Italian citizens’ income: Why the reform cannot be successful in activating people

The Italian government decided on major expenditure saving for the Italian citizens’ income called “Reditto di Cittadinanza” in August 2023. In order to finance promised tax cuts, the payments were reduced from 8 to 5 billion euro and the number of recipients by 40 percent. The IAB Forum editors interviewed the renowned Italian professors Paolo Barbieri, Marco Leonardi and Michele Raitano on how they judge the former programme, why they do not expect the current reform to succeed and what it needs to make an Italian citizens’ income work.

IAB-Forum: What was the reason to introduce Reddito di Cittadinanza in 2019?

Marco Leonardi: The first time that an anti-poverty measure was introduced in Italy was in 2017 under the Gentiloni government. The reason was that Italy was the only country in Europe – except for Greece – without a national anti-poverty measure. However, the measure that was introduced in 2017, the “Inclusion Income”, was very small and restricted to only a few families. So, in 2018 the new government introduced a larger measure, known as “Reddito di Cittadinanza” (RdC), which was in effect from 2019 to 2023. Not only did it involve an expansion of expenditure and potential beneficiaries, but also a change in the thinking behind it. While the Gentiloni government was only concerned with poverty, the new government was also thinking about activation.

What were the main features of the programme in 2019?

Michele Raitano: The RdC was not so different in its objective in comparison to the former measure, the “Inclusion Income”: both were based on the idea of selective universalism. That means that the government sets some conditions, such as a poverty line, and all those individuals living in households that satisfy these conditions are eligible to the benefits – given that they are disposable for activation. In the case of RdC, there were two sets of conditions: one set was related to income, wealth and residence. The second set obliged recipients to be active or to participate in social inclusion or active labour market policies.

Raitano: Recipients were obliged to participate in social activities, social inclusion or active labour market policies.

Michele Raitano is a Professor of Economic Policy and Head of Department of Economics and Law at Sapienza University of Rome.

What were the weaknesses of Reddito di Cittadinanza?

Raitano: The design of RdC was not fair. We must consider that it was introduced under a government that was formed by a coalition with the Lega party, an anti-migrant party, which implemented a very discriminatory requirement: only those individuals who have resided in Italy for at least ten years and for at least the last two years continuously could apply. Yet, migrants in terms of non-Italian citizens are much more frequent among the poor – i.e. they pay taxes, but they cannot receive a transfer that is tax-financed. Therefore, the principle of selective universalism is questioned, because it is only universal among those who satisfy the tight residence requirement.

How do you judge the eligibility criteria for the programme?

Raitano: The requirements on wealth and income were too extensive as well, which strongly reduced the number of potentially eligible individuals – without a clear reason why. If you have zero income, but you have 6,001 euros in financial wealth, you are not included. However, you might be included if you have a higher income, but only little wealth. As a consequence, many individuals either underreported their income and wealth in order to become eligible, or those working in the informal sector did not apply at all so as not to be controlled by the tax authorities. So, there was a non-taking gap, i.e. some individuals did not apply, although they were poor in terms of income and wealth. Moreover, the RdC applied a very peculiar equivalence scale, which assumed that returns of scale of family members are very high. This made it more difficult for large families to be entitled and reduced the benefit for those large families that were entitled as the benefit is inversely proportional to the equivalised income.

Leonardi: Very few people have found jobs while many have stayed too long in the measure.

Marco Leonardi is a Professor of Economics at the University of Bologna.

Leonardi: In my opinion, the largest weakness of the measure was the labour disincentive. There was a very low exit from RdC, i.e. only few people were matched with jobs. Very few people have found jobs while many have stayed too long in the measure.

Raitano: That is true. Beneficiaries could not take up new labour activities without reducing the benefit they received. The transfer withdrawal rate, i.e. the marginal tax rate, for those who perform a new job was among 80 or 100 per cent of the additional wage, which is very high. In other words, there was a disincentive for those in the scheme to take up job offers.

The programme had quite ambitious objectives. Was the implementation of the programme successful in achieving them in your view, Professor Barbieri?

Barbieri: In a way yes, because the programme was well funded for Italian standards. RdC was really effective in reducing poverty and inequality: the poverty incidence was reduced by 2 percentage points; poverty intensity was reduced by 3 percentage points; Inequality, as measured by the so-called Gini Index, was reduced by 0.5 percentage points. However, the RdC did not work to activate people – for plenty of reasons: on the one hand, the public employment services in Italy have always worked inefficiently so that the activation measures were implemented quite late and only partially.

What other reasons hindered the programme from being successful?

Barbieri: The Five Stars government did not confer the responsibility of managing labour policies related to the RdC upon experts in the field of labour and industrial policies, as there were no real labour experts within the government itself. On the other hand – and maybe more important –, there is a chronic lack of demand for labour in Italy and many entrepreneurs can only offer jobs under very bad labour conditions, such as short-time jobs, poorly paid. And then the Covid pandemic intervened. The combination of the lack of active labour market policies, Covid-19, and the chronic lack of demand for labour made it almost impossible for RdC to succeed as an activation measure.

