Is Long-Term Non-employment a Lifetime Disease?

Abstract

Long-term non-employment (which is not long-term unemployment) has been almost neglected in the academic literature, long term here implying up to 15–25 years of absence from the labour market, let alone full and definitive exit. This study takes the lead from a previous paper (2017) in which the magnitude of long term non-employment (LTNE) and its duration are estimated from administrative databases of Italy, Germany and Spain (Contini B, et al., IZA discussion papers, no.11167, 2017). In all three countries long-term nonemployment appears to be a lifetime disease for many workers who drop out of the (official) labour market and never return, left unsheltered from the welfare institutions. The main task of this work is an analytical exploration of the factors leading to LTNE development in Italy, estimated at almost 1.3 million male individuals (about as many as the officially unemployed), average duration exceeding 12 years. An econometric exploration indicates that it is often more profitable for employers to hire new unexperienced young workers in place of confirming individuals already onthe-job, leading to excessive turnover, long-term non-employment and waste of human capital. There are strong policy implications of this result as the EU Commission has for many years advocated low wages for new entrants and high contract flexibility as major instruments to promote youth employment.