The demographic mine on labour: by 2040 it may cost 11% of GDP

A labour market that resists, but is increasingly squeezed by denatality, a skills gap, and low productivity. The report by the governor of Bankitalia, Fabio Panetta, illustrated on Friday 30 May at Palazzo Koch, is quite clear: employment has exceeded 24 million by 2024, and the unemployment rate has dropped from 10 to 6 per cent. But there is no shortage of clouds on the horizon.

By 2040, according to ISTAT, the number of people of working age will shrink by about five million. This could lead to a contraction of output estimated at 11 per cent, or 8 per cent in per capita terms. That is why, Panetta continued, it is necessary to increase participation rates, especially of young people and women. The female employment rate is far lower than the male rate, and among the worst internationally. There are also many Italians who leave the country: in the last 10 years 700,000 compatriots have emigrated, a fifth of them young graduates. Recovering women and expats is certainly important, also due to the current demographic trend. But it is not enough: we need to involve regular immigration, which can make a significant contribution, especially in the construction and tourism sectors. The contribution can also extend to activities with greater added value: but here, Panetta reminds us, Italy is seriously lagging behind. Among the main countries, it is in fact the one with the lowest share of graduate immigrants.

One (historical) problem remains productivity, in manufacturing as in the rest of the economy. There is little growth in Italy, and this, Panetta said, is not enough 'to sustain the country's development'. The low level of wages also reflects this weakness: until the pandemic, the increase had been just 6 per cent. The subsequent inflationary shock has brought real wages back below those of 2000, despite the recovery underway since last year.

In order to ensure a lasting increase in wages, it is therefore essential to boost productivity and growth through innovation, capital accumulation and incisive public action. The limping productivity should however be read in a context that the Bank of Italy still considers industrially sound. In industry in the narrow sense, value added remained stationary, after falling in 2023, reflecting the expansion in the energy sector and the new moderate decline in manufacturing. Against an overall GDP increase of 0.7% in 2024, value added in manufacturing declined by the same amount. However, the governor notes, 'despite the current difficulties, Italian industry is not destined to decline. There are dynamic and competitive companies operating in all sectors, investing in technology and research and positioning themselves in high-end segments'. The fundamentals therefore remain strong, although it is true that after the pandemic there has been a sectoral re-composition that has seen the manufacturing share of added value fall to 16% (a value barely above the European average) while the weight of private services and construction has risen.

And although gross fixed capital formation increased by only 0.4 % (compared to 9 % in 2023) due to -2.6 % in purchases of machinery and equipment and transport equipment. The level of innovation is the main drag. "Research and development expenditure as a ratio of GDP," the report states, "is still well below the EU average. The gap is mainly attributable to the private sector and results in fewer patents than in other European countries'. In the face of good results in terms of academic research, Italy is still lagging behind in terms of private sector spending on R& D (0.76% of GDP, just over half the EU average), technology transfer and the number of patents. There has been a partial recovery in the latter field, but the number of patents filed by residents in Germany and France is respectively five and two times that of residents in Italy.