By Don Quijones, of Spain & Mexico, editor at Wolf Street. Originally published at Wolf Street
To be young, gifted, educated and Italian is no guarantee of financial security these days. As a new report by the Bruno Visentini Foundation shows, the average 20-year-old will have 18 years to wait before living independently — meaning, among other things, having a home, a steady income, and the ability to support a family. That’s almost twice as long as it took Italians who turned 20 in 2004.
A Worsening Trend
Eurostat statistics in October 2016 showed that less than a third of under-35s in Italy had left their parental home, a figure 20 percentage points lower than the European average. The trend is expected to worsen as the economy continues to struggle. Researchers said that for Italians who turn 20 in 2030, it will take an average of 28 years to be able to live independently. In other words, many of Italy’s children today won’t have “grown up” until they’re nearing their 50s.
That raises an obvious question: if Italy’s future generation of workers are expected to struggle to support themselves and their children until they’re well into their forties, how will they possibly be able to support the burgeoning ranks of baby boomers reaching retirement age (66 years and seven months for men and 65 years and one month for women), let alone service the over €2 trillion of public debt the Italian government has accumulated (and which doesn’t include the untold billions it hopes to splash out on saving the banks)?
The trend could also have major implications for Italy’s huge stock of non-performing loans, which, unless resolved soon, threatens to overwhelm the country’s banking system. If most young Italians are not financially independent, who will buy the foreclosed homes and other properties that will flood the market once the soured loans and mortgages are finally removed from banks’ balance sheets?
As happened in Spain and other crisis-hit countries, global private equity funds will probably pick up much of the slack by buying up huge tranches of foreclosed or unoccupied properties, as well as occupied social housing units, at knock-down prices, but whether they’ll actually be able to rent the properties they buy or unload them at a profit is a whole other matter, what with most young Italians forced (or choosing) to stay at home with their parents.
At the Grim Edge of a Global Problem
Youth unemployment is a global problem that is already having a major impact on societies and their ability to finance their needs. Youth unemployment is a staggering 54% in Southern Africa. In Greece, it’s 46%, in Spain, 42%, in Italy, 40%, and Iran, 30%.
Averaged across OECD countries, 14.6% of all youth (some 40 million people) were so-called NEETs (Not in Education, Employment, or Training) in 2015. In Southern Europe the share was sharply higher, with between one-quarter and one-fifth of all young people out of work and not in education in Greece, Italy, and Spain.
In Italy the main reason why so few young Italians are financially independent is they can’t afford it. Of the 15 western European nations ranked in the 2016 Global 50 Remuneration Planning Report, Italy boasted the lowest average salary for full-time jobs aimed at recent graduates: €27,400 a year. That compares to €83,600 in top-placed Switzerland, €51,400 a year in second-ranked Denmark, and €45,800 a year in Germany and Norway.
Even in Spain, a country that has broken the 20% unemployment barrier three times in the last 30 years and which has been described by one Spanish economics professor as the “worst labor market on Earth,” recent graduates can expect to take home €3,000 more a year than their Italian counterparts.
The €1,000-a-month Dream
For unskilled workers, in Spain, Italy and Greece, the jobs reality is even bleaker. In Spain ten years ago, “mileurista” — a term to denote someone earning €1,000 a month — was coined to highlight the plight of young workers with low-paid jobs that could never dream of owning their own flat. Today, with a youth unemployment rate of over 40%, becoming a “milleurista” has become something to aspire to.
The alternative is the eternal internship carousel. In the complete absence of any kind of inspection regime, young workers are being shifted from one internship contract to another where they put in full-time shifts day after day in exchange for little more than their lunch money and bus fare home. Few of them will ever get hired full-time, and those that are, are invariably given a short-term contract that, once expired, is replaced by yet another. According to the Spanish daily ABC; of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs.
Yet somehow Spain’s new generation of unemployed, underemployed, badly paid, or “ni-nis” (NEETs) will soon be expected to maintain over eight million pensioners, who are living longer than ever and are used to earning an average state pension of €906 a month, the second highest (as a percentage of final salary) in Europe after Greece. As Spanish economist Juan Torres López writes, the idea that Spain’s youngest workers will be able to support the country’s swelling ranks of pensioners is risible, especially with Spain’s government pilfering the Social Security fund for other purposes like there’s no tomorrow.
The same goes for Italy whose crisis, in many ways, has barely begun. As in Spain, many of the country’s most gifted young workers will continue to migrate to better performing economies such as Germany, Switzerland, and the UK. With the many programs offering study and work opportunities to young people abroad, such as Erasmus+, “the choice is not so much whether to leave, but whether to stay,” according to a report by Fondazione Migrantes.
For companies in Northern Europe, the mass exodus of young talent from the South means cheaper labor while the governments pick up the income tax. But for countries like Italy and Spain it represents a hemorrhage of talent and skill, much of which was developed with public funds, with no corresponding return. And in that manner, the fiscal health of economies in Europe’s South, already pushed to the limit, will continue to decline. By Don Quijones.
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