The European Youth Guarantee: Labor Market Context, Conditions and Opportunities in Italy

This essay aims to discuss the conditions for a successful implementation of the European Youth Guarantee in Italy. In principle, the program should be able to affect the frictional and mismatch components of unemployment, if not the Keynesian and neoclassical ones, as also the experience of Scandinavian countries suggests. However, this requires an in-depth transformation of the entire school-to-work transition system, involving not only public employment services, but also educational and training systems. To tackle the Keynesian and neoclassical components of unemployment, instead, it is vital to rethink the European austerity and reduce the labor wedge.


Introduction
Young people are bearing most part of the social cost of the current economic and financial crisis, especially in the South and East European members of the European Union (EU). In Italy, the youth unemployment rate has been escalating from about 20% in 2007 up to a historical peak of 44.2% in 2014. It is, however, from the last months of 2011 that the crisis translated from the production sector into the labor market, causing most of the recent massive increase in unemployment (Figure 1). The Italian youth unemployment rate is hence not far below the rates in Spain and Greece (for a recent assessment of the youth labor market problem and school-to-work transition system (SWTS) in these countries, see Pastore, 2012;Rocha, 2012;Tubadji, 2012;Cahuc et al., 2013;Dietrich, 2013;Bell and Blanchflower, 2015). The EU as a whole and the individual EU member states feel that they should do something to help young people cope with the crisis.

Based on a proposal originally formulated by the European Socialist Party, the EU Parliament and the other EU institutions have approved a program, called European Youth Guarantee (EYG since now),
which implies the (moral, if not legal) "obligation" for each member state to provide young people with a job, training or educational opportunity within four months from the beginning of their unemployment spell. As discussed at more length in Section one, the Scandinavian model of school-to-work transition clearly inspires the EYG. The program has already been recently implemented in Germany, Austria, The Netherlands and Poland. This essay aims to discuss the macroeconomic conditions under which the program is implemented and to highlight the necessary institutional conditions to be met in order for the EYG to be successful. To such an end, Section two will give a tour d'horizon on the current status of the national debate on youth unemployment. In order to fully understand the context of implementation of the program, the section will discuss the main political positions emerged in the last elections. This should allow understanding the momentum that the Eurosceptic protest is gaining in the country and the need to address it not only at a micro-, but also at a macroeconomic level. In turn, this requires also redefining the Maastricht criteria and involving also the European Central Bank into the fight against youth unemployment. In other words, it is vital to discuss the terms of the debate on supply-side versus demand-side programs against youth unemployment and the issue of where (new) jobs could be coming from. The main conclusion is that macroeconomic policy -both fiscal and monetary -is important and should be discussed again. Nonetheless, also the institutions regulating the labor market and the overall school-towork transition system in particular should be also reformed. Accordingly, Section three will deliver an assessment of the micro-economic conditions that should be met in order for the EYG to be successful in Italy. Some discussion of the issues dealt with will be given in the final section together with summary remarks.

