railway companies re-employing pensioners of the Italian Railways who had been engine drivers. For the company, these workers are highly skilled with experience and do not need any immediate training. For the individual employee, there is the possibility to combine a pension and a salary. The need to overcome the common misconception that older workers are a burden for employers is crucial. Mirabile (2000) points out that action so far has focussed on policies to raise the legal age of retirement while little has been done to develop work practices in a manner that ensures that older workers can effectively retire later.

25.

Ciccarone and Marchetti (2003) mention this concern in a recent evaluation of the prospects for older workers in Italy: “Given the little attention paid until recently to the employment of older workers, it is indeed difficult to single out relevant case studies to report upon”. The same authors stress the fact that the evaluation of policies towards older workers has mainly focused on their effects on public pension expenditure. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

B.

– 85

Age discrimination

According to Paulli and Tagliabue (2002), there is widespread discrimination against older workers with regard to job recruitment and training courses, in particular for low-skilled workers. Article 3 of the Italian Constitution states a general principle of equality and non discrimination. As an application to this general principle, Article 15 of Law 300/1970 (the so-called “workers’ statute”) prohibits any action that discriminates against workers according to their political or union affiliation religious belief, race and gender. Age is not explicitly mentioned, but can be presumed to be in the same vein by extension. Age discrimination does not give rise to a significant number of legal actions in Italy. Nevertheless, there may be pressures to strengthen anti-age discrimination legislation. Indeed, from October 2003, a European Union directive on discrimination (Directive No. 78/2000) makes age discrimination illegal in all member countries. Member countries have three years to comply with this new rule. While for the time being there are no plans to introduce new legislation on anti-age discrimination, the Biagi Law has already added discrimination based on age to the list of discriminatory practices that work agencies are forbidden to use in their job matching activities.26 While not much should be expected by this new legal framework, it may help to improve the situation of older workers in the future. For example, firms and public administrations would no longer be allowed to set age limits in their advertisements or for competitive entrance examinations. 2.

Employment protection

The relationship between employment protection legislation and employment of older workers is complex. In general, stricter legislation tends to reduce labour turnover but its impact on employment levels is less certain (OECD, 1999a, 2004e). The OECD has ranked countries according to the strictness of employment protection governing individual dismissals based on a combination of several different factors such as the notice period involved, the amount of severance pay and the definition of unfair dismissals (see Table 4.1). According to this classification, Italy holds the 19th position among the 28 OECD countries that have been ranked. 26.

It is included more specifically in the Article 10 of the Legislative decree 276/2003 implementing the Law 30/2003.

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86 – CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS Table 4.1.

Overall strictness of protection against individual dismissals a in OECD countries in 2003 Country ranking Portugal Slovak Republic Czech Republic Netherlands Sweden Germany Spain Turkey France Japan Greece Austria Korea Mexico Norway Poland Finland Hungary Italy Belgium New Zealand Ireland Australia Denmark Canada Switzerland United Kingdom United States

4.3 3.5 3.3 3.1 2.9 2.7 2.6 2.6 2.5 2.4 2.4 2.4 2.4 2.3 2.3 2.2 2.2 1.9 1.8 1.7 1.7 1.6 1.5 1.5 1.3 1.2 1.1 0.2

a) There is no ranking available for Luxembourg and Iceland. Source: OECD (2004e), Employment Outlook.

From this perspective, Italy does not seem to have a particularly rigid labour market. Moreover, the new rules such as the ones introduced by the Biagi Law that are progressively being implemented should further ease the legislative burden on hiring and firing decisions of firms. However, Marano and Sestito (2004) stress that many of the flexible regulatory and contractual arrangements have mostly applied to young people while the picture has remained broadly the same for older workers. This might explain why employers still have the impression of excessively rigid labour market regulation which is not adapted to the Italian productive system (Confindustria, 2002). AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

– 87

The new regulations introduced by the Biagi Law and implemented by the Legislative Decree 276 in October 2003 (Box 4.1.) aim at removing some rigidities of the Italian labour market like the regulatory constraints on part-time work or the possibility to hire workers through private employment agencies. In order to have incentives that are not just targeted at young people without distinction,27 the Biagi Law has introduced a new scheme specifically targeted at disadvantaged groups, among which older workers (integration contract or contratto di inserimento).28 The Government has only introduced a general framework for this new integration contract which will need to be defined and implemented through collective bargaining. More broadly, the new law should enhance the transparency and efficiency of the job matching process. While some provisions like having to prove the necessity of temporary employment arrangements for a “project” of limited duration may appear less attractive to employers than the current legislation, the key challenge appears to be the implementation of the new law. More than 40 issues will need to be resolved by means of agreements or regulations that involve the Minister of Labour and Social Policies, the social partners and the regions. Providing incentives to firms that employ disadvantaged individuals through a regular contract appears to be effective. Cipollone et al. examine a programme implemented in 2000, which provides a large subsidy to firms hiring workers with an open-ended contract.29 Their results suggest that the subsidy has increased labour force participation of eligible inactive people by about 1.4% in 2001 and 2.1% in 2002 with respect to non-eligible individuals. The increase is mostly concentrated among persons aged 35-54, with a low or at most secondary schooling level and who, before entering the labour market, 27.

The labour cost rebates related to training and work contracts for workers aged 29 and under have been abolished.

28.

The different disadvantaged groups are the following: youths (for whom the labour cost rebates do not apply as youths may be covered by apprenticeship schemes), long term unemployed, unemployed aged 50 and over, inactives who wish to resume working activity, women in areas with high gender occupational gap and handicapped persons.

29.

This programme, called Credito d’imposta, started in October 2000 and originally granted firms a tax credit of about 400 euros (620 euros in the South) per month for each worker, of age over 25 years, hired with an open-ended contract from the month of the hiring until December 2003.

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88 – CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS were either retired or housewives. The programme is found to encourage mainly adult and older workers to enter the labour force with regular contracts. Cipollone et al. (2003) suggest that firms employing workers in the underground economy took advantage of the subsidy to move these labour contracts to regular ones. Box 4.1.

The Biagi Law

In February 2003, a new law gives the government the possibility to reform the functioning of the labour market, with the objective of increasing employment among youth, women, older workers and job-seekers, particularly in the Mezzogiorno. One of the purposes of the law is also to reduce job precariousness and secure regular employment (in particular, outside the hidden economy). The main aspects covered by the law are the following: - Article 1 is concerned with harmonising and increasing the efficiency of public and private work intermediaries. A Legislative Decree (297/2002) has already been passed prior to the reform to enable private employment agencies to compete and co-operate with public agencies. The article simplifies the procedure of job placement. - Article 2 is concerned with the promotion of lifelong learning through apprenticeships, a new work training contract to facilitate reintegration of job-seekers and orientation training whereby the trainee is hired on a fixed term contract. - Article 3 authorises the government to reform current conditions for part-time work. The reform aims at defining new rules to give sufficient protection to part-time workers (delay of notice, overtime payment, etc.) while encouraging parties to engage in such contracts instead of precarious work arrangements in the hidden economy. The current rules impose unnecessary obstacles on the possibility to work reduced hours. Reduced social contributions may be granted for part-time contracts with workers from disadvantaged categories (youth and older job-seekers).

- Article 4 regulates non-standard forms of employment such as on-call work, “continuous co-ordinated collaborations” (or so-called Co-co-co contracts) and job sharing. The law provides a new framework for fixed-term work arrangements that consist of either wage and salary work or “work missions” (more akin to selfemployment). Other occasional forms of work like baby-sitting, private tuition, gardening and house cleaning, will also be easily regularised through a system of coupons available from the social security institution. - Article 5 supports active collaboration of employers’ and workers’ representatives through the setting up of bilateral institutions with common goals in the area of job placement, training and labour-contract design.

