The Effects of COVID-19 Crisis on the Southern Italian Labor Market: Employment Elasticity Estimation Approach

Abstract

The falling in production and income due to the COVID-19 pandemic will cause a wide impact on employment. The outcome will depend on the reactivity of the labor market to economic shocks. Specifically, in this work, we propose an analysis to estimate the impact of the COVID-19 crisis on the employment level in the Italian macro-regions: North-West, North-East, Centre, and Mezzogiorno. Using the employment elasticity indicator for the 2015–2019 period, we can observe that the elasticity of employment is greater in the Mezzogiorno in respect to other areas. This result suggests that the job loss in Mezzogiorno will be proportionally higher even if the reduction in income will be lower. The data showed that in southern Italy, the newly unemployed could be a number between 405,000 to more than half a million. Indeed, the estimation of employment elasticity of GDP suggests that the COVID-19 crisis could determine a decline in the occupation rate in the South of 0.83 for each point of GDP loss, which has no comparison with the other Italian regions. These results, due to the particular structure of the southern economy—characterized by low aggregate demand and small dimensions of firms—suggest necessary changes in economic paradigms with respect to the neoclassical approach adopted in the past 20 years. Demand-driven policies, such as basic income and labor redistribution, could avoid or mitigate the socioeconomic tragedy caused by the COVID-19 crisis.