This report aims to present and analyse the impact that austerity policies, which have been adopted by the Italian government since the 2008 economic crisis, have had on the growth of inequalities in contemporary Italy.
Why austerity policies?
Since the 2008 economic and financial crisis, austerity has become a directive in Europe, where euro zone’- members are not allowed to print currency for covering their debts. PIGS¹ countries especially, are cutting public worker salaries, public spending and raising taxes to face the deficit.
In this context, Italy is one of the most vulnerable economies of the eurozone, the ratio between the Italian government debt and its gross domestic product (GDP) amounts to 132.6 % (ISTAT, 2013) exceeding the limit of 60% imposed by the Stability and Growth Pact. Since 2008, austerity policies have been introduced by the Italian government in order to meet the budget and deficit targets. These policies did not lead to an economic recovery and growth, having a negative impact on social and economic development by raising poverty and inequalities.
The growing impact of austerity policies on social-economic inequalities
Austerity reforms, which have been enacted especially by the Monti government with the aim of meeting the deficit target, include: elimination and reduction of subsidies, pension reform and wage cuts, increasing of taxes and labour flexibility. Moreover, on a legal basis, these policies can be considered an outright threat to the protection and promotion of human rights, in particular ART. 22, ART.23, ART.25 and ART. 26 proclaimed by The Universal Declaration of Human Rights (see appendix). Indeed, these policies are failing to ensure the right to work without discrimination, to live adequately for health and wellbeing, and, the right to education, whilst eroding public spending on social welfare.
I. Labour and pension reforms, cuts in public welfare: the impact on gender gap
The desired labour flexibility is nothing more than precariousness; according to the Italian National Institute for Statistics (ISTAT), in December 2014, the percentage of employees waiting for a contract renewal was 55.5 %. The waiting time average for a contract renewal is 37.3 months, a significant increase compared with the same month of the previous year. The total unemployment rate is 12.9 % and around 42% amongst the population aged 15 – 24 (December 2014). The temporary employees’ average wage is around 836 euros net per month, 927 monthly pay for men and 759 euros for women; these statistics also display the disparities in wages across gender lines. According to the European Commission, across the European Union, women are paid on average 16% less than men per hour of work. Following the French model, in order to reduce the gender pay gap, three priorities may be considered: awareness and support, controls and sanctions, and negotiations between social partners.
Austerity has led to a deterioration and privatization of social services, including childcare and long term care services. This means a reduction and an inefficiency of the public sector. While this process is unfinished, austerity is increasing inequalities in economies and decreasing levels of wellbeing, due to the intensification of underpaid work, particularly for women, the precariousness of the labour market, and, the reduction of transfer services available to households.
Care of children and household responsibility fall in large part on women with serious consequences on their working lives. Women are disadvantaged, after two years of child’s birth 33.9 % of them are unemployed. According to ISTAT, a high educational level can raise women’s market labour access. The difficulty in reconciling work responsibilities and private life remains the main reason for women leaving the labour market. Countries like France and Germany for example, which have mandated and funded family-friendly policies to address these anomalies are those which are reaping the economic benefits of more working women (Muñoz et al, 2014).
Greater access to childcare facilities, subsidised by public authorities, is the most effective way that the government can enable women to work. In fact, 50.2 % of women cannot afford the high costs of childcare facilities. Moreover, the lack of childcare facilities has been highlighted, especially in the municipalities of Southern Italy. On average across the OECD, only 25% of children are enrolled in formal childcare. But in the Scandinavian countries as well as France, childcare enrolment rates are much higher due to public spending on childcare services, including during after-school hours and vacations. It is not a coincidence that these countries have higher numbers of women in the workforce. There is a link between poverty alleviation in countries and the development of their female human capital (Muñoz et al 2014). Moreover, according to the OECD Gender Gap Index, there is a correlation between gender equality and Gross Domestic Product (GDP) per capita. Austerity policies increase economic gender inequalities and gender segmentation of the labour market by having a strong impact on the segregation of women.
The pension reform implemented in Italy, known as Fornero Reform, increased not just the retirement age for women but also the gender gap in pensions. Critical assessment of this reform underlines how, if it may reduce the risk of being in poverty when retired, it increases the risk of being elderly without a job and limited access to welfare. Moreover, women alongside workers which are more likely to be exposed to the risk of discontinuous work profile and in non-standard low income job positions, are bound to be penalized by the contributory system (Raitano, 2012). The increase in the retirement age can penalize the younger generation who are dependent on the elder family members to care for their children due to the rationed and limited public child care system. At present, 54.4% of Italian couples rely on family childcare.