- Article 8 reinforces the control system of INPS, INAIL (Istituto nazionale per l’assicurazione contro gli infortuni sul lavoro) and the Ministry of Labour and Social Policies, by increasing co-ordination among them and supplementing financial controls and sanctions with a policy of prevention and information.

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CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

3.

– 89

Mobility and tenure

Labour mobility is an important aspect of the process of matching labour supply and demand. Not surprisingly, labour mobility is lower for older workers than for younger ones. As an illustration, only 4.2% of workers aged 50-64 have job tenure of less than one year (the proportion is almost 12% for the age group 25-49). However, voluntary and involuntary separation rates are high for older workers (Box 4.2). Box 4.2.

High separation rates for older Italian workers

Contini (2002) find that separation rates are high for older workers, especially after 55. Using INPS data, he estimates hiring and separation rates for workers in various age groups between 1986 and 1996. Hiring and separation rates are high for the youngest age category (25-34). Hiring rates are similar for prime-age (age 45-54) and older workers (55-64), but they are much lower than is the case for their younger counterparts. The main difference can be found in the separation rates, which are much higher for the oldest category. Separation rates of the latter are about twice as high as their hiring rates. Moreover, separation rates for older workers followed an upward trend during the period under analysis, which does not appear to be related to the business cycle. Separation rates kept increasing during the whole period for workers aged over 44, while they were relatively stable for younger workers. There are important regional discrepancies in hiring rates of older workers. During 1994-1996, hiring rates varied between 9.2% in the North-West region and 18.9% in the South for individuals aged over 54. These differences can be linked to higher labour market participation of older men in the South of Italy. A crucial question is whether these separation rates are linked to early retirement. Contini (2002) estimates rates of re-entry into dependent work. As expected, workers younger than 50 years old have a much higher rate of re-entry into the labour market than older workers. About 32% of workers aged between 45 and 54 years find a new job within one month and 40% after one year. For workers aged 54 and over, no more than 13% could be considered as job-to-job switchers. Moreover, their cumulative rate of re-entry into dependent work remains flat irrespective of the length of time since separation. Company size may also be an important factor affecting the demand for older workers. Large firms (over 1 000 employees) have a remarkably low turnover rate. The rate of job-to-job changes is approximately 20% for individuals aged over 50 who worked in small companies (less than 20 employees), while it is only 15% in larger companies. In the long term, rates of re-entry diverge since almost 50% of older workers who separated from a small company found dependent employment within 60 months, against only 22% of those who separated from a big company.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

90 – CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS Not surprisingly, older workers tend to have higher job tenure than younger workers. In Italy, about 70% of workers aged 50-64 in 2001 had been working with the same employer for 15 years or more, while this proportion drops to 26% for workers aged 25-49 years. By international standard comparison, average tenure is high in Italy. In terms of the age-profile of average job tenure, Italy resembles countries like France in particular, but also Germany and Sweden, and differs considerably from countries like the United States or the United Kingdom, where job tenure is on average much shorter (Figure 4.1). Average job tenure rises steadily with age in Italy, even for the oldest age groups and despite relatively high rates of separation among older workers, i.e. job loss (see Box 4.2). This suggests that, in case of downsizing or companies restructuring, older workers are more likely to drop out of the labour market altogether than to find new employment (as paid employees in the formal sector). Figure 4.1.

Job tenure by age and gender in selected OECD countries, 2000 Sweden

20

18

18

16

16

14

14

60 -6 4

55 -5 9

50 -5 4

20 -2 4

60 -6 4

0 55 -5 9

2

0 50 -5 4

4

2

45 -4 9

6

4

40 -4 4

8

6

35 -3 9

8

30 -3 4

10

45 -4 9

12

10

35 -3 9

12

US

Women

30 -3 4

Years

22

20

25 -2 9

UK

24

22

20 -2 4

Years

Germany

40 -4 4

France

Men

25 -2 9

Italy 24

Source: European Labour Force Survey and Job Tenure Supplement to the US Current Population Survey.

It is difficult to influence the decisions people make about staying with the same employer, but it would appear that highly regulated labour markets generate higher job tenure on average. Thus, while older workers may have fewer opportunities in these labour markets to change job and develop new skills, they may reinforce their skills in their current job. The impact on their employability is therefore mixed.

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CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

4.

– 91

Wage profile by age

In most countries, wages tend to rise with age and/or tenure. This may reflect the increasing productivity of workers as they gain more experience. However, the age-profile of earnings may also be the result of an implicit contract between the employer and the employee such that wages depend on age or length of service, i.e. seniority, rather than on individual worker’s performance. This practice can serve to encourage greater work effort and commitment from workers (Lazear, 1979). In such a system, wages are initially lower than a worker's productivity, but eventually rise above it.30 As part of this implicit contract, firms will set a mandatory age of retirement to ensure that they do not have to continue paying wages above a worker’s productivity beyond a given age. Based on survey data from the Bank of Italy,31 average age-earning profiles of full-time workers in 1991, 1995 and 2000 are shown in Figure 4.2. It seems that the age-earning profile has become steeper in the 1990s. Thus, the difference between the younger and the older cohorts is more pronounced in 1995 and 2000 than in 1991. Finally, one can mention that the age-earning profile decreases slightly for the oldest age categories and this feature is more pronounced for women than for men. The change that occurred for older workers between 1991 and 1995 could be explained by selection mechanisms reinforced by announcement effects following the pension reforms. Indeed, workers claimed retirement as soon as they could in order to avoid losing the option later on. It is likely that those who left the labour market during this period usually had a relatively low level of education, and thus of earnings, mainly for two reasons. First, Italy has experienced a late surge in education level, thus older workers tend to be less educated than younger ones. Second, those with less education had higher chances to be eligible to a seniority pension as they started working earlier.

30.

In the following discussion, any reference to a worker’s wages being above or below productivity should be taken as shorthand for the wage rate being above or below the value of the worker’s marginal productivity.

31.

The Bank of Italy survey is the Survey of Household Income and Wealth (SHIW). Unlike the INPS data, the sample size is small and thus the survey is less reliable with respect to labour income than the INPS data which are based on administrative files.

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92 – CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS Figure 4.2.

a

Age-earnings profiles by gender in Italy, 1991, 1995 and 2000

Earnings of 25-29 year olds=100 Men

Women

1991

1995

150

150

140

140

130

130

120

120

110

110

100

100

90

2000

90 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

a) Full time workers. Source: Bank of Italy: Survey of Household Income and Wealth (SHIW).

In terms of international comparisons, Italy is among those countries with a relatively flat age-earning profile (see Figure 4.3).32 The Italian age-earnings profile for men comes close to that observed in the United States. The wage drop for the oldest age categories is limited, which comes as a sharp contrast with countries like the United Kingdom. Regarding women is age-earning profiles, wages of the oldest age categories are higher compared to those of younger workers but in the same proportion as the United States and Sweden.

32.

It should be kept in mind that these wage profiles refer to a point in time and so they are comparing the wages of different cohorts of workers with different levels of education. Therefore, the figures may not be representative of the way wages evolve over individual careers. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 4. REMOVING DEMAND-SIDE BARRIERS

Figure 4.3.

– 93

Age-earnings profiles by gender in selected OECD countries, early 2000s

Earnings of 25–29 year olds=100 Italy

France

Belgium

Sweden

United Kingdom

Men

Women

210

210

190

190

170

170

150

150

130

130

110

110

90 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

United States

90 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64

Source: OECD wage data base of full-time workers; for Italy, Bank of Italy, SHIW, 2000.

