Inflation leads to 2.3 million families in absolute poverty | Italy

The economic recovery of 2021 and, subsequently, the conflict in Ukraine, generated strong inflationary pressure in the country, with the consumer price index reaching a record level of 11.9% in October 2022 (as in March 1984). In addition to having a negative impact on GDP growth estimates in the two-year period 2022-2023, the inflationary push risks bringing the number of families in absolute poverty from 2 to 2.3 million – the highest number since the beginning of the Istat survey in 2005 – , for a total of 6.4 million people. This is what emerges from Think Tank Report 2022 «Welfare, Italy» supported by Unipol Group with the collaboration of The European House – Ambrosetti.

The impact of high prices will be particularly serious for families that are already more vulnerable, which allocate 76% of their income to essential expenses (food, rent, water, electricity and gas, health) (vs. 56% for families with more income): for less well-off families, the disposable income for out-of-pocket expenses (not necessary for subsistence) has already been more than decimated by inflation, decreasing by 20.7% (15.7 percentage points more of the richest quintile).

Furthermore, inflation will also have a negative impact on savings and on the value of real wages: according to OECD estimates, in 2022 the value of real wages in Italy will decrease by -3.1% (compared to the OECD average of -2. 3%), in a context in which Italy, in the last 30 years, has been the only country in the OECD area that has seen a decrease in wages (-0.1% per year between 1990 and 2020).

According to the estimates of the “Welfare, Italy” Think Tank, the generalized increase in welfare expenditure induced by the pandemic continues also in the post-COVID-19 period: after the growth of 46 billion euros in 2020, between 2021 and 2022 the in the 3 «traditional» pillars (Health, Social Policies, Welfare) and in Education it increased by a further 22 billion, of which 18 in 2022 alone, reaching 615 billion euro. In relative terms, social security continues to absorb around half of welfare spending (48.4%), followed by health (21.8%), social policies (18.2%) and education (11.6 %).

Labor market and demographic dynamics are the two key functions of a welfare system. After having explored the theme of work in the past edition, in 2022 the Think Tank “Welfare, Italy” focused on the demographic area, analyzing its dynamics, causes, impacts, and possible action strategies.

In 2021, for the first time in Italian history, the number of births fell below the threshold of 400,000 (standing at 399,000), contributing to a negative natural balance of 214,000 people. Already in 2020, mainly due to the COVID-19 pandemic, there was a negative natural balance of 335,000 people, the worst since 1918 (the year of the “Spanish” epidemic).

The reflection of this trend is the birth rate, which in Italy is equal to 6.8 births per thousand inhabitants, the lowest value in the entire European Union, with a gap of 2.3 births from the European average (9.1 born) and 4.8 from the best performing country (Ireland, with 11.6). As a result, Italy has the highest old-age dependency rate in the EU-27 (40.1 over-65s per 100 people aged 20-64), behind only Finland (40.3%) and with a value higher than the European average (35.4%) by 4.7 percentage points.

On the migration front, between 2011 and 2020, the balance was positive and equal to 1.7 million people (2.9% of the Italian population in 2020). However, in the same period, for both of its components – emigration and immigration – Italy reports respectively increasing and decreasing trends: the number of emigrants increased by +93.9% (7th variation at EU level), while the number of immigrants decreased by -35.8% (the worst variation in the EU).

A critical aspect concerns the human capital lost (and not recovered) by the country: of the 121,000 Italians who left Italy in 2020, 26% (about 31,000 people) possessed a degree or higher education qualification and, at the same time , the percentage of foreign graduates in the country (13.3%) is the lowest in the entire OECD area (average of 40.8%).

“Welfare, Italy” has estimated that if all emigrants in 2020 did not return to Italy during their working life, the country would lose around 147 billion euros, or the sum of the cost of lost education spending, equal to 10.5 billion euros, and the lost income earned by emigrants during their working life abroad (estimated at around 35 years), amounting to 136.5 billion euros.

Given current demographic trends, in the absence of corrective policies, by 2035 Italy will lose 4.2% of its population compared to 2022 (equal to 4.4 million people of working age) and will have to support 3.6 million over- 65 more than current levels; by 2050, in the baseline scenario of the United Nations, the Italian population could reach 52.3 million people – 6.7 million less than in 2020 – with an incidence of over-65s equal to 37% of the total. Considering the worst-case scenario, the population decrease from 2020 levels could be 10.5 million fewer in 2050.

The decrease in the labor base and the increase in the elderly population will put even more pressure on the sustainability of the country’s welfare system. In the pension field, in 2035 the number of pensioners will exceed that of the employed for the first time (the equilibrium ratio should be 3 workers for 2 pensioners) and, in the same year, the incidence of pension expenditure on GDP could reach a peak of 17.5%. In the health sector – where aging is associated with an increase in non-communicable and chronic diseases and with greater pressure on health and social-health care systems – according to estimates by Meridiano Sanità, public health expenditure will reach 164 billion euros by 2035 (7.9% of GDP) and 220 billion euros by 2050 (9.5% of GDP).

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