Analyzing the Impact of Youth Unemployment on Italy's Economic Growth

This case study examines the impact of high youth unemployment rates on the economic growth of Italy. The paper highlights that Italy has a high youth unemployment rate compared to other OECD countries, which has been followed by fluctuations in the country's economic growth. The study explores the inverse relationship between youth unemployment and GDP growth, illustrating how high youth unemployment leads to increased crime rates, high dependency ratios, and low investment, thereby stagnating economic growth. The analysis discusses how lack of experience traps fresh graduates in a vicious cycle, and how the extension of contracts for older employees negatively affects productivity and future prospects of organizations. The study concludes that youth unemployment plays a major role in stagnated economic growth in Italy, emphasizing the diversion of resources, low productivity, and low investments as major factors.

Running Head: YOUTH UNEMPLOYMENT & ECONOMIC GROWTH, CASE STUDY OF ITALY 1
YOUTH UNEMPLOYMENT & ECONOMIC GROWTH, CASE STUDY OF ITALY
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Introduction
In accordance with the standards of European Union, youth unemployment refers to
unemployment rate affecting people between the ages of 15 to 24 years. Statistics have ranked
Italy among the 35 member countries of OECD with the highest youth unemployment rates
(Dietrich & Möller, 2016). Youth unemployment rate in Italy has been rising dramatically since
the financial crisis hit the country in 2008 to a peak rate of 42.67% in 2014. In the year 2017,
among all the EU members, Italy’s youth unemployment rate (35.1%) was only exceeded by
Spain and Greece. Its youth unemployment rate was double to that of total EU rate (16.7%) in
2017 (Leonardi & Pica, 2015).
Coincidentally, the youth unemployment rates in Italy have been followed by fluctuations
in the economic growth of the country. For instance, the Italian economy has recorded no growth
in the third quarter of this year, following a 0.25% expansion in the second quarter and below the
market expectation of 0.1 % growth which was the very first time GDP stalled in the country
since 2014 (Caporale, Di Colli, Di Salvo & Lopez, 2016). Italy’s GDP Growth Rate has,
therefore, averaged 0.59% since 1960 until 2018, with an all-time high rate of 6% in the second
quarter of 1970 and the lowest record of -2.80% in the second quarter of 2009 (Magazzino &
Forte, 2016). Comparing these two records (youth unemployment & GDP growth rate) in the
country indicates an inverse proportional relationship between the youth unemployment rate and
the GDP growth rate. This paper discusses the consequences of high youth unemployment rates
in the economy of Italy.
First of all, high youth unemployment rates facilitate the breeding of highly energetic and
potential youths with personal demands and bills to meet but with no income to enable them to

YOUTH UNEMPLOYMENT & ECONOMIC GROWTH, CASE STUDY OF ITALY 3
meet those demands. In such scenarios, they tend to get involved in criminal activities with an
aim of making the ends to meet or in illegal trade deals (illicit brew, drugs, vigilante groups, and
poaching) and the government is forced to spend resources in an attempt to curb the rising crime
rates as well as illegal trade (O’Reilly, Eichhorst, Gábos, Hadjivassiliou, Lain, Leschke &
Russell, 2015). Often, such kinds of trade deals are not taxed and therefore spending resources
which could have been spending in other developmental agendas in the fight against them is a
direct loss of revenue and that drags the economic growth rate.
Also, a high youth unemployment rate implies that the dependency ratio is very high in
the country. For that matter, in a family of more than three children and the only working people
are the parents’ means that the earnings will only cater for basic needs of the family like food
and shelter and cannot be invested (Papadopoulos, 2016). Considering the fact that investments
and startups are the core to any growing economy, minimal or no investments at all due to the
high dependency levels caused by the high youth unemployment will definitely translate into a
stagnant economic growth as observed in the case of Italy.
Some of the job vacancies demand the employee to have a high level of experience and
that tends to trap fresh graduates lacking work experience into a vicious cycle. Lacking the
experience needed in such positions prevent them from getting employed (Mankiw & Taylor,
2008). On the other side, a gap is created in the labor market because the people holding those
positions keep on retiring and requires regular replacement with fresh minds that may lack due to
inadequate experience (O’Reilly et al, 2015). To prevent a downfall in organizations, instead of
letting the old folks retire their contracts are extended and that translates to a loss of skills and
productivity as well as harming of the organization future prospects. This is in consideration of
the fact that the productivity of employees tend to deteriorate as they grow old. Low productivity

YOUTH UNEMPLOYMENT & ECONOMIC GROWTH, CASE STUDY OF ITALY 4
by the business organizations translates into a stagnant economic growth rate and that means that
the economy of the country will remain stagnant (Marelli & Vakulenko, 2016).
Conclusion
In summary, the rates of youth unemployment as compared to the economic growth rate
in Italy have shown some kind of relationship in that, the high youth unemployment rates have
played a major role in the stagnated economic growth rate of the country (Mankiw & Taylor,
2008). Among the many ways through which youth unemployment affects the economic growth
rate of a country, this paper has identified three. The first way through which high
unemployment rate affects economic growth is through the diversion of resources which would
otherwise be used in other sectors to fight against crime and illegal trade among the youth, low
productivity because of retained old workers and low investments due to high dependency level.
References
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Dietrich, H., & Möller, J. (2016). Youth unemployment in Europe–business cycle and
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Leonardi, M., & Pica, G. (2015). Youth unemployment in Italy. No country for young people.
Marelli, E., & Vakulenko, E. (2016). Youth unemployment in Italy and Russia: Aggregate trends
and individual determinants. The Economic and Labour Relations Review, 27(3), 387-
405.
Magazzino, C., & Forte, F. (2016). Government Size and Economic Growth in Italy: A Time-
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Mankiw, N. G., & Taylor, M. (2008). Economic Growth I: Capital Accumulation and Population
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