However, there are a number of reasons to think that seniority wages are more important in Italy than what these international comparisons may suggest. First, in Italy, wages are usually set through collective agreements between the social partners. As Paulli and Tagliabue (2002) stress, the Italian labour market is traditionally based on a seniority-wage system and this would help to explain why most Italian employers do not retain older workers after a certain age. Second, using longitudinal data from INPS for individuals, Brugiavini and Peracchi (2003) have estimated the individual age-earnings profile of private sector employees between 1973 and 1997. The authors have made use of all the available information (sector affiliation, gender, initial occupational category) to control for individual heterogeneity. Their results show that annualised monthly earnings increase monotonically with age for both men and women. The growth rate of earnings declines with age until 35. Then the growth rate is roughly constant. Such findings seem to confirm that there is hardly any wage decline for older workers in Italy. This is further confirmed by analysis on wage mobility. According to Contini (2002), who computed transition matrices over the period 1985-1991, Italy is characterised by low downward wage mobility and relatively high upward wage-mobility for older workers.

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CHAPTER 5. STRENGTHENING EMPLOYABILITY

– 95

Chapter 5 STRENGTHENING EMPLOYABILITY

One crucial way to help older workers finding or keeping a job is to enhance their employability. Achieving this is the responsibility of public authorities, unions and employers' associations, but also workers themselves. The purpose of this chapter is to highlight the relevant factors enhancing the employability of Italian older workers. Various aspects of the employment conditions that older workers face in Italy will be first discussed. Older people’s attitudes to work will then be examined. Finally, the range of education, training and labour market programmes offered to Italian workers will be described. 1.

Employment conditions

The future employment prospects of older persons will be influenced by the type of jobs that are available. Strenuous work conditions are usually felt more acutely by older workers. More generally, older workers who want to extend their careers may be especially interested in more flexible forms of employment, such as part-time. A.

Job characteristics by industry and occupation

Older workers are overrepresented in “agriculture, hunting, forestry and fishing” (yet only 4% of all workers are employed in these industries), in “transport, storage and communication” (men only), “public administration, education, health and social work” (35% of all older men and 62% of all older women are employed in this sector) (Table 5.1). They are underrepresented in the “wholesale and retail”, “hotel and restaurant” and “financial, real estate and business services” industries as well as in the “service workers and sales workers”. By occupation, they are overrepresented both in high-skilled occupations (“legislators, senior officials and managers”, and “professionals”) and in low-skilled ones (“elementary occupations”). AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

96 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Table 5.1.

Italian older employees by industry and occupation, 2001

Percentages Employees aged 50-64 in each category As a share of all employees in each category

As a share of all older employees

Total

Men

Women

Total

Men

Women

17.9

19.5

15.7

100.0

100.0

100.0

Agriculture, hunting, forestry and fishing

25.4

25.4

25.2

3.9

4.2

3.4

Mining and quarrying, manufacturing, electricity, gas and water supply

14.6

16.0

11.5

22.4

26.7

15.0

Construction

16.2

16.9

6.3

6.0

9.2

0.5

Wholesale and retail

9.6

10.7

8.2

5.8

5.7

6.1

Hotels and restaurants

13.1

13.5

12.7

2.4

1.9

3.3

Transport, storage and communication

20.6

23.5

11.4

7.2

9.8

2.5

Financial, real estate and business services

13.2

17.2

9.2

7.3

7.5

7.0

Public administration, education, health and social work

24.7

28.8

21.6

45.0

35.1

62.3

Legislators, senior officials and managers

37.6

40.5

25.4

3.7

5.1

1.3

Professionals

27.2

29.4

25.9

16.7

10.4

27.7

Technicians and associate professionals

16.1

19.4

11.9

16.4

17.4

14.6

Clerks and related workers

16.3

21.9

11.6

16.7

16.0

17.9

Service workers and sales workers

12.4

13.7

11.2

8.8

7.3

11.5

Agricultural and fishery workers

24.7

24.6

25.0

1.0

1.3

0.5

Craftsmen and related workers

15.1

15.6

12.5

13.8

18.8

5.2

Plant and machine operators

15.7

16.7

12.3

9.6

12.5

4.4

Elementary occupations

24.3

23.5

25.2

13.3

11.3

16.9

All employees By industry

By occupation

Source: Italian Labour Force Survey.

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– 97

The share of older workers in Italy employed in manual occupations is below the OECD average (Figure 5.1). The share of employment in manual occupations does not differ between prime-age and older men but is much higher generally for men than for women. Since manual occupations usually are more physically demanding with a larger hazard of injury, the risk that older men leave the labour market before the official retirement age due to health reasons is higher than for older women in Italy, but possibly lower than in some other OECD countries. Figure 5.1.

a, b

Manual workers by age and gender, 2002

As a percentage of total employment Men 25-49 70

60

50

40

Women 50-64 30

20

10

0

0

Poland

Poland

Slovak Republic

Slovak Republic

Portugal

Portugal

Greece

Greece

Hungary

Hungary

Spain

Spain

Czech Republic

Czech Republic

Finland

Finland

OECD

OECD

Austria

Austria

United Kingdom

United Kingdom

Italy

44.9 46.0

Italy

Denmark

Denmark

Germany

Germany

Sweden

Sweden

Ireland

Ireland

Switzerland

Switzerland

Luxembourg

Luxembourg

Belgium

Belgium

Norway

Norway

Netherlands

Netherlands

10

20

30

40

50

60

70

29.8 21.8

Manual workers refer to skilled agricultural and fishery workers, craft and related trades workers, plant and machine operators and assemblers and elementary occupations. b) The OECD average is the average of the countries shown. Source: European Labour Force Survey and national labour force surveys. a)

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

98 – CHAPTER 5. STRENGTHENING EMPLOYABILITY B.

Flexible work arrangements

More flexibility in working arrangements is often put forward as a tool to increase employment. Such flexibility, however, may have a price in terms of increased precariousness for workers. Thus, the appropriate balance must be found which preserves the quality of worker-firm employment arrangements, without imposing unnecessary obstacles to the hiring of new labour market entrants. Since the second half of the 1990s, Italian labour market policies have centred on a liberalisation of employment contracts as well as the provision of fiscal incentives to job creation. This has been followed by strong employment growth. However a balanced approach is needed as there is a risk of a dual labour market being created, if job protection for permanent contracts remains rigid. As OECD (2003c) points out, rules on permanent contracts that are too rigid risk aggravating job precariousness for new entrants and re-entrants. Part-time employment Since 1990, the incidence of part-time employment in Italy has increased to reach 12% in 2002 but is still somewhat below the OECD average of 15% (OECD, 2003b). The incidence of part-time among women has significantly increased to 24% in 2002 while it has been stable in the case of men at around 4-5%. Part-time employment is not significantly more frequent among older workers than prime-aged ones (Figure 5.2).33 The law on part-time work explicitly forbids discrimination in the treatment of part-time workers as compared with full-time workers. However, the main barrier to working part-time is the still prevalent defined-benefit pension system for older workers, which grants pension benefits on the basis of the last years of contribution.34 The length of the contribution period for computation of the pension has progressively been extended in 1992 to the last 33.

Clearly, the scarcity of part-time jobs is a major obstacle to prime-age female participation, as the child care system is relatively under-developed in Italy.

34.

