In-work poverty in Italy - EUROPEAN SOCIAL POLICY NETWORK (ESPN) Raitano, M., Jessoula M., Pavolini, E., European Commission
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EUROPEAN SOCIAL POLICY NETWORK (ESPN)
In-work poverty
in Italy
Raitano, M., Jessoula M., Pavolini, E.,
Natili, M.
Social EuropeEUROPEAN COMMISSION
European Social Policy Network (ESPN)
ESPN Thematic Report on
In-work poverty
Italy
2019
Raitano, M., Jessoula M., Pavolini, E., Natili, M.
Directorate-General for Employment, Social Affairs and Inclusion
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Reproduction is authorised provided the source is acknowledged
Quoting this report: Raitano, M., Jessoula M., Pavolini, E., Natili, M. (2019). ESPN Thematic Report on In-
work poverty – Italy, European Social Policy Network (ESPN), Brussels: European Commission.In-work poverty Italy
Contents
SUMMARY .................................................................................................................... 4
1 ANALYSIS OF THE COUNTRY’S POPULATION AT RISK OF IN-WORK POVERTY ................... 5
2 ANALYSIS OF THE POLICIES IN PLACE......................................................................... 9
2.1 Policies with a direct influence on IWP ................................................................. 10
2.1.1 Policies with a possible effect on individual earnings.................................... 10
2.1.2 Cash welfare policies affecting household income ....................................... 12
2.1.3 Labour market policies affecting job quality ............................................... 12
2.1.4 Policies affecting employment levels ......................................................... 13
2.2 Policies with an indirect influence on IWP ............................................................ 14
3 POLICY DEBATES, PROPOSALS AND REFORMS ON IN-WORK POVERTY AND
RECOMMENDATIONS ............................................................................................... 14
4 ASSESSING DATA AND INDICATORS ......................................................................... 16
REFERENCES .............................................................................................................. 18
ANNEX: ADDITIONAL TABLES AND FIGURES .................................................................. 19
3In-work poverty Italy
Summary
Italy is characterised by a comparatively high rate of in-work poverty (IWP)1: in 2017,
the incidence of IWP was 12.3% in Italy, versus 9.6% on average in the EU, and the risk
of IWP increased by 1.2 percentage points (pp) in the period 2012-2017. The self-
employed are characterised by a higher IWP risk than employees (19.5% vs 10.1% in
2017), and the risk for male workers is higher than for females – not totally surprising,
given that female workers, though paid less than males on average, are often household
second earners, while males are often the only income recipients in Italian households.
Therefore, a household’s characteristics are a key driver of IWP, as confirmed by the
distribution of IWP risk by household type: the risk – never negligible in Italy – rises
steeply when there are dependent children living in the household and when household
work intensity is low. However, non-standard employment, which affects an individual’s
earnings, is a further driver of IWP, as confirmed by the much higher IWP risk for fixed-
term employees (22.5% in 2017) vs employees on open-ended contracts (7.8%); and
part-time workers (18.6%) vs full-time workers (11.1%). By using national
administrative data, we may also confirm that fragmented employment careers – mostly
due to the spread of fixed-term arrangements – are the main driver of employees’ low
wages, thus they also contribute to increased IWP risk.
Hence, the empirical evidence presented in this report clearly suggests that the
comparatively high IWP in Italy mainly depends on the interplay between the low wages
for a high proportion of workers and the limited number of labour income recipients in
many households. Consequently, the key challenges related to IWP concern both
measures to increase individual earnings (e.g. rebalancing the bargaining power between
trade unions and employers) and improve workers’ conditions in the labour market, and
measures to increase the number of income recipients in the most disadvantaged
households, in particular among females.
However, in recent years, few policies have addressed IWP in Italy. Distinguishing
policies which influence IWP directly (e.g. changing employment outcomes and incomes
of household members) and indirectly (e.g. incentivising labour supply), we noticed that
the only measure introduced with the explicit aim of increasing low-to-mid earnings was
the “Bonus 80 Euro” introduced in 2014. Nevertheless, since it was based on the
personal income tax schedule, this measure may not be very effective at dealing with
IWP. Also measures providing tax relief on the share of earnings paid by firms as a
productivity premium cannot reduce IWP significantly, since firms that pay productivity
premia and offer employees so-called “second-level bargaining” are usually also firms
that pay wages well above median earnings. Limited effects on IWP are also expected to
be produced by the minimum income scheme (REI) introduced in 2018, largely because
of its very limited generosity. Some measures introduced to reduce labour market
segmentation might improve job quality, thus strengthening individual positions in the
labour market; but other measures introduced in recent years – e.g. further deregulation
of fixed-term arrangements – might produce the opposite effect. Finally, so far in Italy no
proper strategy has been implemented to increase female participation rates, by enabling
welfare services (e.g. childcare, long-term care). We therefore argue that – though
relevant – IWP is de facto not a policy priority in Italy, since most measures have dealt
with IWP only indirectly, by focusing on issues related to job precariousness,
unemployment and poverty risks. The idea that being employed is a sufficient condition
to avoid poverty is well entrenched in the national economic policy debate, and is usually
framed by the dichotomy between “work” and “receiving an anti-poverty cash benefit”.
The possible introduction of the so-called “Citizenship Income”, currently under
discussion in parliament, might have an effect on IWP; but these potential effects may
only be assessed after reform details are revealed.
1
For ease of reading, we will refer to the notion ‘at risk of in-work poverty’, and to the indicator that measures
it, using the generic term of ’in-work poverty’ (IWP).
4In-work poverty Italy
In the final section of the report, we present some suggestions on how to assess in-work
poverty risk differently, by focusing more equally on the individual and the household
dimension, also with the aim of more thoroughly evaluating the policies that may affect
both labour market outcomes and household poverty.