Paolo Barbieri is a Professor of Economic Sociology at the University of Trento.

You just mentioned the Covid-19 pandemic. What was the role of RdC during the pandemic?

Barbieri: Many European countries tried to deal with the Covid-19 pandemic by strengthening the measures that they already had as their national minimum income system. However, this was not the case in Italy. RdC was introduced as an “electoral commitment” by the Five Star Movement, which had based its entire electoral campaign on the promise to introduce a RdC. The rhetoric of handing out 700 euros to families really boosted their electoral performance and helped them a lot to win the election. Indeed, they won the election in 2018 – and then they introduced RdC.

Barbieri: RdC was introduced as an “electoral commitment” by the Five Star Movement, which had based its entire electoral campaign on the promise to introduce a RdC.

As the virus spread and the government underwent a change of administration, political parties, including those on the left, were reluctant to reinforce a political tool that had been implemented by the Five Star Movement. They rather preferred to introduce a new measure, the Reddito di Emergenza, which was mixed with the Cassa Integrazione per Covid-19. So, for political reasons, the new government introduced new measures so as not to reinforce RdC which had been introduced by the former government.

Why was RdC discontinued in 2023? And what are the main features of the new measures “Assegno di inclusion” and “Supporto per la formazione e il lavoro”?

Leonardi: RdC was discontinued as the new government, the right-wing Meloni government, came into power. This government had a different belief in terms of what the poor are deserving of or not. It introduced new measures: “Assegno di inclusion” and “Supporto per la formazione e il lavoro”. The new measures are much smaller in expenditure and in the number of potentially entitled beneficiaries than the RdC. Moreover, it targets poor families with children and older people more strongly, while those who are able to work are put on active labour market policies. Assegno di Inclusione is similar to the Inclusion Income of 2017 as it is only for poor people with children and the disabled. And the other measure, Supporto per la formazione e il lavoro, is an activation tool aimed particularly at those who are able to work. By doing so, the right-wing government in 2023 reintroduced, from an ideological point of view, the distinction between the deserving and undeserving poor.

Leonardi: The right-wing government reintroduced, from an ideological point of view, the distinction between the deserving and undeserving poor.

Barbieri: The positive effect of the shift from RdC to the new Meloni social allowances was that the requirement for migrants to have lived in Italy had been reduced from ten to five years. However, a new measure applies which makes things even worse: The equivalence scale is now based on the assumption that there are very high economies of scales for large families. Consequently, it penalises large families even more than the equivalence scale of the RdC did.

Which means particularly poor families with children?

Barbieri: Exactly! It seems to be just a kind of technical adjustment, but on the opposite, it is really a matter of substance. From a universalistic perspective, the eligibility requirements both of the Assegno di inclusione (ADI) and of the Supporto per la formazione e il lavoro (SFL) are defined too narrowly and strongly means tested: ADI requires being employed, living in a family with either young people or disabled or older people and having a very low household income. If you do not fulfil these conditions, you are not eligible for the new minimum income implemented by the Meloni government. This is problematic. If you look at numbers, more than 900,000 households lost their RDC when the new scheme was introduced. The government was cutting transfer payments in order to increase the need for income and thereby forcing people back into (whatever kind of) job, often with bad working conditions. It’s a harsh “workfare” measure, not a welfare one.

Without any assistance?

Barbieri: Yes, almost without assistance. Or very little assistance and in any case under strict restrictions for the family. And indeed, the Gini coefficient and the absolute poverty rate have increased. In 2023, households in absolute poverty stood at 8.5 percent of total resident households, corresponding to about 5.7 million individuals. Of course, territorial divides in absolute poverty rates are dramatic: in Southern Italy, households’ absolute poverty rate is more than 10 percent.

Leonardi:  But there is one aspect that is really puzzling: Some believed that the discontinuation of the RdC for a large share of beneficiaries in 2023 would raise social unrest, at least in some parts of Italy where there is a lack of jobs. However, this did not happen. Nobody seemed to complain. There are many interpretations for this huge puzzle. Either they were used to working in the black market and they thanked the state for the additional money during the few years of the RdC; or they went back to their families, or they are simply suffering in silence. Or they are actually working perfectly fine without telling the tax authorities. There are quite a few possible interpretations.

Barbieri: Yes, I agree. The problem is that we have data and research on the economic consequences of the shift from RdC to the new minimum income scheme, but not on the social consequences of such a shift, like poverty, unemployment levels, social exclusion etc. What will happen to the descendants of the households that lost the benefit? What about the kids in the next years? And what will happen in the long run? This is a completely unanswered question.

Was the reform effective in terms of job acceptance? Do you have data on this?