The EYG program: An assessment
In Italy, the EYG is perceived as very far away, a kind of ideal model or just a dream, but a dream that is hard to implement because Italy does not have the labor market institutions that are necessary to make the EYG work properly and also because it is a foreign body in the country's welfare state tradition.
As Pastore (2015) argues, in Mediterranean countries, it is almost entirely up to the individuals and their families to choose the best educational attainment level and an effective school-to-work transition strategy. Public Employment Services (PESs since now) are very inefficient in Italy. Pro-active schemes cover only a very small share of the young people in need and are of very low quality. Much too often a temporary employment contract is the only chance offered to them.
Young people have accepted application of the EYG in Italy with a lukewarm reaction. According to the data provided in the last weekly monitoring report of the Ministry of Labor (2015), as late as in mid-February 2015, about 11 months from the beginning of the program, slightly more than 400 thousands young people (aged 15-29) have joined the project out of 1,700 thousand young not in employment education and training (NEETs since now). Only 151 thousand of the registered users have undergone the welcome meeting, only 12 thousand of them have used the second level orientation meetings and about 8 thousand have entered a pro-active measure. This means 9.2% of those undergoing the welcome meeting, 3% of the registered users, and 0.7% of the target population. This indirectly means that the term of four months from the beginning of the unemployment spell is not dealt with for almost nobody.
4 Figure 2 shows the evolution of registrations to the EYG program since its beginning by gender. The initial enthusiasm that led about 80 thousand young people to register in few weeks has since then much lessened. After the summer it has risen again for a couple of months to continuously shrunk since then, probably as a consequence of the disappointing news coming from the press, rather than from depletion of the stock of the target population, which remains still huge.
[ Figure 2 about  Only about 39% of the young people registered in the program where actually interviewed and subjected to profiling, with dramatic differences across regions in the ability of local employment offices to organize the profiling of such a large number of individuals ( Figure 3). The least efficient regions where located not only in the South (especially Calabria and Campania), but also in the Centre-North (especially Piedimont and Liguria). Typically, the most efficient regions are the central ones (Emilia Romagna, Toscany, Umbria, Marche), except for Lazio, which is about average. The strong regional differences are an important factor able to jeopardise the program, as explained at more length in what follows. It is therefore not by chance that the first intervention of the government led by Matteo Renzi in the field of employment services has been the introduction in the Jobs Act of a National Agency, with the aim of coordinating the activities of public and, to some extent, also private employment services existing in the country. Currently and since the 2001 constitutional reform of chapter V of the Italian constitution, in fact, regional authorites have been in charge of training and employment policy, which has created 20 different labor markets, with different rules, institutions and administrative capacity.
[ Figure 3 about here] 5 By its very nature, the EYG is implemented in a different way in every country of the EU, according to the strength and weaknesses of the country's labor market institutions (Besamusca et al., 2012).
Although there is no comparative information on the implementation of the EYG, it is clear that, for reasons that will be discussed at length in what follows, in South European countries the program is hardest to implement and the few statistics provided above show that Italy is no exception to this scheme.

Austerity and the euro
In addition, there is growing concern that some public spending, the so-called "productive" spending, should be permitted, especially in a period of dramatic economic crisis like the one we are in.
By "productive" public spending, we mean the growth-enhancing components of it. It is necessary to define policies aimed at restructuring public spending in depth, by reducing the weight of public sector branches that are less effective in reducing the impact of the crisis and favoring the other branches.
Public spending is needed to make the country cope with the crisis, but also to re-launch the economy in  Pittella, 2015). At least in principle, this is certainly a u turn in the EU policy regarding fiscal and monetary stimulus and hopefully it will be the beginning of a new way of thinking of the role of the EU in aggregate management at the EU level.
In the case of Italy, the long-term single cause of the economic crisis is to be found in the move from an economy based on the so-called competitive devaluations to one based on a strong currency, and the wrong economic policy that both the country's government and the EU as a whole have (not) implemented to cope with this change. Moreover, as Aristotelous (2006) shows, Italy was unable to gain from the introduction of the euro also in terms of greater trade integration with the rest of the euro area.
In fact, the Italian economy was located at the lower tail of the distribution of growth rates of the European economies already before the financial crisis started. As Figure 6 shows, labor productivity is stagnating at least from the early 1990s.
[ Figure 5 about here] These disappointing outcomes are surely also the consequence of bad economic policy. It was not infrequent during the last about two decades to hear Giulio Tremonti, the Minister of the Economy in 8 out of 10 of the 2000s, claiming that the low spending in education, R&D and innovation typical of Italy is due to the peculiar industrial structure of the economy, which is traditional and based on small-sized firms; therefore, any public intervention to counteract this outcome is bound to fail.
Another cause of the lack of intervention to stimulate structural change was also fiscal austerity and the need to maintain public finances as stable as possible in a situation where the public debt has been well above 100% of GDP for all of the 2000s. Austerity has had severe consequences for the countries with the highest public debt. Austerity is probably also due to a mistrust in the ability of national governments to implement the right reforms, but then instead of forbidding public spending at all it would be better to introduce some form of conditionality, while providing support to national level industrial policy.  (Giubileo, Leonardi and Pastore, 2014). It is not surprising that, although the possible effects are uncertain and probably modest, one of the most welcomed reform of Renzi government was the reduction by 80 euros of the wedge of labor incomes under the wage of euros 1500 (Guiso, 2014 (Pastore, 2015).