1 Analysis of the country’s population at risk of in-work poverty
Apart from where otherwise specified, in this report we use the EU indicator of in-work
poverty (IWP) risk, which is defined by combining an individual’s and a household’s
economic conditions. According to this definition, an individual is considered in-work poor
in a year when i) he/she is aged 18-64 and is in employment (as an employee or a self-
employed person) for at least half of the year, and ii) he/she belongs to a household with
an annual equivalised disposable income lower than 60% of the median of the national
equivalised disposable income.2
Hence, IWP risk is assessed according to the individual’s employment condition, which
defines the population subgroup to be analysed, and the household’s (equivalised)
income, which identifies the poverty status of the worker. Therefore, IWP is not
necessarily associated with a low-paid job, since the individual’s in-work poverty
condition is assessed at the household level, and so also depends on the household’s
characteristics.
In EU-28 cross-country comparisons, Italy was characterised by a relatively high value of
the IWP indicator in 2017 (the latest available year, using information collected in the
2017 EU Statistics on Income and Living Conditions (EU-SILC); see Figures 1A-1B).
Indeed, the incidence of income poverty among those employed for at least half of the
year was 12.3% in Italy, versus 9.4% on average in the EU. Italy had the fourth-highest
IWP, after Romania, Spain and Greece.3 Furthermore, the IWP risk is on the rise in Italy,
since the value of the indicator increased by 1.2 percentage points (pp) in the period
2012-2017 (from 11.1% in 2012). Note also that the gap between the IWP rate in Italy
and in the EU-28 increased over the observed six-year period, from 2.2 pp in 2012 to 2.9
pp in 2017.
2
Equivalised disposable income is made up of gross incomes earned in the market from every source
(employment, self-employment, capital, land) by all household members, plus cash welfare transfers, net of
personal income taxes and social insurance contributions; incomes are equivalised by dividing total income by
the so-called equivalence scale to take into account differences in household size.
3
IWP in Luxembourg was slightly higher than in Italy in 2016 (12.0% and 11.8%, respectively), but the value
of IWP for Luxembourg in 2017 was missing when this report was completed.
5In-work poverty Italy
Figure 1A: Evolution of the in-work at-risk-of-poverty rate in Italy, %, 2012-
2017
Source: elaborations on Eurostat, ilc_iw01.
Figure 1B: Evolution of the in-work at-risk-of-poverty rate in the EU-28, %,
2012-2017
Source: elaborations on Eurostat, ilc_iw01.
The self-employed are characterised by a higher IWP risk than employees (19.5% vs
10.1% in 2017, respectively). This may be due to a higher number of very low earners
among the self-employed (especially among the young and within atypical “para-
subordinate workers”,4 who are classified as self-employed in EU statistics); to a possible
underreporting of actual incomes by the self-employed (in line with this hypothesis, the
4
“Para-subordinate workers” are individuals who are self-employed in legal terms, but are often “economically
dependent” on an employer, since their activity is reliant upon a single client (Raitano, 2018a).
6In-work poverty Italy
material and social deprivation rate of the self-employed, at 7.2%, was slightly lower
than that of employees (8.0%) in 2017); and to the fact that household members often
share the same self-employment activity (e.g. two married lawyers who share the same
law firm, or a family worker who helps the household head in the business activity):
occupational homogamy among the self-employed might indeed negatively affect the
household economic condition when the business is in trouble. Note also that the gap in
IWP risk between the self-employed and employees increased in the period 2012-2017
(among the self-employed, the IWP risk increased by 2.5 pp in that period, as against
0.7 pp among the employed). However, IWP risk for the self-employed was higher in the
EU than in Italy in 2017 (22.2% vs 19.5%), while the opposite emerges for employees
(7.4% in EU vs 10.1% in Italy; only in Spain and Luxembourg is the IWP risk for
employees higher than the Italian value).
Nevertheless, high IWP risks for the self-employed are particularly worrisome for Italy,
which is characterised by a very high proportion of self-employed individuals in a cross-
country comparison (according to Eurostat Labour Force Survey (LFS) data, in 2017 the
self-employed accounted for 21.1% of all workers in Italy vs 13.9% in the EU-28).
However, in Italy the share of the self-employed has diminished in recent years, not least
due to some measures introduced to make it less easy for firms to hire through “false”
para-subordinate arrangements, rather than through employment contracts (Raitano,
2018a): according to Eurostat LFS data, the share of the self-employed in Italy
decreased from 25.2% in 2004 to 22.8% in 2012 and 21.1% in 2017.
IWP risk in Italy in 2017 was higher for male workers (13.4%) than for female workers
(10.6%), despite the lower wages that are generally characteristic of females in Italy
(according to EU-SILC data, the gender pay gap is large in Italy: female mean annual
gross labour income amounted to 73.5% of the male figure in 2014). The lower IWP risk
for females is not surprising, given that a female worker is often the second earner in
household. Indeed, in accordance with the old-fashioned male breadwinner model, the
male household head is often the only income recipient in the household, especially in
the southern regions (Barbieri et al., 2018). This is confirmed by the low female
employment rate: according to LFS data, in 2017 the female employment rate was
48.9% in Italy, compared to 62.4% on average in the EU. The IWP risks for males and
females increased by 1.2 pp and 1.1 pp, respectively, from 2012 to 2017. Moreover, both
male and female IWP risks are higher in Italy than in the EU as a whole; the gap between
the figures for Italy and the EU is higher for males (3.4 pp) than for females (1.5 pp).