In the case of part-time work, while one year of par-time work counts as one equivalent year of full-time work in order to reach the seniority eligibility thresholds, it only counts for half a year in the accumulation of the number of years which (up to a maximum of 40) are multiplied by pensionable earnings in order to determine the actual pension. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

– 99

ten years for employees with at least 15 years of contributions. With the progressive introduction of the contribution-based system, there are less disincentives to work part-time as the pension benefits are computed over the whole period of contributions. However, the transition period is very long and, therefore, over the next few years, the proportion of part-time workers could remain low for older workers. Figure 5.2.

a

Part-time work by age and gender in OECD countries , 2002

As a percentage of employment Women 50-64 70

60

50

40

Men 25-49 30

20

10

0

0

Ireland

Ireland

United Kingdom

United Kingdom

Japan

Japan

Germany

Germany

Belgium

Belgium

Australia

Australia

New Zealand

New Zealand

Norway

Norway

Mexico

Mexico

Luxembourg

Luxembourg

OECD

OECD

Canada

Canada

Italy France

10

20

30

40

Netherlands

Netherlands

26.7 23.7

Italy

6.1 4.1

France

Austria

Austria

Portugal

Portugal

Sweden

Sweden

Denmark

Denmark

Poland

Poland

Turkey

Turkey

Spain

Spain

United States

United States

Korea

Korea

Greece

Greece

Slovak Republic

Slovak Republic

a) The OECD average is the average of the countries shown. Source: European Labour Force Survey and national labour force surveys.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

50

60

70

100 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Furthermore, some regulatory constraints have often acted as an obstacle on firms’ readiness to offer part-time job positions. For instance, until recently a part-time worker’s hours of work had to be very strictly predefined, a feature now revisited by the Biagi Law. Moreover, there are currently no particular incentives to work part-time. While the 1995 pension reform provides for the opportunity to move from full-time to part-time when a worker approaches retirement age, this possibility has been little used so far. According to Paulli and Tagliabue (2002), the main reasons are the following: the high cost of parttime work for employers, the opportunity for highly-skilled older employees to retire and then work as a consultant for their previous company, and the rigidity of gradual retirement in view of the fact that it is easier to retire officially and work illegally. Temporary work Temporary work contracts are not particularly widespread in Italy by international standards (Table 5.2). There is however an emerging trend towards more flexible arrangements. Law 196/1997 has relaxed many constraints with respect to fixed-term contracts and temporary work agencies. The Biagi Law (see Box 4.1, p. 88) has further eased the use of temporary work and staff leasing with competing employment agencies. And it is a fact that temporary work has increased in recent years. Temporary agency work is particularly widespread among men in large firms, mainly in the manufacturing sector in the North, and among young people (Sestito, 2002). Table 5.2.

Temporary work contracts in some OECD countries, 2002

As a percentage of employment Men Italy France Germany Spain Sweden United Kingdom EU OECDa

25-49 7.6 10.3 7.3 37.3 10.8 4.0

50-64 5.9 4.3 4.2 15.9 6.5 4.8

10.2 10.8

5.6 7.8

Women 25-49 50-64 12.7 6.2 16.4 7.3 8.2 4.4 47.0 18.4 17.7 7.1 6.3 5.7 13.7 14.9

6.8 12.6

Total 25-49 9.7 13.1 7.7 41.1 14.1 5.1

50-64 6.0 5.7 4.3 16.7 6.8 5.2

11.8 12.5

6.1 9.7

The OECD average excludes Australia, Korea, New Zealand, Poland, and the United States. Source: European Labour Force Survey and national labour force surveys. a)

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CHAPTER 5. STRENGTHENING EMPLOYABILITY

– 101

The 2001 budget law provided an incentive to postpone retirement through recourse to a temporary contract. Wage and salary earners in the private sector who are eligible for a seniority pension and who want to postpone retirement can sign a labour contract for at least two years providing the same earnings as the previous contract but bearing no social contributions on the new contract. The take-up of this incentive has been low: by mid-2002, only around 2000 workers had asked to postpone their retirement (Ministry for Labour and Social Policies, 2003c). Indeed, proposals under the new pension reform are not going to require breaking the old contract, but only that workers communicate to the firm their intention to get the benefit. Moreover, the social contribution savings will be fully reaped, on a tax-favoured basis, by the worker. Flexible contracts Job flexibility has been mainly achieved through the so-called “Co-co-co contracts” (collaborazioni coordinate e continuative). This particular labour contract has led to a specific form of employment that lies between dependent work and self-employment. Unlike self-employment or free-lance activity, both firms and workers have to contribute to the social security system and pensions.35 Yet, workers on a “Co-co-co” contract have few rights and little labour protection. The rationale behind this form of labour contract is to offer workers the possibility to choose a form of employment with greater independence and the opportunity to work for several employers simultaneously. According to figures from INPS, about 2.1 million workers had been employed under a “Co-co-co” contract in the period up to December 2002. However, according to the CNEL (2003), the number of individuals actually engaged in such forms of employment at any one time is approximately 600 000. The former figure refers to all people registered with INPS who had been employed under a “Co-co-co”contract at least once in the past six-seven years. The latter figure is a rough estimate. The 2001 Census suggests that around 850 000 people actually working under a “Co-co-co” contract in October 2001. The success of these “Co-co-co”contracts is most probably due to the lower labour cost they imply for firms. Indeed, social contributions on 35.

Two-thirds of the contributions are paid by the employer and one-third is paid by the worker.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

102 – CHAPTER 5. STRENGTHENING EMPLOYABILITY “Co-co-co” contracts are lower than is the case for standard contracts, especially as regards contributions to the pension system. According to CISL, most of the workers under “Co-co-co” contracts end up with no more than one employer and accomplish tasks that are quite similar to those of regular dependent workers. Another flexible form of employment which apparently has been increasing in importance over recent years is “associate work” (associazione in participazione). In this particular case, instead of employing workers, firms give them a status similar to that of a co-owner of the company in which they are working. The decree accompanying the budget law for 2004 extended to this type of worker the same pension insurance as that for “Co-co-co”contracts. Under the new Biagi Law, the “Co-co-co”contract will be replaced by the new legal status of “project work” (lavoro a progetto). The aim of this institutional change is to distinguish more properly atypical forms of work from dependent work. Indeed, for the time being, there are often few differences between dependent workers and “Co-co-co”workers, except that the latter have less rights and are in most cases younger. Whether the change implied by the Biagi Law will change this situation remains to be seen. There is concern that “Co-co-co” arrangements may have created yet another barrier to the employment of older workers. Indeed, “Co-co-co” workers are on average younger than regular workers, partly because the high flexibility of this form of employment seems to be better suited to the needs of younger generations. Moreover, pension concerns are more likely to arise among older workers, who are especially sensitive to the fact that the small pension contribution of this kind of job could put in jeopardy the level of pension benefits that they will receive. Therefore, “Co-co-co” contracts may have made the labour cost of younger workers even more attractive relative to older workers. Yet, the impact on the relative demand of older workers is not known precisely. Indeed, one cannot exclude that the fiscal advantages stemming from “Co-co-co” contracts may have contributed to regularise undeclared forms of work. However, among older people the “co-co-co” arrangement seems to be relevant as an official contract among people already receiving a pension benefit.

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CHAPTER 5. STRENGTHENING EMPLOYABILITY

2.

– 103

Older people’s attitudes to work

It is important to stress that older workers are far from being a homogeneous group: they have entered the labour market at different ages; they have different levels of skills and educational attainment; they face varying health conditions; they work in different sectors and they work under different forms of employment. In 2000, low-skilled (those with less than upper secondary education) Italian workers aged 55-64 declared that they had started work at the age of 19.9, almost seven years earlier than their high-skilled counterparts (those with tertiary education). The gap is only three years on average in the EU (European Commission, 2003). A.

Job satisfaction

Regarding job satisfaction, Clark (1998) found that Italian workers reported in 1989, one of the lowest levels of overall job satisfaction among the set of countries investigated (Austria, Germany, Hungary, Ireland, the Netherlands, Norway, United Kingdom and United States).36 More recent data for Italy shows that job satisfaction among older workers who remain in employment is higher than is the case for their prime-age counterparts (Table 5.3). If one looks at specific dimensions of job satisfaction, older workers report the highest satisfaction with respect to work atmosphere and consideration from others. However, they are somewhat less satisfied than younger workers in terms of job seniority, work intensity and job precariousness. Table 5.3.

Measures of job satisfaction in Italy, 1995

Ranking from 1 to 10 <30 31-40 41-50 51-65 Work atmosphere 6.6 6.4 6.4 6.7 Job security 3.6 3.6 3.6 3.3 Work intensity 7.7 7.8 7.8 7.6 Interest 7.2 7.6 7.5 7.5 Consideration from others 6.5 6.5 6.5 6.7 Job precariousness 3.7 3.6 3.4 3.0 Overall 6.5 6.6 6.4 6.9 Source: Bank of Italy: Survey of Household Income and Wealth (SHIW).