The length of the SWT
As Pastore (2015)   [ Table 2 about here]

Making the EYG work
In addition, the current legislation does not help much in as much as it assigns to PES eminently bureaucratic tasks. (see, among others, Cicciomessere and Sorcioni, 2013;Giubileo, 2011;Pastore, 2013; (Mandrone, 2011).

For all these reasons, the EYG would be, in principle, certainly useful and positive in the case of Italy.
It would imply if not a "legal" obligation, which is hard to even conceive, at least a "moral" obligation that the public sector will play a more active role in the labor market, as it is the case in the countries where flexicurity is working. In order for this to happen, though, it is necessary that the PES be endowed with sufficient human and financial resources, while being cleaned from bureaucratic burdens which could be assigned to private call centers just paying a little cost (Giubileo, 2012;and Giubileo and Pastore, 2012).

A proposal raised in a number of contributions would be to support the EYG by using the EU money
coming from different sources, including the structural funds, which are hardly and poorly spent in Italy in small programs whose impact can be claimed to be negligible also without making any evaluation study. If all the money that is spent (and even more the money which is not spent) were used for a single unified and organic reform program of re-launching the role of the PES by assigning to it new tasks and resources under the umbrella of the EYG, the money would be spent in a sounder and more efficient way.
This money is currently out of reach because of the low absorption capacity and also because the criteria are very hard to meet especially for peripheral regions. We are aware of the difficulties that the strict rules regulating the use of European Structural Funds would place in case they were used in the direction of improving the institutions regulating the labor market. But we are also convinced that this would be a more effective way of reaching the declared aims of the EU funds than using them in the way they are currently used (Giubileo and Pastore, 2013a).

Reorganizing the SWT
Another condition for the EYG to work is that flexicurity be fully implemented, not only in terms of EPL, but also of ALMP. If the EYG means providing young people with employment or, at least, training opportunities, then there is not much in Italy about this, but few training programs implemented at a regional level, whose impact is negligible (Giubileo and Pastore, 2013).

The current Italian organization of the entire system is confusing: according to the 2001 reform of
Title V of the Constitution, the state is in charge of the education system, through the Ministry of Education, regional bodies are in charge of the training system and provinces (county-level authorities) are in charge of the PES. The EYG would need to re-structure the way regional bodies manage training programs.

The organization of PESs and their performance is very different across regions and also provinces.
The situation should further evolve since provinces will soon disappear and a National Agency should be 16 established to coordinate the activities of PES agencies. However, the current condition of uncertainty is affecting also the success of the EYG as already noted in Section 1.  (2012)  [ Figure 7 about here]

Another important aspect is that ALMP should be properly targeted and the effectiveness of any
The EU Commission (2013, Figure 2.1) provides comparative statistical information regarding the share of apprenticeship contracts in many EU27 countries as based on the EU labor force survey in 2011, hence, before the economic crisis affected the labor market of most EU countries. According to this source of information, the share of apprentices in the youth population (aged 15-29) had in in Italy a medium incidence, defined as being an incidence of between 1.5 and 5%. A similar share was found also  (ISFOL, 2012;Leonardi e Pallini, 2013;D'Agostino, 2014;2014c) (Gitto et al. 2012;Aina et al., 2013). For the EYG to be successful in Italy, it is necessary to assign to each institution its own role and mission. The EYG cannot be conceived for all the jobless individuals that are there in the country. Part of them need to complete their educational track, as also Europe 2020 suggests. To such an end, alternatives to general education should be provided. One such alternative could be incentives for firms to hire on apprenticeship contracts those who have dropped out of high secondary school without a qualification or also for the other NEETs with a diploma or college degree.
Also universities should be involved in the school-to-work transition. The German type of professional universities could be an alternative for those young people who find it hard to get a university degree and come from technical or professional high school (Cappellari e Leonardi, 2011;.

Figure 2. Evolution of registrations to the EYG by gender
Source: own elaboration on Ministry of Labor data.

Figure 3. Registrations and profiling by region
Source: own elaboration on Ministry of Labor data.