II. Austerity: Increasing poverty...
Some measures to raise government income through increases in taxes have been adopted by the Italian Government, in 2011 VAT amounted to 21%, and an additional 1% increase was applied in 2013. Moreover, a tax on the first house (known as IMU) has been applied. The first action in this sense was taken by the Monti government. These measures had a negative impact by eroding the lowest incomes; in fact, the mostly affected segment of the population has been the middle-lower class. These measures, especially the VAT increase, in addition to the high rate of unemployment, have led to a consumption fall especially in essential goods. The food sector, which has always been considered as stable, has been affected by the austerity policies and crisis. In 2014, food consumption fell by 2.5% against 1% of non-food sector, compared to the previous year. In 2013, food sales fell by 4%, since the crisis the fall in consumption was 13 points. In 2013, families have reduced food consumption and purchases (-138 euros average per month), 11 euros per month is the budget available to the families for the purchasing of school books, 20 times less than the budget used by richest families.
III. …And the right to education
Elimination and reduction of subsidies and wage cuts have had a negative impact on welfare and especially on the education sector. Inadequate infrastructures, overcrowded classes, cuts on the teaching staff, cuts on research and meal allowance in kindergartens, insufficient services for minors with disabilities are just some examples. According to ISTAT (2012) a decrease has been registered in the number of graduates from 2007 to 2011. Young people enrolled for the first time at the university in the academic year 2010/2011, were around 288,000, about 6,4 units less (-2.2%) over the previous year. The European Commission has observed how Italy, in comparison with other European members, has been the state which is cutting more on education spending. Cutting in the educational area has had a negative impact on the competence of the Italian population and in growing the gap between North and South, leading to the Italian educational level felling below the EU educational average. The Italian educational system now, is not able to grant an equitable access to the right to education, by letting the differences in school being determined not by merit but by inherited social and economic base.
According to Save the Children data, more than 1 million minors live in condition of extreme poverty, 1,344 million live in conditions of housing deprivation; 650,000 live in municipalities in default, and for the first time, the number of children assisted by public kindergartens has decreased. According to OECD data, Italy is the last country for its linguistic and mathematic competence amongst the population aged between 16-64 years old, and for its investment in education.
IV. Credit Access and competitiveness of SMEs
Lastly, a special consideration should be given to the Small and Medium Size Enterprises (SMEs), which are the key component of the Italian today’s economic fabric. The 99.7% of the Italian enterprises have fewer than 250 employees and 81.7% of them have less than 10 workers. Since the collapse of the economy, most of the SMEs have faced several problems in running their business especially due to the high energy costs, a high fiscal pressure and a difficult credit access. Between 2008 and 2013, fiscal pressure has increased by 1.7%, reaching 44. 3% in 2013. From 2009 until 2013 energy prices increased by 21.3%, credit access for the enterprises with less than 20 employees has decreased by 10%, 134,000 of small enterprises have been wiped out, in particular artisans and traders. This has led to a reduction of the Italian economic competitiveness in the global market. Moreover, when a self -employed person gives up his/her job, he/she does not have any support income. This is harmful for the Italian economy and for the small and medium traders, who face difficulties in paying debts and in finding a new job, moreover they do not have special public subsidies to face the situation.
A different approach for re-starting the Italian social and economic development
The current Renzi government is discussing some labour reforms known as “Jobs Act” in order to increase employment amongst the population. Although this is a hopeful initiative taken by the new government, it should concentrate efforts in recovering the Italian economic fabric and social situation by the adoption of structural reforms for growth and development. The government should achieve these goals by supporting the Italian SMEs and traders through credit access followed by smarter and strategic investments, by reducing fiscal pressure, by avoiding fiscal evasion, by continuing to pursue the innovation, professional training and internationalization of “made in Italy”.
During the past, austerity policies have shown inefficiency, from the US President Herbert Hoover to the programs that the IMF in the recent decades has imposed in countries in Asia and Latin America. According to Keynes, the capitalist, instead of having as its sole purpose the accumulation of wealth, has to develop an ethic through a proper intervention by the state, especially in times of crisis and under occupation. During the circumstances mentioned, the state should invest in public spending increasing the demand and leaving the offer unchanged, by the purpose of creating an equitable society through a redistribution of wealth and wellbeing. Thus, given the failure of these policies in recovering the economy in order to restart the economic and social growth, the implementation of a new strategic long term plan of public investments followed by accuracy and strictness is needed.
PIGS refers to the economies of Portugal, Italy, Greece and Spain
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