As remarked, household characteristics are a crucial driver of IWP. Consistently, we see
that the IWP risk is slightly lower for workers aged 18-24 (12.3% in 2017), despite their
usual very low wage, than it is for those aged 25-54 (12.8%). This is because younger
workers still tend to live with their parents (Barbieri et al., 2018). The IWP risk is 9.9%
within the group of workers aged 55-64. The IWP risk for the youngest group in Italy is
slightly lower than the EU value (12.5%), which corresponds with the fact that Italian
youngsters leave home later than EU workers. By contrast, the Italian values of IWP in
older age groups are higher than the EU values (the gap amounts to 3.2 pp and 1.1 pp in
the age groups 25-54 and 55-64, respectively). Moreover, the IWP risk declined for
workers aged 15-24 in the period 2012-2017 (-0.9 pp), whereas it increased for the
other two age groups (+1.4 and +1.8 pp among those aged 25-54 and 55-64,
respectively).5 This suggests that the process of leaving home is slowing down even
further in Italy as a result of the economic crisis.
IWP risks are clearly related also to education, since this individual characteristic is
associated with an individual’s employability and earnings and – through assortative
mating processes (Ermisch et al., 2006) – with the household characteristics. In Italy in
5
The reduction in the IWP for young workers might also be related to the decrease in the employment rates for
the 15-24 age group (from 19.2% in 2011 to 17.1% in 2017, according to LFS data); this further contracts the
already small group of young workers.
7In-work poverty Italy
2017, IWP risks decreased strongly in line with education (20.9%, 9.8% and 5.3%
among those with at most lower secondary education, upper secondary education and
tertiary education, respectively), even if there was a non-negligible increase in the
incidence of IWP in all educational groups in the period 2012-2017 (+2.9, +1.0 and +0.9
pp within the three aforementioned groups, respectively). Note also that Italy has an IWP
incidence higher than the EU value for all educational groups, with the highest gap
involving tertiary graduates (+0.8 pp).6
As expected – given that non-standard employment arrangements are usually associated
with lower annual wages – IWP risks are higher for fixed-term employees (22.5% in
2017 – up 2.7 pp from 2012) than for open-ended employees (7.8% in 2017 – up 2.0 pp
from 2012), and for part-time workers (18.6% in 2017 – a rise of 0.6 pp from 2012)
than for full-time workers (11.1% in 2017 – +1.8 pp from 2012). Note also that the
share of part-time workers who reported in EU-SILC 2015 that it was not their choice to
work part time was much higher in Italy (47.4%; 43.0% among female part-timers) than
in the EU as a whole (26.9%; 23.3% among female part-timers).
Moreover, consistent with a picture of increased fragility of working careers, which affects
annual labour incomes, Figure A1 in the Annex shows, on the basis of administrative data
about employees in the private sector collected by the Italian National Social Security
Institute (INPS), that:
the share of workers employed for a whole year on a full-time basis fell sharply
from 53.6% in 2005 to 46.7% in 2014;
the share of employees working without interruption in a year on an open-ended
contract was around 57% in 2014 (it was lower than 54% at the peak of the
economic crisis);
the share of employees who work without interruptions over a year was 62% in
2014 (58.6% in 2009). Note also that, in line with the high fragmentation of the
Italian labour market, a roughly constant share of private employees – around 17-
19% – works for at most six months in a year, and hence is not included in the
observation group of the IWP risk.
Fragmented employment careers (also due to the spread of fixed-term arrangements and
part-time arrangements) are the main driver of employees’ low wages. INPS data show
that in 2014, 25.7% of all private employees had annual gross earnings lower than the
relative poverty threshold (i.e. 60% of median equivalised disposable income);7 this
figure dropped to 11.8% and 5.9% when only those who worked at least 26 weeks and
52 weeks in a year, respectively, are considered; and it becomes very low (around 1%)
when only full-timers employed for the whole year are taken into account (Figure A2 in
the Annex).
Highly heterogeneous IWP risks (though high for all groups) also emerge when we
distinguish workers by citizenship, signalling problems of labour market integration for
non-Italian citizens. IWP risks are indeed much greater for workers without Italian
citizenship: in 2017, 22.2% for other EU citizens; 31.8% for non-EU citizens; and 9.3%
for Italians. By comparison, note that the IWP risks for citizens of other EU countries and
non-EU citizens in the EU as a whole are 8.2 pp and 8.5 pp lower, respectively, than the
values for Italy. Note also that IWP risks for non-EU citizens increased by 8.2 pp from
2012 to 2017.
As expected – given that the IWP risk is closely associated with household composition –
this risk is largely heterogeneous across household types, and rises when household
needs (i.e. number and characteristics of members) are higher: in 2017 in Italy, the
6
The gap with respect to the EU value is 0.3 pp and 0.5 pp for those with at most a lower secondary and an
upper secondary education, respectively.
7
Individuals with annual earnings below the threshold are certainly considered as working poor according to
the EU definition if they live in a single-person household and have no income from other sources.
8In-work poverty Italy
incidence of IWP was 16.5% among single-person households; 25.3% among single-
parent workers with dependent children; 6.8% among workers who live with at least one
other adult but without dependent children; and 14.2% among workers who live with at
least one other adult and with dependent children. An increase in IWP risks characterised
all household types in the period 2012-2017. For all household types, IWP risks are
higher in Italy than the EU generally.
As is obvious, given the characteristics of the EU indicator of IWP, household work
intensity is closely associated with IWP risk: the incidence of this risk varied in 2017 from
7.1% and 11.6% among workers who live in households with very high or high work
intensity, to 25.3% and 38.8% among workers who live in households with medium or
low work intensity. However, in an indication that low levels of individual wages and
other incomes play a crucial role as a driver of IWP, it has to be stressed that IWP is
particularly high in Italy even among those who live in households with high work
intensity: in the EU as a whole, the IWP risk for workers living in a high work-intensity
household was 5.4% in 2017.