36.

Total 6.5 3.5 7.7 7.5 6.6 3.4 6.6

On the basis of the 1989 wave of the International Social Survey Programme.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

104 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Results of job satisfaction for older workers in Italy are likely to suffer from a certain degree of sample selection bias. Those who still work after age 50 are probably more likely to be happy at work than those who have already retired or left the labour market for health-related reasons. Indeed, the latter are often individuals with lower levels of education, a variable which is positively related to job satisfaction. Moreover, it is difficult to compare results across age groups as they are likely to be in different types of occupations and industries. To overcome such difficulties, Sestito (2002) has run various job satisfaction equations. While this study does not include age, it does control for potential work experience, which could well be considered as a proxy for age. The estimation results show that the relation between job satisfaction and experience is not linear but has rather an U-shape pattern. It also turns out that for most specific measures of job satisfaction except work atmosphere, the experience parameters happen to be statistically significant. While it is difficult to draw any conclusion on the level of job satisfaction of older workers, it seems that older workers are no less happy at work than younger ones. B.

Expected age of retirement

The implementation of the pension reforms in the 1990s seems to have modified expectations with respect to the age of retirement (Table 5.4). According to Mastrogiacomo (2002), the proportion of respondents who believe that they will retire earlier rose significantly after the Amato Reform (1992) and declined after the Dini Reform (1995). And the share of those expecting to retire later increased substantially at the end of the 1990s. Boeri et al. (2002) found that an increase in the official retirement age is preferred by a majority of Italians.37 On the other hand, the most disliked option among Italians is a reduction in the benefit level of public pensions. Interestingly, 45% of inactive individuals aged 55-64 in Italy would like to have a paid job, should the right conditions be in place (Figure 5.3). The figure is higher than the OECD average. Italy is among those countries with the highest proportion of inactive individuals who wish to work. This finding is confirmed by analysing data on retired individuals (OECD, 2003b). For this group, 41% still wish to work now or in the future. Thus, it seems that a large proportion of those who go into retirement would like to stay in the labour market.

37.

As a result of a questionnaire of potential reform options for the current pension system administered to a sample of Italians aged 16-80. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

Table 5.4.

– 105

a

Changes in retirement expectations in Italy ,1989/91-1995/98

Percentages 1989-1991

1991-1993

20

21

1993-1995

1995-1998

Husband Expect to retire earlier

25

16

Expect to retire at the same time

51

48

41

36

Expect to retire later

29

30

34

48

Expect to retire earlier

29

16

25

13

Wife Expect to retire at the same time

48

47

45

46

Expect to retire later

24

37

30

40

a) The expected age of retirement is compared between two waves of respondents. Source: Bank of Italy: Panel from the Survey of Household Income and Wealth (SHIW), as presented in Mastrogiacomo (2002).

Figure 5.3.

a, b

Inactive persons of 55-64 who would like to work, 1997

Percentages Share of inactive persons who would like to work

OECD average

50 40 30 20 10

Ita ly P as ort u te r n gal Lä nd er Po la nd C an ad a No rw ay Sp ai G n er m Cze Ja an ch pa y, n we Re pu st b er lic n Lä n Sw de r i U ni tzer te la d K i nd ng do m Sw ed N et en he rla n De ds nm ar k Fr an ce H un ga ry

G

er m an y, e

Ne w

Ze al an d

0

a) The question is: “Would you like to have a paid job, now or in the future?” b) Population-weighted average for countries shown. Source: International Social Survey Programme (ISSP), 1997.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

106 – CHAPTER 5. STRENGTHENING EMPLOYABILITY 3.

Educational attainment of older workers

A.

A key to higher employment rates

At present, 58% of older male workers and 55% of older female workers in Italy have not attained an upper secondary level of education (Figure 5.4). This proportion is much larger than in most OECD countries. The gap is somewhat smaller for women than for men. The generation gap in educational attainment is also important. Those aged 55-64 in 2000 had completed 6.8 schooling years on average, while the figure for those aged 25-34 is 10.9 years (Sestito, 2002). Since educational attainment generally has been rising rapidly among younger generations, the average level of educational attainment of older workers will improve in the future (Figure 5.4). By 2025, results of simple extrapolations suggest that around 31% of older workers in Italy will have less than an upper secondary education level and around 15% a tertiary education. In Italy, the fall in the share of older workers with less than upper secondary degree is the largest among the countries shown in Figure 5.5. Yet, the increase with respect to tertiary education is smaller. Therefore, Italy will remain at the back of the field with respect of the proportion of older workers with a tertiary education in the future. The low employment rate of older workers is partly explained by their low level of educational attainment relative to younger cohorts, which is aggravated by weak training opportunities throughout their careers. As in most other OECD countries, employment rates in Italy are clearly linked to levels of educational attainment, and especially so for older people (Figure 5.6). While employment rates are higher for more highly educated people at all ages, the gap is more pronounced after age 50. One can also observe substantial differences in the gap by gender. For instance, the employment rate of highly educated women aged 50-64 is more than three times larger than the rate of their less educated counterparts.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

Figure 5.4.

– 107

Educational attainment of workers aged 50-64 by gender in some OECD countries, 2001

Percentages Men Tertiary

Upper secondary

Less than upper secondary

100 90 80 70 60 50 40 30 20 10 PRT

MEX

KOR

MEX

ITA

TUR TUR

SVK

KOR

CZE

GRC

IRL

POL

ISL

ESP

AUT

FRA

HUN

NZL

GBR

DNK

LUX

NLD

SWE

BEL

AUS

FIN

NOR

CHE

DEU

USA

CAN

0

Women Tertiary

Upper secondary

Less than upper secondary

100 90 80 70 60 50 40 30 20 10

Source: OECD (2003j), Education at a Glance.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

PRT

CZE

GRC

AUT

CHE

ISL

ITA

SVK

ESP

POL

LUX

DEU

HUN

FRA

NLD

GBR

IRL

NOR

FIN

DNK

BEL

AUS

NZL

SWE

USA

CAN

0

108 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Figure 5.5.

a

The rise expected in education level of older workers, 2000-2025

Percentage shares of labour force aged 50-64 by level of educational attainment Tertiary

Upper secondary

Less than upper secondary

100

6.0

11.7

90 30.9

8.8

28.4

29.2

80 70

11.1

20.2 43.4 47.2

60.3

50.1

52.0

60

49.3

42.8

50

42.0

49.4

53.6

40

36.9

30 27.6

46.8

20

37.0

36.3

38.8

41.9

United States (2000)

United States (2025)

28.7

10 12.1

22.1

19.8

15.5

0 Italy (2000)

Italy (2025)

Sweden (2000)

Sweden (2025)

France (2000)

France (2025)

Japan (2000)

Japan (2025)

Extrapolations based on data for 2000 and obtained by applying participation rates by educational attainment, gender and five-year age groups between the ages 50-64 to the corresponding population aged 25-39. Source: For 2000, OECD (2003j), Education at a Glance; for 2025, OECD estimates. a)

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

Figure 5.6.

– 109

Employment rates by age, gender and educational attainment in Italy, 2001

As a percentage of the population in each category Less than upper secondary

Upper secondary

Tertiary

100 90 80 70 60 50 40 30 20 10 0

Men

Women 25-49

Men

Women 50-64

Men

Women Total

Source: OECD (2003j), Education at a Glance.

B.

