The Crisis Has Broken a Convergent Path
Recent Italian labor force data put into stark relief the dramatic social gap between the Northern and the Southern regions of the peninsula. The slow progress toward convergence between North and South was brusquely interrupted with the crisis that started in 2008. As a result, employment dropped sharply in the Southern regions, three times faster than in the rest of Italy. And the employment rate was already dangerously low there before the crisis: in 2007, it was 46.5% in the South (people between 15 and 64 years of age) compared to 65.4% in the Center and Northern regions.
The historical backwardness of the South can be seen by looking at the existing wage disparity, whereby wages are 20% lower than in the North. In this regard, the Bank of Italy has recently commented that "high unemployment and the informal economy suggest that the cost of labor, although lower than in the North, is still too high to balance labor demand and supply, given the accumulated productivity lag. In the absence of wage flexibility, migration is the force driving the equilibrium between supply and demand." The problem is that today migration drains the more highly educated human resources from the South, while reinforcing the vicious circle of quantitative and qualitative depreciation of the "Mezzogiorno's" labor and production assets.
The symbol of South's industrial decline is FIAT's decision to shut down the Termini Imerese car assemby plant in Sicily, and to drastically downsize Pomigliano d'Arco in Campania, while at the same announcing €8 billion worth of investments, mostly going to the plants in Northern Italy. FIAT's disengagement from the South is the tip of the iceberg of a much larger movement away from the region affecting small and medium firms. The country's economy just can't afford that.
What is to be done, then? Since the political horizon still seems clouded, there needs to be a positive supply shock affecting the Southern manufacturing base, so that struggling companies can be allowed to survive. Industrial relations are key in this respect. Before the crisis many had observed that unions were a thing of the past, linked to the phase of large-scale manufacturing.
But the current crisis shows that good industrial relations are fundamental to finding viable and effective solutions to the crisis. The problems of the South can only be solved by a new system of labor relations that binds private investment and public incentives to the local territory and experiments with new forms of manufacturing and compensation flexibility. It takes incentives to make employment in the South attractive to those seeking it. It takes unionists and managers that are less attentive to political factors and more focused on collective bargaining.
All this requires that labor unions and associations of industrialists stop being paternalistic about the South and start delegating decision-making powers to their territorial actors, in the key areas of wages, labor organization and on-the-job training.