Hence, the evidence summarised in this section suggests that the relatively high IWP
characterising Italy mainly depends on the interplay between the low wages received by
a high proportion of workers (partly due to the spread of non-standard arrangements)
and the low number of labour income recipients in many households. Actually, according
to EU-SILC data, in 2015 in Italy 37.6% of individuals aged 18-64 who had worked at
least six months lived in a household with at most one recipient of labour income (or a
pension), whereas the corresponding figure was 26.9% in the rest of the EU. Moreover,
the share of individuals living in single-recipient households increased over time (it was
33.4% in 2009).
Therefore, key challenges for dealing with IWP in Italy concern both measures to improve
individual earnings and conditions in the labour market (especially in terms of
employability for the whole year on a full-time arrangement) and measures to increase
the number of income recipients within the most disadvantaged households. In
particular, the female employment rate needs to be increased: it is particularly low
among the low skilled (29.8% among females with at most lower secondary education in
2017 vs 37.2% in the EU-28, according to LFS data), who usually belong to poorer
households.
2 Analysis of the policies in place
In line with the EU definition adopted in this report, IWP risk is assessed according to a)
the individual employment condition, which defines the population subgroup to be
analysed (e.g. those working only a few weeks in a year are not included, since they are
not considered workers); and b) household “resources and needs” (Bane and Ellwood,
1986) – that is, the equivalised income obtained by dividing total household income (the
resources) by the equivalised number of components (a proxy of household needs).
Therefore, as pointed out in Section 1, the EU indicator of IWP is not merely associated
with the incidence of low-paid jobs within the group of those employed for a given
number of months in a year, since the individual’s in-work poverty condition is assessed
at the household level, and thus depends on many factors apart from his/her earnings,
related both to the household’s composition and its characteristics (the number, age and
state of health of all members; the aforementioned “needs”) and to the net flow of
annual resources available to the household – i.e. labour incomes of the other household
members plus other market incomes or welfare transfers obtained by all household
members. Hence, following this approach, the number of labour income recipients in a
household might play at least as important a role as a driver of IWP as the individual’s
earnings.
Note also that all measures of IWP risk that we presented in Section 1 refer to the
incidence of the phenomenon (i.e. how many individuals are below the threshold), while
9In-work poverty Italy
no analysis of the intensity of IWP and its trends (i.e. how far from the threshold the
working poor are) is carried out. Effects on incidence (whether the measure allows
someone to exit IWP) and intensity (whether the measure allows someone to narrow the
IWP gap) have instead to be distinguished when assessing the direct and indirect effects
of various policies on IWP.
Furthermore, due to data limitations and methodological complexities, the standard
definition of equivalised income only captures an individual’s economic conditions related
to monetary income and cash welfare transfers (Canberra Group, 2011; Raitano, 2018b).
Therefore, some items clearly associated with the economic wellbeing of an individual,
but not captured by the standard measure of disposable income – in-kind welfare
transfers (e.g. long-term and health care), non-cash incomes (e.g. imputed rents for
home owners), tax expenditures (e.g. for transportation fees), consumption taxes –
have, by definition, no direct effect on the IWP indicator. However, these items might
indirectly affect IWP by easing household budget constraints and favouring the labour
supply of household members.
These preliminary caveats are crucial, on the one hand, for a better interpretation of the
figures presented in Section 1 about the extent and trend of IWP in Italy as a whole and
in the various subgroups of the population; and, on the other hand, to assess the
possible effects of policy measures that may influence these trends either directly (e.g.
changing employment outcomes and incomes of household members) or indirectly (e.g.
incentivising the labour supply of household members).
Actually, as pointed out by Frazer and Marlier (2010), in-work poverty depends on the
interaction of a very complex set of factors, since the EU IWP indicator is a hybrid
concept, where individual and household situations overlap. In this section, instead of
separating out the factors that act on individuals’ and households’ conditions, we
distinguish two main sets of factors: those that directly (Section 2.1) and indirectly
(Section 2.2) influence an individual’s IWP risk. Furthermore, while we consider as
indirect every factor that improves an individual’s employability and weakens constraints
on their labour supply (e.g. due to low skills or to the need to provide informal childcare
within the household),8 we further distinguish policies that may have directly affected
IWP risk according to the dimension of the IWP concept they focus on: i) individual
wages (e.g. through collective bargaining or the introduction of a minimum wage); ii)
total household incomes (e.g. through minimum income schemes); iii) the quality of
employment (e.g. reducing segmentation between standard and atypical contracts); iv)
the number of employed individuals (e.g. through effective industrial policies).
2.1 Policies with a direct influence on IWP
2.1.1 Policies with a possible effect on individual earnings
A major measure (the so-called “Bonus 80 Euro”) was introduced in 2014 with the aim of
increasing the net earnings of employees through a permanent deduction applied to
personal income tax (IRPEF). It consists of a monthly bonus of €80 (€960 per year) for
labour earnings of between €8,174 and €24,600 per year, with a progressive reduction in
the benefit up to €26,600 (in order to smooth the decrease in the benefit amount when
earnings increase).9 Therefore, those who in a year earn less than €8,174 or more than
€26,600 are excluded from the “Bonus 80 Euro”. The self-employed and pensioners are
8
It has to be remarked that enabling welfare services (e.g. education, childcare and long-term care) cannot
directly reduce the IWP risk, since it is computed by using the standard measure of disposable income, where
the monetary value of in-kind welfare transfers is not included. Likewise, non-cash provisions to poorer
households (e.g. means-tested rebates on utility bills) do not affect disposable income, but might change
individuals’ options and choices.
9
In detail, in the income bracket €24,600-€26,600, the annual benefit amount is computed according to the
formula 960*(26,600-annual earning)/2,000. The benefit is then zero for those earning more than €26,600 per
year.
