In his keynote speech delivered on March 7th, at the University “La Sapienza” in Rome, Dr Ignazio Visco, the Vice Director General of the Bank of Italy, argued that Italian GDP will likely contract at an annual rate of -2.6% in 2009, down from previous estimate of -2%. From estimates of the Okun’s law for Italy, a 1% fall in growth translates into a 1 ½ increase in the unemployment rate. If Visco is right, the unemployment rate is bound to rise from 6.7% to 10.6%, roughly a 1 million units increase, in one year. Out of these workers, roughly one half are not covered by unemployment insurance.
In order to address this issue, the new leader of the opposition Democratic Party, Mr Franceschini, has proposed the introduction of a fix-term check for those job-losers which have no protection. Mr Berlusconi, the prime minister, dismissed the proposal as “unfeasible”, and argued that it may even be counterproductive as many small firms may find it convenient to lay-off workers (who would cash the benefits) and then hire them back “in black”. Short of a fully fledged reform of unemployment insurance, the proposal is reasonable and would not cost not too much. A 500 euro monthly check to 500thousand people would cost 3 billion euros, just 0.2% of GDP. Should the money come from a reform of the pension system? Following a recent sentence of European Court of Justice (and the forthcoming recommendation of the ECOFIN) some Italian observers suggests that the unemployment benefits should be financed by raising women retiring age. This is nonsense: this reform will generate at most 250millions, in 2013-14 [see Boeri and Brugiavini http://www.lavoce.info/articoli/pagina1000914.html ]: too little and too late. Raising the issue of pension reform now, in the current crisis, is going to scare off workers into even more precautionary savings. Not a brilliant idea, indeed.