Skills and training of older workers

Initial education attainment is only one aspect of skills levels and requirements and thus particular attention needs to be paid to on-the-job training. Systems to recognise, certify and validate competences acquired on the job are important to motivate older, less educated workers to engage in training. They are also important tools to help workers change jobs. In any case, less training results in skill obsolescence (see Box 5.1) and lower employability, and thus creates a greater risk of unemployment or early withdrawal from the labour market. To compensate for the lower initial education level among older workers, one could argue that their participation in continuous training should be higher than that for prime-aged workers and even more so in Italy where the difference in initial education levels are larger than in many other countries. Promoting training activities after the age of 45 could also help workers to be ready for a second career.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

110 – CHAPTER 5. STRENGTHENING EMPLOYABILITY Older workers usually receive little training. There are a number of potential barriers to older workers obtaining more training. Employers may be reluctant to give training to older workers because they do not expect these workers to remain long enough with the firm to gain a sufficient return on their training investment. Older workers, in turn, may be reluctant to engage in training because existing training programme are not well adapted to their needs or because the opportunity costs of investing in further training are too high versus the expected financial returns (OECD, 1999a, 2003b). In fact, there is some evidence that the relatively low incidence of training among older workers is primarily due to a lack of demand for training by older workers themselves (OECD, 2003e). Box 5.1.

Literacy skills fall with age

Literacy skills in general

The results of the International Adult Literacy Survey (IALS) for Italy indicate that the average level of literacy skills falls with age in all of the three literacy categories (prose reading, documentary reading and quantitative skills). More than 80% of Italian older individuals (aged 56-65) fall below the line delimiting which groups should be considered as a target for public interventions. While the results are substantially better for prime-age workers, one can still observe for each age category a large proportion of individuals with inadequate skills. This is especially true for the 36-45 and the 46-55 age categories, where respectively two-thirds and three-quarters of the sample do not reach a level allowing them to accomplish valuable tasks with respect to literacy. This is particularly alarming as it underlines the need to improve now the skills of a large share of the labour force, since many of them, especially the oldest, have insufficient skills to face labour market change. Computer literacy

While the importance of literacy skills in the labour market has been growing, computer skills are ranked as particular important by employers. In 2000, half of all those surveyed use a computer but only around 30% report good computer skills (Figure 5.7). The share of people that use a computer declines by age and the use of a computer differs greatly between working and non-working persons. The gap between these two categories increases with age and is quite wide from the age of 30. Among individuals with a job, the share of persons that use a computer is fairly stable until the age of 50. From a qualitative point of view, the picture is somewhat different. The share of persons that report good computer skills declines dramatically from the age of 30 for non-working persons and from the age of 45 for working ones.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

Figure 5.7.

– 111

Computer skills by age in Italy, 2000

Percentages A. Incidence of individuals who use a computer Working

Not working

60 50 40 30 20 10 0 20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65+

B. Incidence of individuals with good self-reported computer skills 60 50 40 30 20 10 0 20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65+

Source: Bank of Italy: Survey of Household Income and Wealth (SHIW).

In Italy, a little more than one older worker out of five receives job-related training, which places Italy among the countries where job-related training is relatively low (Figure 5.8). However, the gap between older workers and primeage workers is relatively small compared to other countries.

AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

112 – CHAPTER 5. STRENGTHENING EMPLOYABILITY One of the most discriminating factors regarding job-related training seems to be the size of the firm. According to the second European Survey of Continuing Vocational Training (CVTS2), about 52% of employees in large firms38 received job-related training in Italy in 1999 (OECD, 2003b). This proportion is slightly higher than the European average. On the other hand, participation in job-related training is quite low in small firms only 11% of employees of these firms are engaged in training, well below the European average of 23%. This is an important policy issue, given the importance of small firms in Italy. Italy is among the few countries where about one-half of continuous training is paid by employers, while in most of the other countries, employers pay for more than 70% of continuous training courses (OECD, 2003b). Once again, this might reflect to the relatively small size of Italian firms. Figure 5.8.

Incidence of job-related training for workers by age a in selected OECD countries

As a percentage of employment 50-64

25-49

60 50 40 30 20 10

nd

Po

(F m

Be

lg

iu

la

l.)

d la n I re

nd

s

ly

rla

Ita

et he N

ad a Au st ze ra ch lia R ep ub Sw lic itz er la nd

)

an

nd C

la ng

(E

C

U

K

w

Ze a

la

nd

nd

s te

la Fi n Ne

U

ni te

d

St a

k ar

No

m D en

rw ay

0

Refers to training received at some stage during the 12-month period prior to the survey. The data for each country refer to different years over the period 1994-98. Source: International Adult Literacy Survey. a)

38.

Large firms are defined as having more than 1 000 employees and small firms are defined as having between 10 and 49 employees. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

CHAPTER 5. STRENGTHENING EMPLOYABILITY

E.

– 113

Measures to promote continuous training

Continuous training is a key element of social inclusion in a knowledge based society. Promoting lifelong training among workers will increase the overall efficiency of society and also will better allow workers to adapt to change and to find new jobs in the last years of career. Given their low level of initial education, older workers may have a negative attitude towards classroom instruction. There is a need for well-designed, modular, vocational training built on the recognised qualifications of these workers. From a life-cycle perspective, it may also be necessary to promote greater training opportunities for workers at earlier stages in their careers and not just after they reach the age of 50. To date, relatively few important initiatives have been put in place that are targeted specifically at older workers (Box 5.2). Another tool to foster continuous training is the opportunity for employees to get temporary leave from their job in order to pursue training. In this context, public funds (about 50 million euros a year) are targeted at disadvantaged workers. Among the latter category, one can find older workers and individuals with no more than elementary education. To promote lifelong learning, the inter-occupational fund (Fond interprofessionali) could be considered as an important step forward. Public funds will be directed towards the social partners in order to build up a new system of continuous training (Ministry for Labour and Social Policies, 2003c). This fund is financed by an employer contribution of 0.3% of the wage-bill. The initial level of this fund is of 181 million euros. From 2004, the fund could provide about 500 million Euro per year for investments in continuous education. Because it is still too recent, this fund cannot be evaluated yet. Its promoters should make sure that the fund is well targeted toward workers who will most need it in the future, namely those with little or obsolete skills. The individual training tools stressed in the recent agreement between the social partners in France may be a useful model in terms of promoting a lifelong learning (Box 5.3).

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114 – CHAPTER 5. STRENGTHENING EMPLOYABILITY

Box 5.2.

Vocational training programmes for older workers

In Italy, the focus of vocational training has long been on younger workers, as they offer more years to recoup the cost of the investment. There are very few instruments in the hands of public institutions that are directly aimed at older workers to redress this unfavourable situation for them. Of course, any project promoting lifelong learning will eventually improve the situation of older workers as, in the long term, it will decrease the risk of skill obsolescence. Yet, action in favour of older workers is needed now if one wants to support their employability. The Italian government, local authorities and social partners are becoming more aware of the need to focus on older workers. From a legal point of view, a major step forward is the improvement brought by Law 236/93, which from 2003 explicitly stipulates that vocational training should be aimed at older workers (45-64 years). This Law is one of the most important tools to finance vocational training in Italy as it introduces a fund aimed at supporting firm and individual training programmes as well as projects from the social partners at various levels. Apart from Law 236/93, there is no policy measure at the national level aimed at continuous education with a specific age target. However, at the regional and provincial level, a couple of initiatives were introduced in 2003:

•

First, the Marche Region has introduced an age criterion in favour of workers aged over 45 concerning individual training programmes (by means of voucher). This measure has mainly been taken in order to correct the bias in favour of younger workers, as the latter were getting most of the vouchers.

•

The second initiative comes from the Molise region. With the financial help of the European Social Fund, this region has introduced a specific measure towards workers older than 40. The goal is to keep these workers up to date with new production processes in order to avoid skill obsolescence and exclusion from the labour market. Thus, this measure provides support to training programs connected to new technologies.

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CHAPTER 5. STRENGTHENING EMPLOYABILITY

Box 5.3.