10In-work poverty Italy
also not entitled to receive this bonus, but it is paid to recipients of unemployment
benefits and some categories of para-subordinate workers (e.g. project and continuous
collaborators).10
The “Bonus 80 Euro” was explicitly introduced with the aim of increasing the net incomes
of low-middle earners and – although it was not introduced with the specific aim of
reducing the IWP risk as defined by the EU – it clearly contributes to reducing both the
incidence and the intensity of IWP when the beneficiaries live in single-person
households. However, if we assess the effectiveness of the measure in reducing IWP, we
may argue that the target efficiency of the bonus (i.e. the efficient use of limited public
resources to improve the conditions of the target group most of all) is rather limited,
since not all resources have been directed specifically to the working poor. Since it is
based on the personal income tax system, the bonus is paid according to individual
(rather than household) incomes and is given even to individuals who live in households
with income well above the relative poverty threshold (e.g. a part-time worker with a
high-wage partner). On the other hand, since it is based on deductions applied under the
personal income tax system, the bonus is not received by those workers whose earnings
are too low to allow them to benefit from tax deductions (so-called incapienti). Therefore,
we cannot consider the “Bonus 80 Euro” as a pure in-work benefit, since it is not
assigned to the most needy workers.
No further specific wage subsidies or low-earnings credits (apart from the effects of
personal income tax progressivity) are provided for low-wage workers, and, apart from
the “Bonus 80 Euro”, no major changes in the personal income tax schedule have been
introduced in Italy since 2012.11
Note also that, despite some proposals that emerged in the debate before the
introduction of the “Jobs Act” reform of 2015, a national minimum wage scheme does not
exist in Italy, since minimum wages for employees are established by the national
centralised collective bargaining in each sectorial labour contract. As a consequence, all
employees are covered by industry-specific minimum wages, while workers who do not
belong to the national contractual bargaining system (i.e. para-subordinate workers and
all self-employed categories) have no sort of minimum wage.
As an effect of the slowdown in GDP growth in the last decade, contractual wages have
remained fairly constant in recent years, and earnings in the public sector were frozen in
nominal terms from 2010 to 2015, thus exposing even those middle-pay workers who
were the only income recipients in the household to increased IWP risk. Some wage
increases mostly affect employees in the private sector who benefit from supplementary
decentralised “second-level” bargaining; however, only a minority of employees are
covered by “second-level” contracts, and this supplementary bargaining favours
employees in the largest and strongest firms, who usually receive wages above the
median wage and thus have a much lower risk of being working poor.
To boost productivity in the public sector and to ease wage increases, two policy
measures introduced in 2016 and 2017 established a preferential tax rate (10% instead
of the marginal personal income tax rate) for the “productivity premium” – i.e. the
increase in employees’ earnings related to an increase in productivity – paid by firms
where second-level bargaining exists. Moreover, productivity earnings premia are totally
tax exempt if they are provided in the form of contributions to private and occupational
welfare services (e.g. for early childhood education, childcare and long-term care,
supplementary pension and healthcare schemes, housing and transport facilities).
10
To be considered as continuous, the collaboration contract duration must be at least 30 days per year. If this
requirement is not fulfilled, the collaboration is considered “occasional”. Project collaborations are based on a
specific project to be carried out by the worker (i.e. the worker cannot simply carry out repetitive tasks).
11
Some changes involve a slight increase in the social contribution rate for para-subordinate collaborators and
a decrease in this rate for para-subordinate professionals (Raitano, 2018a), and an increase in tax deductions
for some categories of the self-employed working as freelance professionals.
11In-work poverty Italy
However, as mentioned, both the second-level bargaining and productivity premia almost
exclusively favour workers with firms that pay relatively high wages, who are thus much
less exposed to the IWP risk.
2.1.2 Cash welfare policies affecting household income
Some measures have been introduced since 2012 with the explicit aim of improving the
economic conditions of the unemployed and reducing households’ poverty risks.
Therefore, even if not specifically intended to address IWP, these measures might have
had an effect on the incidence or (more likely, since the sums concerned are not very
generous) the intensity of in-work poverty.
First, after a long debate and some experimental measures for certain categories of poor
individuals (e.g. the “New Social Card” pilot scheme introduced in 2012, later renamed
“Support for active inclusion” – SIA), a national minimum income scheme called REI
(inclusion income, reddito d’inclusione) was introduced in Italy in 2018 (Raitano et al.,
2018). REI is a means-tested monetary benefit based on a household indicator of
equivalised economic conditions, which takes into account both income and wealth. It is
conditional on signing a “social contract” aimed at promoting active inclusion through
individualised plans and service provision. However, the REI is based on very tight means
testing: the conditions are not met even by many individuals with household income
below the absolute poverty threshold. Furthermore, REI monthly amounts are very
limited, ranging from €187.50 for a single-person household to €539.82 for households
with at least six members. Therefore, the REI does not represent an effective solution to
IWP risks, because the number of beneficiaries is rather low and the generosity of the
benefit is very limited; at most, it might help to very slightly reduce IWP intensity, rather
than to sharply reduce its incidence.
Two major reforms of the unemployment benefit system were introduced in Italy in 2012
and 2015, increasing the generosity (in terms of duration and amount) of the benefit
provided to the great majority of employees (meanwhile, some more generous benefits
for workers with large firms, e.g. the mobility allowance, were abolished), extending the
coverage of unemployment benefits to para-subordinate collaborators, apprentices and
internship workers, and providing a means-tested benefit for the long-term unemployed
(this benefit has since been abolished by the introduction of the REI). Given that low-
wage and temporary workers are generally more exposed to unemployment risks than
are high-paid workers, and more often live in poorer households, we can argue that the
reform of the unemployment benefit system has helped mitigate workers’ poverty risks.
