Italy’s economy has weathered the pandemic better than many expected. GDP growth has been slightly better than the Eurozone average. And Italy’s labor market has created more than a million jobs since 2020 with labor force participation improving, too.
But beneath this decent performance lies a troubling reality: the country’s labor market is under pressure from two sides. On one hand, young, high-skilled Italians are leaving for better opportunities elsewhere in Europe to seek out higher wages and living standards. On the other, an aging population is shrinking the domestic workforce and straining public finances. This double squeeze could have significant implications for Italy’s long-term growth and for recruiters looking to fill critical roles.
Italy’s post-COVID economic performance has been decent…
Somewhat surprisingly, Southern Europe has come out of the pandemic as one of the big winners compared to the rest of the Eurozone. A combination of good fortune and positive economic shifts has led to the revival of Southern European economies and labor markets. A surge in tourism spending and digital nomadism certainly played a role, and large EU investment funds to bolster poorer regions also helped. Moreover, the region’s service sector weathered the ECB’s interest rate hikes following the global inflation surge better than expected.
While Italy’s performance didn’t equal that of Spain or Greece, Italy’s growth rate has been right on par with the Eurozone average, and miles better than that of Northern European economies like Germany.
The Italian labor market has also been one of the main contributors to Euro area employment growth, adding about a million jobs in the last four years. That is more than during the entire decade following the Global Financial Crisis.
The employment rate of prime age workers increased from just a little over 58% pre-pandemic to 62.7% more recently—a record high. For decades, Italy’s female labor force participation rate has been one of the lowest in Europe. Given Italy’s horrible demographic outlook, the job boom could only happen with more Italian women joining the labor force—a welcome development!
… but decent performance follows two decades of economic stagnation
Nevertheless, Italy’s economy has been quite stagnant for decades when it comes to advances in living standards and real wages. The inflation-adjusted hourly wage was not much higher in 2019 than in 2009. With the massive inflation surge during the pandemic, Italian wages have now fallen below where they were some 15 years ago. This is particularly true for white-collar occupations, which have seen very little wage gains for more than two decades now.
High-skilled young workers continue to leave for other Eurozone economies
Being highly educated does not seem to pay off in the Italian labor market—which is precisely why many high-skilled Italian workers have been leaving the country in recent decades. This is particularly true for the younger age group, recent University graduates, who seek out better employment opportunities elsewhere (mostly Northern European countries but also Spain nowadays). Significant brain drain is hitting the country during a time when the labor force is starting to shrink due to a rapidly aging population.
Between 2014 and 2023, close to 370,000 young Italians between the ages of 25 and 34 left the country, and about 150,000 of them held a University degree. Recent figures suggest that the brain drain has not been stopped despite the positive economic momentum the country has experienced post-pandemic.
Meanwhile, demographic forces are weighing on the labor market and public coffers
The rapidly aging population and a forthcoming decline in the labor force will put additional pressure on the Italian labor market. The generation of baby boomers is about to retire; meanwhile, Italy’s fertility rate has been stuck well-below replacement for decades, meaning future cohorts cannot compensate for the loss of workers.
And while net migration has been positive, there are both political and economic challenges. Like many other European countries, political backlash among voters and the government has led to increased wariness of high migration inflows from Africa and the Middle East.
But there are also bright spots: Milan is becoming a serious contender in the global war for talent
Despite the rather gloomy demographic outlook, Italy’s economy has become more attractive. The number of digital nomads has risen substantially in recent years, and many of them are flocking to Southern European countries—including Italy—for better weather and food.
With London suffering a blow due to Brexit, Milan has attracted top international talent in tech and finance. As Britain experiences a growing exodus of wealthy individuals due to domestic tax policies, Italy is doing exactly the opposite and luring high-net-worth individuals in with favorable tax deals. The city also enjoys a buoyant startup scene, accounting for more than 2,600 innovative startups—nearly 20% of Italy’s total. Milan has therefore successfully positioned itself as a tech and financial hub within Europe.
What does that mean for recruiters?
Italy’s labor market is currently experiencing several opposing trends. On the one hand, the labor market has created more than a million jobs, particularly thanks to more women joining the labor force. At the same time, the country is experiencing an exodus of young and highly skilled workers. This is increasing labor shortages in a market that is already suffering from a retirement boom, thus squeezing the labor force from two sides: older workers are retiring while young graduates are leaving.
But even as the demographic outlook is sobering, Italy has made a play for high-net-worth individuals since the pandemic. An increasing number of digital nomads and workers in tech and finance are taking up residence in Milan as the city has become one of Europe’s leading financial centers and tech hubs.
Because the labor market is tight, worker shortages are affecting an increasing number of businesses. The adverse demographic trends outlined above mean that recruiting in Italy has become more challenging, and that is unlikely to change any time soon.
On the other hand, attracting international talent has become easier. Italy has become much more desirable as an expat location in recent years with Milan being one of the leading contenders in the European war for talent.
