Analysis
Meloni’s self-congratulations clash with economic reality
The stagnation of Italian wages does not arise only from anemic productivity growth, but from intentional economic policy choices made by governments of various political orientations.
The latest economic data from Eurostat show unequivocally that the emperor – female in our case – has no clothes. Contrary to Prime Minister Meloni's incessant claims, Italy's economy is not doing too well: in 2023, real gross household disposable income fell, in sharp contrast to the growth of the EU average. Namely, assuming the Italian income in 2008 was 100, that of 2023 is 93.74, while that of 2022 stood at 94.15. Only Greece, which went through a very severe financial crisis accompanied by draconian fiscal austerity measures, has done worse than us among European countries. It is true that some indicators such as employment and unemployment rates have improved over the past year, but they are still below EU averages.
The disappointing performance of Italian incomes is due to falling real wages that have been eroded by inflation. According to ISTAT data, in the three-year period 2021-2023 consumer prices grew by 17.3 percent while wages increased by only 4.7 percent. This dynamic is not only attributable to the recent inflationary episode due mainly to the energy shock, but comes from further back: Italy is the only developed country where real wages have not grown in the past 30 years (OECD), with a 10-year decline of 4.5 percent (ISTAT).
The stagnation of Italian wages does not arise only from anemic productivity growth, but from intentional economic policy choices made by governments of various political orientations. Empirical studies by researchers from the International Monetary Fund and the Bank of Italy show that structural reforms to make the Italian labor market more flexible have led to a growth in fixed-term and part-time contracts, increasing precarity and wage inequality. Increased labor flexibility may have contributed to slowing our country's economic growth, as those who have to jump from one fixed-term contract to another fail to accumulate skills and experience.
This situation calls for a tightening of the labor market – an example would be the Spanish model – and the introduction of a minimum wage. Indeed, plenty of empirical research has shown that a minimum wage increases workers' wages without reducing employment. And even more: in countries such as Germany and Brazil, the minimum wage has increased productivity by reallocating workers to more competitive businesses. Moreover, in times of inflation, an indexed minimum wage, such as the one in France, protects workers' wages, especially when union weakness manifests itself in an absence of struggle for better conditions. Unfortunately, the Meloni government has ignored the results of the most recent economic research, pursuing further flexibilization of the labor market and strenuously opposing the introduction of the minimum wage.
The worsening economic condition of low- and middle-income workers could be alleviated by fiscal interventions, but the government's choices are having almost no positive effect, or, worse, go in the opposite direction. As the recent report of the Parliamentary Budget Office shows, a large chunk of the tax cuts has been eaten up by fiscal drag, because the taxable income limits of the various brackets have not been increased to account for the high inflation. In addition to this shell game, through a series of measures, the government has reduced the progressive nature of our tax system (e.g., by extending flat-rate schemes) and weakened the fight against tax evasion (e.g., amnesties and voluntary arrangements on debts due). These interventions came on top of an already essentially “flat” tax system, where the richest 5 percent of Italians pay a lower effective tax rate than the rest of the population.
Despite the self-congratulatory boasts from members of the government majority, the Italian economy isn’t going full speed ahead, but is sailing in dangerous waters. In the face of low and declining GDP growth in the coming year, the government is pursuing an economic policy aimed solely at gaining the approval of their own constituencies, ignoring rising inequality and avoiding the task of stabilizing public finances. Prime Minister Meloni's always-sunny narrative could soon crash head-on against reality, when the enormous pool of NRRP funds runs out and the new European fiscal rules impose an inescapable budget correction.
Originally published at https://ilmanifesto.it/lautocelebrazione-si-scontra-con-la-realta on 2024-09-04