Some increases in the monthly value of minimum pensions were also introduced in 2017.
This increase might contribute slightly to mitigate IWP, if pensioners live with younger
individuals on low wages.
2.1.3 Labour market policies affecting job quality
Some measures have been introduced to deal with labour market segmentation between
standard and atypical workers (mostly para-subordinate workers and fixed-term
employees) and increase job quality.
To this end, Italian governments have followed a three-pronged strategy to reduce the
extent of para-subordinate arrangements: i) a process of gradual increases in social
insurance contribution rates to improve coverage for certain events (e.g. retirement,
unemployment, maternity) and to reduce the advantage to employers – in terms of lower
labour costs – of para-subordinate arrangements; ii) the introduction of stricter
regulations aimed at detecting “false” para-subordinate arrangements for both
collaborators and professionals (Law No. 92/2012); iii) the abolition of some types of
contractual arrangements, namely (with some exceptions) project collaborations and
continuous and co-ordinated collaborations (since 2016 and 2018, respectively; Decree
No. 81/2015) and “vouchers” (replaced by a new type of arrangement for additional
workers since July 2017; Decree No. 50/2017). These measures have been effective,
12In-work poverty Italy
since the number of para-subordinate low-paid collaborators has halved in recent years
(Raitano, 2018a).
At the same time, the Jobs Act reform (Law No. 183/2014, phased in from 2015) and,
previously, the labour market reform in 2012 intervened with the aim of reducing
segmentation by weakening real guarantees for open-ended employees in case of unfair
dismissal, with the idea that reducing firing costs would incentivise firms to hire through
permanent rather than temporary arrangements. Furthermore, to favour open-ended
contracts, the Jobs Act introduced very generous social contribution reliefs (for a three-
year period) for firms that hired open-ended employees in 2015-2016.
Robust estimates about the effects of the Jobs Act on the level and composition of
employment – i.e. on the share of individuals hired through open-ended contracts – are
not available, because too many confounding factors of possible labour market drivers
are still present. However, first estimates show that the reform seems not to have had an
effect on total employment (Cirillo et al., 2017), while the increase in the number of
open-ended contracts (especially in 2015) was due to the temporary contribution reliefs,
rather than to the change in employment protection legislation (Sestito and Viviano,
2016). The only way in which the Jobs Act can be expected to have anything more than a
marginal effect on IWP is if the reform leads to a clear improvement in the quality and
duration of the contractual arrangements offered to workers.
However, as a counterpart to measures aimed at reducing labour market segmentation,
a reform that made it easier for firms to hire individuals through fixed-term employment
arrangements and for them to renew these contracts for three-year period was
introduced in 2014.12 The further deregulation of fixed-term contracts might thus worsen
the strong intermittence of working periods already discussed in Section 1 (see Figure A1
in the Annex), which, as remarked, is a major driver of in-work poverty.
An increase in labour market fragmentation is also due to the increasing diffusion of “job
vouchers”, due to deregulation of the use of this contractual arrangement in 2012 and in
2015. Under this arrangement, a client pays workers using vouchers sold in shops; the
value of the voucher (including social contributions) is €10. The number of workers paid
in vouchers has increased dramatically in recent years, possibly suggesting that this
measure was mis-used to replace dependent employees, until the rules concerning job
vouchers were tightened up in 2017.13
However, it has to be pointed out that the increase in labour market segmentation and
fragmentation – which might be an undesirable effect of a highly deregulated labour
market – may have, paradoxically, a beneficial effect on IWP level, as measured by the
EU indicator. Indeed, since the indicator refers to those working for at least half a year
only, a more fragmented labour market – that would likely worsen the economic
conditions of most disadvantaged workers – might actually reduce the incidence of IWP if
those previously counted as working poor exit the reference population because they
become unable to work more than six months in a year.
2.1.4 Policies affecting employment levels
As mentioned, a very effective strategy to deal with the IWP risk, as conceptualised by
the EU indicator, consists in increasing the number of earnings recipients in the most
disadvantaged households. Therefore, all policies fostering employment rates contribute
to reduce IWP.
12
Note, however, that the recently introduced Law No. 186/2018 has reinforced limitations in the usage of
fixed-term contracts.
13
As discussed in Jessoula et al. (2018b), the 2017 reform has limited the type of firms allowed to use
vouchers and the total amount of vouchers that a worker can receive in a year, and has increased (from 13%
to 33%) the pension contribution rate paid on vouchers. The reform also stated that the net hourly wage
cannot be lower than €9 and the daily net wage has to be at least €36.
13In-work poverty Italy
Some tax reliefs on labour costs have recently been introduced in Italy; as mentioned,
they benefit firms that hire open-ended employees or disadvantaged workers (e.g. those
aged less than 30 or living in the South). But so far there has been no clear evidence of a
push effect of these measures on employment rates – and then on IWP risks.
More generally, an ambitious plan (named “Industry 4.0”) to incentivise firms to use new
technologies, and thus to foster productivity, wage and employment growth, was
introduced in 2017; but we have no evidence at the moment about the possible impact of
this plan on IWP through an improvement in employment and wages.
2.2 Policies with an indirect influence on IWP
Measures that have a positive effect on individuals’ employability – even if not directly
captured in the short term by statistics on wages and disposable income – might
contribute to reducing IWP risks. In particular, enabling welfare services that weaken
constraints on the labour supply of females belonging to poorer households might be
considered a way to reduce IWP.