– 115

Promoting lifelong learning and vocational training among experienced workers: the new French agreement

In September 2003, the French social partners signed a national intersectoral agreement on “employee lifelong access to training”. The accord includes an increase in the financial contribution paid by employers: For firms with 10 or more employees, from 1.5% of payroll costs to 1.6%; and, for firms with fewer than 10 employees, from 0.25% to 0.40% initially and to 0.55% as of January 2005. The agreement also includes a number of innovative measures concerning experienced workers:

•

Employees with 20 years of work experience and those over the age of 45, regardless of work experience, will be eligible for a “skills audit” (to be carried out outside of working hours) after their first 12 months in their current job, and will be given prioritised access to the recognition of their work-derived experience (validation des acquis de l’expérience, VAE).

•

Moreover, all employees with two years of service will be able to have a career guidance interview carried out within their company.

•

A new tool, the “training passport” (passeport formation) has been introduced which will be drawn up at the behest of the employee, who takes responsibility for it, and which lists the knowledge, skills and occupational aptitude acquired either in initial and continuing training or through professional experience.

•

A new scheme, the individual right to training (droit individuel à la formation, DIF), has been created with the individualisation of training as a core principle. All employees with more than 12 months of service with their company will be accorded a 20-hour “credit” year (pro-rata for part-timers), which can be rolled over for six years. This credit is aimed at enabling the employee to take training either during or outside working hours. It will be possible for employees who lose their jobs to use the monetary equivalent of their unused training hours credit to fund the drawing up of a skills audit, VAE or training programme, provided that the employee requests this when notice of termination is given.

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116 – CHAPTER 5. STRENGTHENING EMPLOYABILITY

4.

Employment services for older people

A.

Active labour market programmes

In Italy, a large number of active labour market programmes are targeted at youth. Moreover, even when programmes are not specifically targeted at specific people age group, they tended to favour de facto youth employment. For instance, hiring subsidies tend to cover virtually all new hires of young people, but only one in seven new hires of older workers (Marano and Sestito, 2004). However, a recent measure introduced by the Biagi Law is targeted at disadvantaged groups, among which the unemployed who are older than 50. It takes the form of an “integration contract” providing financial hiring incentives defined through collective bargaining. Several Regions are also promoting the employment of older workers in “social solidarity services”, i.e. services to support the local community and proximity services. Demand for such services is growing rapidly, partly due to the process of population ageing. In some Regions, financial incentives for encouraging the employment of older workers in these services are available. This may take the form of voluntary work, telework or home work, as well as other arrangements which help older workers reconcile work and family life. B.

The Public Employment Service

In general, the effectiveness of labour market programmes will crucially depend on the existence of a well-functioning employment service. As underlined by many observers, there is considerable scope for revitalising the Italian Public Employment Service (PES). At the beginning of the reform process of the PES, financial constraints were a relevant issue as stressed in Sestito (2002). Currently, a better definition of the mission of the PES is the most relevant issue, in order to take full advantage of the co-existence and transparent cooperation of public and private intermediaries. This is essential as, until recently, registering at a public employment office was rarely motivated by the demand of search-related services but mainly to obtain some administrative advantages related to being classified as long term unemployed. Exploiting the more transparent job-matching market resulting form the Biagi Law may also contribute to better “activate” the older unemployed.

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– 117

In general, the system is moving towards a “mutual obligation” approach, where individual rights and obligations are well specified. The unemployed should be offered effective re-employment services, but they should also look for a job actively, or else face a sanction. The unemployed who contact the PES must indeed be not only without a job and available for one, but also actively looking for one. On the other hand, the PES must at least guarantee, (with the exact modalities to be set at the regional level) the following services: •

An orientation interview before three months from the start of unemployment.

•

A proposal to participate in initiatives of working integration, training, new skill development or other measures aiming at professional integration. For teenagers, youths and women; the proposal will be made not later than four months from the beginning of unemployment; for other individuals who risk long-term unemployment; not later than six months from the beginning of unemployment.

Provinces have been given greater autonomy in the management of the PES. The Italian PES is indeed undergoing a process of administrative decentralisation and modernisation (Box 5.4). It started with a legislative decree in 23 December 1997 ending the monopoly of public job placement services and launching the transfer of competence from central authorities to the provinces. Because of the slow results of this process, the Biagi Law introduced new reforms to enhance job placement opportunities (see Box 4.1, p. 88). Their aim is mainly to help the local employment services from each province to be more effective as a broker between workers and employers to match their needs. One of the negative aspects in the decentralisation process as pointed out by Dau (2003) is the lack of new human resource management towards officers in the new local employment services. Officers from the old PES had problems to adapt to their new roles because they received no training and the work was not reorganised. It is especially the case in some southern provinces, where unemployment is higher. This decentralisation process is however helpful as it allows local policies to be adapted better to local conditions and needs.

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118 – CHAPTER 5. STRENGTHENING EMPLOYABILITY

Box 5.4.

The employment service network in Italy

In Italy, there are 527 employment centres (CPI), with provincial responsibility, scattered across the territory and another 120 local gates in the region of Sicily. There are wide differences in the quality of the services provided by different CPI. However, under the Master Plan adapted in 2001, the aim is to achieve better standards in all centres, further develop personalized services, and achieve better integration between employment services and other social services. In many centres, the provinces have set up services devoted to “weak segments” – or disadvantaged groups – of the labour market (immigrants, disabled). In some cases, the CPIs have started to operate in direct conjunction with social services. In other cases, the provinces have created “services for the working integration of the disadvantaged” within the CPIs, which are regulated by regional laws based on the Leg. Decree 469/97 and annual and multi-annual Active Labour Market Plans. Particularly significant interventions have been made in the domain of adult education through cooperation between CPIs, schooling and higher education institutions, the regional training system and firms. The inter-regional Project on guidance, labelled “Informational system of training opportunities and virtual guidance community” provides support to the creation of databases on job and training opportunities. This is a response to the European Summit conclusions of Lisbon and Stockholm on the improvement of databases available on training and work opportunities inter-related at the European level through the creation of the European Gate. Source: Ministry for Labour and Social Policies (2003c).

The very heterogeneous character of the Italian labour market, especially from a geographical point of view, implies that some measures may be adequate for some regions and not for others. This is one reason why the government intends to promote in 2003-2006 a territorial and bilateral management of the Welfare-to-Work strategy (Ministry of Labour and Social Policies, 2003c). For instance, to help promote employment prospects for older workers in the Centre-North, the aim is to promote the training of adults and encourage active ageing. In the South, measures to facilitate the transition from the hidden economy to regular work may be more important from the point of view of improving employment prospects of older workers.

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CHAPTER 6. ENSURING POLICY COHERENCE AND COMPREHENSIVENESS –

119

Chapter 6 ENSURING POLICY COHERENCE AND COMPREHENSIVENESS

Italy is confronted with a very pronounced process of population ageing but has one of the highest rates of mobilisable labour supply among OECD countries. There is thus a large scope to increase labour supply and to meet the demographic and economic challenges ahead with most of the potential resources coming from people older than 50. Of course, there are a number of alternative solutions for boosting labour supply, such as increased recourse to international migration and raising fertility rates. However, as discussed in the first section of this chapter, these measures should be considered as playing a complementary role and are not substitutes for mobilising labour resources among older people. It is also important to ensure that public support for measures to encourage greater labour market participation among older people is not undermined by a misguided belief that more jobs for older people mean fewer jobs for younger people. This myth is debunked in the second section of this chapter. In the final section, the importance of policy coherence and comprehensiveness is stressed. 1.

Alternative ways to boost participation and employment

Many of the reforms which are recommended in this report as part of a strategy to raise the employment rate of older workers will take time and involve complex trade-offs. This is why some analysts have put forward a number of alternative ways to cope with a decline in labour force growth as a result of population ageing. A.

Is immigration an alternative?

