The recent dismal performance of overall job creation has left Italy, as of the end of the 90s, with very low participation and high unemployment rates. Moreover, Italy exhibits a large regional dispersion of those variables when compared to similar European Union economies. The present paper, using Census data on employment from 784 Local Labor Systems (LLSs), covering the whole Italian territory, analyzes job creation and its determinants for the 1981-1996 period. Local characteristics (inputoutput linkages, pool of local workers, technological spillovers), technological diffusion and infrastructure provision affect productivity in each LLS and, lacking wage flexibility, they determine differences in job creation across them. We analyze those characteristics across Italian LLSs and regions, developing measures for each of them and then we estimate their impact on job creation. The sizable (0.8% a year) difference in employment growth between the Northeast and the Southwest, as well as the overall differences across LLSs are explained up to one third by those characteristics. In particular, strong local input-output linkages across industries and fast growing transport infrastructures are shown to be important determinants of job creation. The southern Italian economy emerges in this analysis as rather differentiated within itself. Some parts of the Southeast show current characteristics compatible with good job creation, particularly if helped by investment in infrastructures. Most of the Southwest, on the other hand, is still lacking local characteristics for self-sustained job creation and has been strongly penalized by the cut in public investment in the 90s.
Author(s): Alejandro Cuat (IGIER and CEPR), and Giovanni Peri (Università Bocconi, IGIER and EUI)