To this end, some monetary income support has been introduced in Italy since 2017 to
reduce the cost of childcare and long-term care, and to more easily reconcile work and
family-related care activities (e.g. bonuses for new-born babies and help with the costs
of attending public and private nurseries; paternity and parental leave; a national fund
devoted to seriously disabled persons without adequate family support). However, as
pointed out by Jessoula et al. (2018a), the availability of affordable services in early
childhood education and long-term care is still limited, and these measures often lack a
consistent strategy. The expected influence of these measures on increasing female
participation rates and, thus, on an IWP decrease is then limited.
Some effects on IWP through higher employability (also through the provision of effective
lifelong learning activities, especially for low-skilled workers) might have been
engendered by the reform of the active labour market policies introduced by the Jobs
Act, which has introduced a re-employment allowance for those who apply to
employment services and has created a national agency for active labour market policies
(ANPAL). However, these reforms have only been very partially implemented and they
are still too recent for them to have had any positive effects on IWP. Note also that,
according to the current government statements, strengthened active labour market
policies are going to be implemented through the introduction of a new minimum income
scheme, the so-called “Citizenship Income” scheme, which is to be introduced in 2019
(see next section).
3 Policy debates, proposals and reforms on in-work poverty and
recommendations
As clarified in the previous section, apart from the “Bonus 80 Euro” – which targets low-
to-middle earning workers and might mitigate the effects of in-work poverty for some
individuals – no policy measures have been introduced since 2012 with the explicit aim of
dealing with IWP. Therefore, IWP cannot be considered a policy priority in Italy: most
policy measures have dealt only indirectly with IWP – by focusing on issues related to job
precariousness, unemployment and poverty risks (e.g. as concerns the Jobs Act, the
reform of the unemployment benefit system and the introduction of the REI minimum
income benefit). Therefore, following Strati (2010), we may argue that “in Italy policy
measures addressing the working poor cannot be clearly separated from policies aimed
at fighting poverty and social exclusion as a whole”.
Furthermore, as already pointed out by Strati (2010), no clear definitions of in-work
poverty, working poor and low-wage employment exist either in Italian research or in
official national statistics.
14In-work poverty Italy
We may thus argue that IWP has not been identified as a crucial issue in key
governmental declarations. Conversely, the idea that being employed is a sufficient
condition to escape from poverty is usually at the core of the political economy debate,
as also confirmed by the debate about the introduction of the REI or the “Citizenship
Income”, which is usually framed by the dichotomy “work” or “receiving an anti-poverty
cash benefit”. Therefore, in Italy we can identify no comprehensive “active inclusion”
approach to the prevention and alleviation of IWP that supports access to quality
employment, ensures access to enabling services and provides adequate income support,
given that IWP is not considered an issue at the core of the economic policy debate
(apart from where it intersects with unemployment and poverty risks).
Some planned reforms currently under discussion in parliament might have an effect on
IWP, in particular as concerns the on-going introduction of the so-called “Citizenship
Income”. As discussed in Jessoula et al. (2018b), Italy’s Draft Budgetary Plan for 2019,
which has to be approved by parliament before the end of the year, envisages the
introduction of the “Citizenship Income” (CI) scheme, directed at poor adults who have
resided in Italy for at least five years. The CI is going to replace the REI minimum
income scheme. Although the details of the means-tested requirements, job
conditionality rules and types of expenses allowed through CI have not been presented,
according to statements by government members CI aims at tackling poverty by
guaranteeing all (equivalised) individuals an income not below the relative poverty
threshold of €780 a month for a single individual; incomes below that threshold would be
topped up by CI. Also, CI will favour the active inclusion of CI beneficiaries in the labour
market and, to this end, the government has announced a plan to strengthen Public
Employment Services by increasing resources and investment in workers’ competences.
Even if not directly addressed at tackling IWP, the CI scheme will have major
consequences for the IWP risk, even if, being unknown at the moment crucial details
about the scheme, the direction of these consequences is currently undetermined. On the
one hand, if the government promises are effectively implemented, all individuals will be
guaranteed a minimum income equal to the relative poverty threshold, and thus IWP will
be wiped out. On the other hand, if this ambitious (and costly for the public finances)
plan is not realised, the effect on IWP is not clear. Indeed, one might ask what the effect
of the new minimum income scheme (which is much more generous than the REI) will be
on wage levels – why should an individual accept a job offer on a wage lower than the
guaranteed CI? What will be the effect of CI on wage bargaining? And the labour supply
may decline (or some individuals may be tempted to move to the informal sector) if
proper conditionality rules for entitlement to CI and adequate public employment
services and active labour market policies are not implemented. Currently, these possible
effects cannot be assessed, since the details about the specific characteristics of the CI
scheme, apart from its vague general rules, are lacking.
Actually, as pointed out in previous sections, Italy lacks a clear and consistent strategy to
deal with IWP and its various drivers. As mentioned, the main challenges concern both
the worker’s outcomes in the labour market – in terms of wage levels and job quality,
mostly related to the type of contractual arrangement – and the household’s total
income, which – leaving aside cash welfare benefits (e.g. minimum income schemes and
unemployment benefits) – is crucially affected by the number of earnings recipients
within the household. That figure is still low in Italy in a cross-country comparison,
especially due to the low female employment rates.
Therefore, proper policies should focus on a set of measures aimed at increasing female
employability, as effective reconciliation measures between job and care activities and a
big increase in the number of jobs in public services (e.g. long-term care and childcare)
might ease the female labour supply and expand the number of good jobs available in
the market, especially for female workers.
As concerns workers’ employability, limits should be reinforced on the use of atypical and
very low-paid contracts (e.g. the vouchers). Firms should be prohibited from hiring
“platform workers” (e.g. those working for digital providers such as Uber and Foodora)
15In-work poverty Italy
through bogus self-employment arrangements, thus allowing these workers to benefit
from the provisions of the national collective agreements. And the incentives to hire
workers through standard full-time open-ended contracts should be strengthened, by
making that more advantageous than using atypical contracts.