An increase in immigration would provide an immediate increase in the working-age population and, thus, could help to relieve the pressure of Italy’s unfavourable demographic trends. Greater immigration is already serving to help reduce a number of labour shortages in the formal and informal economy. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

120 – CHAPTER 6. ENSURING POLICY COHERENCE AND COMPREHENSIVENESS Foreign workers are often employed in low-skilled occupations such as agriculture, personal services and construction. Clearly, though, the extent to which immigration may be used as an effective mechanism is severely constrained by political and social pressures. Even if immigration can play a complementary role to solve the demographic and economic challenges ahead, “it cannot be expected to have more than a marginal impact on the projected disequilibria in the age structure” (OECD, 2001a). This is because, in the longer run, the fertility and mortality patterns of immigrants and their descendants are likely to match those of the non-immigrant population – and as very large and sustained increase of immigration rates would be required to significantly affect the age-pyramid of Italy’s population over time. B.

Raising fertility

Another possibility for increasing future labour supply would be to encourage higher fertility rates. Since the beginning of the 1970s, the total fertility rate has fallen from 2.4 children per woman to 1.2 in the late 1990s, one of the lowest rates among OECD countries. Higher fertility rates would eventually lead to an increase in labour supply but this would only begin to have an impact on labour supply after 2025 at the earliest. However, little is known about what are the most effective policies for raising fertility rates. Clearly, family-friendly employment policies that help to better reconcile work and family life have an important role to play. But it is a fact that even well-educated young mothers continue to face difficulties in entering the labour market and establishing a career. This raises more fundamental issues of how to promote gender equality in the labour market. More generally, it is crucial to help parents with young children by providing wider possibilities for part-time work and creating high quality child-care facilities. 2.

Are older workers working at the expense of other workers?

It is sometimes argued that early retirement can help reduce youth unemployment. In most OECD countries youth unemployment rates are quite high and early retirement schemes have been sometimes seen as a way for younger workers to move into employment by allowing older workers to move out. This perception is particularly acute in Italy where youth unemployment is especially high, as made clear in Chapter 2. Yet, this public perception is unfounded. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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As shown in Figure 6.1, there is little evidence that fewer jobs for older workers can be “traded off” for more jobs for younger workers. In fact, there appears to be a positive, rather than negative, relationship between changes in the employment rates of younger and older workers over the past decade among OECD countries (OECD, 2003 g and i). Over this period, Italy has generated fewer jobs for both older and younger workers. On the other hand, countries such as Ireland and the Netherlands have managed to generate more jobs for both categories of workers. It is also worth noting that no countries are found in the quadrant where employment rates have fallen for older workers but risen for youth. Figure 6.1.

Younger workers are not substitutes for older workers

Changes in percentage points Change of the employment rate of 50-64 16 NZL 14

NLD

12 10

IRL

BEL

8 FRA

6 LUX

4

FIN

NOR

USA

GBR

2

DNK

SWI JPN

0 -2

ESP

AUS CAN

PRT

ITA

GRC

SWE

-4

DEU

KOR

-6 -8 TUR

-10 -12 -20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2 4 6 8 10 Change of the employment rate of 20-24

a) 1991 for Switzerland and Germany. Source: OECD estimates based on labour force surveys.

The relatively low substitutability between younger and older workers in Italy could be partially explained by the relatively small size of the typical Italian firm. Indeed, job specific human capital is probably more prevalent in small firms than in large firms as workers are more often involved in many parts of the production process than in the former. While this may not require any specific skills, it may impose a set of skills that takes time to acquire. In such context, firms can not easily swap older workers for younger workers (Lazear, 2003). AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

122 – CHAPTER 6. ENSURING POLICY COHERENCE AND COMPREHENSIVENESS 3.

Ensuring policy coherence

Enhancing the employability of older workers and tackling the economic impacts of ageing requires, among other things, a broad range of coherent policy actions. These measures will be more effective if implemented within a stable macroeconomic framework and a well-functioning labour market more generally. They will also require a careful balance such that while employment among older people is encouraged, negative stereotypes vis-à-vis older workers are not perpetuated by policies that are targeted on age alone. A.

A stable macroeconomic framework and comprehensive reform

A stable macroeconomic framework, notably sound public finances, is an essential prerequisite for encouraging growth, sustaining overall improvements in labour market performance and providing an environment where the full benefits of reform can be achieved. While this should help to improve employment prospects for Italian workers generally, it will be especially important for older workers. In terms of microeconomic reforms, the OECD Jobs Strategy has stressed that it is important to act on all fronts, encompassing reforms of product and labour markets (OECD, 1999b). In addition, attention has to be paid to the interactions and complementarities between policies. For example, it is clear that the “return” to active labour market policies will be all the higher when demand-side barriers to employment (e.g. hiring and firing costs) are addressed and when product markets are dynamic and responsive to new business opportunities. B.

Towards a well-functioning labour market

In the future, a more flexible labour market, a reduced age-related education gap and a reorientation of labour market policies along the lines of the recent Biagi Law should help to increase the employability of older people. However, any policy action needs to take into account that the reasons of the low employment rate among older workers in Italy differ across the country: for men in the North, the issue is mostly one of relatively early retirement; for women, and all persons in the Mezzogiorno, the problem is that even at 50 years of age the employment rate is low. While in the case of women, low employment rates are mostly due to a cohort effect, and as such should gradually increase over time, in the Mezzogiorno it is related to the broader issue of the low employment equilibrium of that region. AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

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123

Greater flexibility should be matched by a more efficient public employment service (PES). The PES has undergone substantial reform since 1997 and hence it may gradually move towards the better-performing employment services available in other OECD countries. It also now openly coexists with buoyant private intermediaries. However, some important objectives must be achieved in the near future. Unemployment insurance should be made available to all workers in the formal sector and not only to specific segments of the labour market, as in manufacturing. The mutual obligation approach to which the system is moving should rest on effective re-employment services. More generally, the reforms envisaged for by the Biagi Law should be implemented rapidly, most notably in the easing of part-time contracting. As well as ensuring transparency and continuous information, other active measures by the PES should be taken so as to maximise the matching of workers and vacancies across the whole territory. C.

Tackling negative stereotypes

One of the most difficult dilemmas facing policy-makers is how to improve the employment prospects for older workers while at the same time fighting the very age stereotypes which sometimes explain firms’ perceptions and behaviour. All too often, and despite the available evidence or lack of it, there is a perception that workers are less productive as they get older. It also makes it difficult for unemployed older workers to find a new job. It is therefore important to fight these stereotypes. This raises the question of whether policies that are too narrowly targeted on age, such as wage subsidies (or social security reductions) for all older workers, nurture negative age stereotypes, and underlines the need for a careful evaluation of these types of specific policies. 4.

Conclusion

Increasing the employment rate of older people has become a topical issue in Italy. But it is not an easy task and will need a comprehensive strategy. It is especially important to ensure greater coherence of reforms on both the supply-side and demand-side. Incentives stemming both from the pension rules and the employability of older workers matter. The pension reforms enacted in the mid 1990s represent important steps on the supply side for the long run financial sustainability of the system. Yet, there are some problems remaining, partly due to the long transition period until the former system is AGEING AND EMPLOYMENT POLICIES: ITALY – ISBN-92-64-01703-8 © OECD 2004

124 – CHAPTER 6. ENSURING POLICY COHERENCE AND COMPREHENSIVENESS finally phased out. Insofar as the old pension rules operate for workers not touched by the pension reforms of the 1990s, incentives to remain longer in the labour market are weak. Pension entitlements are relatively generous and the gains from working one additional year, in terms of higher future pensions, are rather limited. In terms of the employability of older workers, several labour markets institutions such as seniority-based wages and the focus of active labour market policies on youth, while consistent with long-standing social norms, are no longer suited to a workforce that is rapidly ageing. More generally, to increase employment prospects for older workers, a well-functioning labour market must be established. This implies greater flexibility in the employment relationship and in the wage-setting mechanism in particular. Occupational as well as geographical mobility should be enhanced, particularly between the South and the North.

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BIBLIOGRAPHY

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