Fact # 7: School and University are Good, Labor Demand is Inadequate

[If you have read ANY of the Facts #1 through # 6 of the current series, you have already read the premise. Thus, you should skip it and proceed to read Fact # 7 below]


On October 5, 2014  I decided I should embark on writing a series of short newspaper-like articles with the goal of attracting attention to explanations of the current situation of the Italian economy alternative to the ones offered by the (overwhelmingly neoclassical) austerity lovers. While I had not planned to publish both in Italian and in English, the ‘likes’ I got on the first three pieces in Italian convinced me that I should go the extra mile and publish them in English as well.

Of course, ‘likes’ on socials are not the only reason to publish in English. My preoccupation is that even many foreign colleagues of valor tend to adhere, along with the foreign general public, to judgments about the Italian economy that are not facts at all but, rather, judgments presented as facts. I thought it would be worthwhile to alert colleagues and public alike: when reading austerians, please take what you read cum grano salis, my friends!

And here is Fact # 7

Fact # 7      It is NOT TRUE that school and university must follow the lead of labor demand by firms. What IS true is that Italian firms are not capable of employing productively the young out of our (excellent) Schools and Universities.

Over the last three or four years Italian media have been paying growing attention to a rather specific labor market feature: that of mass youth unemployment (obviously arisen because of the so-called ‘austerity’ policies adopted by the European governments with the active support of ECB, EC and IMF). Such problem has been purported as amismatching between the skills and competences acquired by young people exiting secondary- and tertiary-level educational institutions – in shorts, Schools and Universities, and skills and competences that firms demand. (Of course, the right in the US discusses the ‘mismatching issue’ in the same way –but Paul Krugman has already discussed on his blog the ‘mismatching’ issue in general). What is exactly the problem?

1. The story as it is told to the people

Here is the version ad usum delphini broadcast bynewspaper and media:

So, what do these young ones want?  Don’t they understand that they will have to adapt to life, we all made sacrifices. One has to just look around to see that a huge shortage of plumbers… They (the young ones, not the plumbers, fs) have to learn to get their feet wet! (The Italian equivalent of this expression seems more appropriate: they have to learn to get their hands dirty!).

This version of the (mismatching) story is tremendously instructive. Indeed, the first thing we learn is that ‘to get one’s hands dirty’ appears to be a good thing. A good thing? May be, but the reason? What special virtues does the ‘getting one’s hands dirty’ allow one to acquire, that jobs that one can do with clean hands do not allow for? [To reassure my reader, let it be stated clearly at this juncture that I am a Bruce Springsteen fan, and that I especially like the sentence out of ‘Shackeld and Drawn’ that reads ‘..Freedom son is a dirty shirt, sun on the face and shovel in the dirt..’ but let it be stated that I also understand the historical dimension of the song…] Dirtying our young’s hands is, perhaps, the means through which we build better citizens and a better society? Or, again: has humankind erred for millennia, or at least from Aristotelis onward, thinking that education is the way through which human beings gain at once dignity on the one hand and ability to organize and conduct production processes ever more productive of profits and wages?

If, on the other hand, I am reading too much in the above sentence, than there is only one other interpretation: ‘getting one’s hands dirty’ is not a good, then what I understand is that we have to make do [still Bruce Springsteen, ‘Jack of all trades]: one gets one’s hands dirty is not a choice, but rather a lack of alternatives. In short, here is the message: you young, stop dreaming to practice medicine just because you studied to become a physician, stop dreaming to become a primary school teacher just because you studied to become one, stop wanting to be a…..

We recognize such a way of thinking, do we not? Is it not the same one used by the austerians, who ask to forget dreams of investment and growth as ways to reduce public debts?

2. The version sang by the true believers

True believers do not talk like the people do as in sub 1, of course. In their case, mismatches are easily taken care of, since mismatches are manifestations of the bad influence that the State and trade unions have on the market. With a little help, those manifestations can be removed, and the free market can get back to be free and perfect allocator of the labor force (as it does with bananas, machine tools and so on, same thing). The tools to accomplish the goal have been known for a long time: agenzie per il lavoro (labor intermediaries), osservatori del mercato del lavoro (labor market observatories), and so on and so forth all the way to the latest scam. That ‘Jobs Act’ purported to be the savior of the Italian labor market (Why such tools never worked and the conditions of the Italian labor market have been deteriorating instead, is something that their advocates will surely explain in due time.)