Finally, in our opinion perhaps the main issue concerns policies to increase wages paid by
the labour market (leaving aside the possible benefits deriving from reducing personal
income tax rates on lower incomes). Strengthening workers’ bargaining power in the
labour market is a complex issue that depends on the relative power of trade unions and
employers as a main driver of income inequality. It is also related to the potential
consequences of major forces as a potential skill-biased and labour-saving technological
progress and the increased globalisation that damages the prospects of low-skilled
workers in developed countries.
In line with statements included in a recent book by Tony Atkinson (2015), despite the
undeniable pressure exerted by technological progress and globalisation on wage shares
and the increase in low and median wages, we might consider that the risk of low wages
and fragmented working careers depends not merely on “natural” exogenous forces, the
effects of which can only be offset through an ex post redistribution towards the most
disadvantaged (through unemployment benefits and minimum income schemes).
Actually, the effects of these exogenous forces on market outcomes are always related to
explicit policy choices by international institutions, national governments and main
stakeholders, and these choices also refer to explicit decisions about how to deal with
technological progress and globalisation.14
Accordingly, rebalancing the power between firms and workers (i.e. capital and labour)
should represent a policy priority to deal with the IWP risk, as it would be to deal with
increasing income inequality (Franzini and Pianta, 2015). Atkinson (2015: 237) states
that “Public policy should aim at a proper balance of power among stakeholders, and to
this end should (a) introduce an explicitly distributional dimension into competition
policy; (b) ensure a legal framework that allows trade unions to represent workers on
level terms; and (c) establish, where it does not already exist, a Social and Economic
Council involving the social partners and other nongovernmental bodies.”
More generally, we can argue that there is no one-size-fits-all approach to tackling IWP:
appropriate policies depend on the underlying driver – both at the individual and the
household level – and on country-specific policy and institutional settings.
4 Assessing data and indicators
As remarked in previous sections, the EU definition of IWP is a hybrid concept, as it
mixes labour market considerations at the individual level with household characteristics
and incomes. Indeed, poverty risks for workers and households (and inequality in
general) can be considered engendered by a sort of process made up of three steps
(Raitano, 2018b): i) individual outcomes in the labour market (captured by wage levels
and the quality of employment); ii) equivalised market incomes of all household
members (crucially affected by the characteristics of household members); iii)
equivalised disposable incomes after taxes and transfers (where in-kind and non-
monetary incomes should also be taken into account).
In our opinion, the best way of depicting the main drivers of IWP and the effects of
policies to counteract it, by relying on proper microdata (such as those collected in the
EU-SILC), would be to explicitly highlight the risks that emerge in step 1 (i.e. individual
outcomes in the labour market, possibly also including in some cases those who
14
Consistently, in his list of proposals to reduce the extent of inequality, Atkinson (2015: 237) states that “The
direction of technological change should be an explicit concern of policy-makers, encouraging innovation in a
form that increases the employability of workers and emphasises the human dimension of service provision.”
16In-work poverty Italy
involuntarily work for only a few months of the year, to avoid possible paradoxical effects
pointed out in Section 2). After that, the association between these individual outcomes
and the household’s outcomes would be investigated in relation to market and disposable
income.
For instance, if we wanted to focus on risks emanating from low pay (or the lack of a
minimum wage), in our view it would be better first to measure how many individuals
receive wages that are so low that they would risk falling below the poverty threshold if
they lived alone. Then, it would be interesting to ascertain how many (and which)
individuals are not poor if the household level is considered. This would assess the role
played by household composition, non-labour incomes and welfare redistribution.
Therefore, it would be interesting to study the correlation (by household and worker
types) between low annual earnings and relative poverty, and to see why and when the
findings of the two concepts are inconsistent.
In practical terms, the IWP risk and the effects of various policies on the incidence and
intensity of this risk should be investigated using EU-SILC. As a first step, a two-way
table should be used to assess an individual’s poverty risk (based, for instance, on having
an annual labour income below the relative poverty threshold). This risk would be
crossed-referenced with the standard poverty risk computed at the household level (to
which the current EU definition of IWP mostly refers). See, for instance, Tables A1-A4 in
the Annex, where two-way tables for all workers and for only those who worked at least
six months in a year in 2014 and 2005 are shown.
In our opinion, the EU definition mixes the various steps of the income distribution
process. This confounds the analysis of mechanisms related to individual labour market
outcomes and wages, and hence places much more emphasis on the household
dimension than on the individual labour market dimension. For instance, according to the
EU IWP concept, every measure that allows an increase in second-earner participation
rates in the labour market (e.g. through an atypical arrangement in a digital platform)
reduces IWP, even if that measure might contribute to unacceptable increases in
earnings inequality and in the share of low-paid workers. Likewise, the role of indirect
policies (i.e. in-kind welfare benefits, as discussed in Section 2) is difficult to disentangle
with the EU definition of IWP, since they confuse a welcome increase in participation
rates with a rise in the number of low-paid workers in poor-quality jobs.
In other words, one may agree to focus only on those who work at least half the year
(even though labour market risks could be related to changes in activity rates over time
and this might complicate comparisons of trends across time and across countries); but
an exhaustive concept of IWP should allow both dimensions of the risk (i.e. the individual
and the household dimensions) to be more clearly distinguished, rather than identifying
the poverty status only according to the household’s equivalised income.
Therefore, in our opinion, both dimensions are worthy of analysis. The EU approach,
where IWP mostly emphasises the household dimension, risks biasing the assessment of
possible policy proposals by always favouring an increase in the employment rate,
irrespective of the effects engendered in the labour market.
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