World Economy

Italy Should Change Law to Employ Youth

Italy Should Change Law to Employ Youth
Italy Should Change Law to Employ Youth

Italy should let people retire early with lower pensions to reduce the country’s almost 40% youth unemployment rate, the head of the pensions and social security agency says.

The 2011 law that raised the pension age to almost 67 “had the bottleneck-effect of suddenly locking in many workers for up to four years,” making it difficult for employers to hire young people, Tito Boeri said in an interview. While he favors the idea of linking retirement to life expectancy, there was no need to prevent people from retiring sooner with lower pay, said Boeri, who has been the president of the Istituto Nazionale della Previdenza Sociale for a year, Bloomberg reported.

Almost a third of Italy’s total public spending net of debt-financing costs went toward pensions last year for a total of €259 billion ($289 billion), according to government estimates. To try to make pension spending more sustainable, in 2011 then-premier Mario Monti raised the retirement age for men from 65 to 66 and seven months and set rules to gradually take it up to that level for women by 2018. He also completed reforms putting new pensioners on a system based on total contributions instead of one on the final years’ salary.

While Italy created 764,000 more permanent jobs in 2015 than it did the year before, according to INPS data released Tuesday, youth unemployment remained high at 37.9% in December, the last month for which data are available. That compares with an overall jobless rate of 11.4%.

Boeri stressed the need to shield young people from the worst effects of economic downturn and called on lawmakers to pass, before year’s end, a law introducing some form of income support for the poor similar to ones already existing in other European countries.

Concerns that a high number of older workers may opt for early retirement all at once, putting a strain on the system, shouldn’t be overplayed, Boeri said. Projections made by his team show that “a flexible system of this type would be budget-neutral” because “additional pensions for earlier retirees are lower than those paid to people retiring later.” He also said he favored applying early retirement just to one industry or sector at first as “a useful test” ahead of any general overhaul of the system.

In order to make future pension spending even more sustainable, the existing highest pensions based on the final years’ compensation should be curtailed, by reducing the difference between their current value and the estimated contributions during the working lifetime, Boeri said in the Feb. 9 interview.