3. The facts

But what mismatches are they talking about? What frictions on the Italian labor market? Just two bits of data suffice to open the dances, that is, to show that not frictions we are facing in Italy, but mass unemployment: 13% overall unemployment rate, 23% youth unemployment. These are terrifying numbers: the issue is not to increase production of plumbers by 10,000 due the excess demand of same, and to reduce production of primary school teachers by 18,000 due to lack of demand for them! Frictions exists necessarily all the time, the more so when a particular industry grows rapidly and personnel with the skills and competences required are so special and new that time is needed to lure them away from other industries and for the educational system to start producing in more adequate numbers.

But, I need to ask, where are these industry in such rapid ascent? There are none. What is missing here is plain, old, labor demand for skilled labor. And when firms do not hire, skilled (and less skilled) young ones vote. With their feet, they vote, as my old Economic History Professor taught me when discussing in class models of slaves flight form the Cotton South. In our instance, they emigrate. Which is exactly what happens in Figure 1, where the changing stock of Italian residents abroad is depicted.

Figure 1. Italian Citizens Abroad, May 1995 – June 2013

2015 01 04 Fatto 7 - Figura 1

Source: Anagrafe degli italiani all’estero (A.I.R.E.), Ministero dell’Interno

Figures 2 and 3 taken together allow answering to more than just one question: 1. Do more people emigrate in 2007, right before the start of the Great Recession, or in 2013? And again: 2. In what ways changed the composition of the outgoing population according to degree attained before leaving the country?

Figure 2. Registrations and cancellations to and from abroad of Italian Citizens aged 25 and older, by degree, 2013

2015 01 04 Fatto 7 - Figura 2

Source: Istat

 Figure 3. Registrations and cancellations to and from abroad by degree of Italian Citizens aged 25 and older, by degree, 2007

2015 01 04 Fatto 7 - Figura 3

Source: Istat

Figures 2 e 3 narrate a very sad tale:

  1. More persons emigrated in 2013 than in 2007;
  2. The rate of growth of emigration is highest for persons with college degrees;
  3. The number of immigrants declined between 2007 and 2013.

It is worthwhile to note that Figures 2 e 3 report ‘official data’, that is, the number of movements actually reported by the moving person. There being no penalty at all associated with the failure to report, it is immediately clear that the official data underreport the ‘true’ size of the phenomenon (Among the reasons leading to failure to communicate the move to the authorities are: 1. Fear to lose some right in the old country (i.e., health coverage); 2. Fear that the experience abroad may turn out not to be as expected and that a turnaround will be shortly necessary).

For those among our readers who do not have the time to ponder on Figures 1 and 2, let us point out that Figure 4 reports that the cohort of holders of college degrees increased strongly since 2004 and then accelerated again in 2009. Again, a very ugly story: labor demand, that is, firms, push abroad more forcefully those with college degrees, those who carry with them the most valuable skills and competences, the better educated ones, those potentially most capable of contributing innovation, profitability, competitiveness. And what about specializations, comparative advantage? We already know that in a globally integrated production system[1] a country’s specialization coincides with the array of products its firms can make competitively relative to the rest of the world. And so, let us ask the final question: what production activities will a country (Italy) specialize in, that at once pushes away its young with a college degree and fails to attract foreign-born college degree holders? Garments?

Figure 4. Growth of Italian Citizens aged 25 or more deleted from Italian civil registry for registering at the civil registry of a foreign country, by level of education. Annual data, 2002-2013 (basis 2002=100)

2015 01 04 Fatto 7 - Figura 4

Source: Istat

And so, we finally are in the brain drain trap: we train our young, whose cost is in large part met by the State coffers, but firms have no interest in employing them. Good, our young ones are, so good that they easily find good jobs elsewhere. Young ones who go and produce value added elsewhere. Who pay taxes elsewhere. Who contribute to aggregate demand elsewhere.

No, none of this is good. None of this bodes well.

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