Raitano: No, we do not have data on that.

Raitano: The reform distinguishes between those who are poor but could work, from those who are poor and cannot work. So, whether someone is entitled or not merely depends on the individual’s employability.

How would you judge the reform overall?

Raitano: The reform distinguishes between those who are poor but could work, from those who are poor and cannot work. So, whether someone is entitled or not merely depends on the individual’s supposed employability. However, the employability is not based on individual characteristics, such as the individual’s labour market history, but on household composition. If you belong to a household living in a good area with a child of age 17, you are not employable. If you are living in a poor area, but you have a child at age 19, you are employable and cannot receive benefits except for the Supporto per la formazione e il lavoro.

In other words, it is very inefficient to assess employability only on the basis of whether you live in a household with elderly, young or disabled members. It is correct and it is fair that the reform has increased the benefits for those who have a disabled member in the household. But the idea that your employability only depends on whether you have a child aged over or under the age of 18 or a household member aged or not above 60 is a bit at odds with the reality of the labour market.

Raitano: The employability is not based on individual characteristics, such as the individual’s labour market history, but on household composition.

How do you assess the activation success of the reform?

Raitano: Many of the beneficiaries of RdC were not individuals with zero earnings. They were individuals who worked, but worked for few hours, low wages and so on. However, these individuals were still employed. So, the idea to drop the benefit in order to activate more people is a bit at odds with the fact that many individuals are already activated. There are many households where a job is performed within the household – but that job is not enough. However, they are not eligible to receive the minimum income.

How could activation work?

Leonardi: Instead of separating the population into two – those who are employable and those who are not employable – based on household composition, the government should put everybody into one scheme, but make a distinction in the duration of the measure. The benefit should not be granted to anyone for an infinite period of time in order to incentivise people to work who do not want to work and who prefer to get money and not work, e.g. to six months a year. If the beneficiary finds a job during this period of time, but it is poorly paid, he should continue to get benefits. If it is well paid, the benefit will be discontinued, of course. But the limited duration alone is an incentive. The measure should be potentially infinite for those who are actually poor with regard to household composition and those who have minors – unless they find a job, of course.

Overall, it is very difficult in Italy to incentivise people to work. This is the basic lesson we have learnt from the experience of three governments that have tried to implement anti-poverty measures.

What about other measures such as counselling or qualification?

Leonardi: In principle, such measures are in place. But in practice they do not work (chuckles). They only exist in theory.

Barbieri: Jobs have to be created – secure jobs, long-term jobs, durable jobs. This can only be achieved through effective industrial policy.

Barbieri: I want to stress one point: in Italy nobody is talking about industrial policies. What should we do, where should we invest? It seems that everything is more relevant than that. The latest reforms under Meloni got more attention than real reasoning of the non-existent Italian industrial policy. That is problematic, because jobs have to be created – secure jobs, long-term jobs, durable jobs. This can only be achieved through effective industrial policy.

What is your advice to policymakers? How should the programme be adjusted?

Raitano: We need to adjust the equivalence scale in order to bring the benefit amount for singles and couples to a more appropriate level, and reduce the marginal tax rate in order to incentivise work. People should be able to work for a few months without a reduction in the benefit. This would enable them to enter the labour market and short-time employment could become a longer-term occupation.

In addition, we must change the discrimination against non-Italian citizens. This is not only a discrimination against foreigners, but it also discriminates against Italian citizens who have not been resident in Italy in recent years. First and foremost, we should go back to the universal selective principle – and then adjust the minimum income scheme in terms of amount, in terms of benefits and incentives to work. And of course – but this has always been an Italian issue – we should implement effective labour market policies.

Barbieri: As a sociologist I was really happy in late 2018 when the first selective universal minimum income scheme was introduced, because it was an absolute novelty for the Italian welfare state.

Barbieri: From a sociological point of view, I was really happy in late 2018 when the first selective universal minimum income scheme was introduced, because it was an absolute novelty for the Italian welfare state. In contrast, the new reform has set back the Italian welfare system by five to ten years, instead of moving it towards a more universal, more selective, more incentivising scheme that puts people back into work – into employment under good working conditions, not under precarious ones as is the case at the moment. I do not believe that a purely insurance-based social security system can avert the new kind of social risks arising from the post-industrial era and the advent of the digital economy. Therefore, we should move towards a more universal system. The introduction of RdC was a step in the right direction. Yes, the system had weaknesses, and there were things that could have been done better – but in the end, it was primarily the ideologisation of the debate that set us back by decades.

Leonardi: I agree with Paolo that in the face of the green and technological revolution, we urgently need a universal scheme. We must not abandon these people. As it is now, those who are employable are left on their own. As nobody is protesting, this may be okay for now. But in a few years, we will realise that most of these people are working on the black market. We will feel the consequences – consequences that are not desirable from a societal point of view. If the welfare state leaves the unemployed alone, they may find a job, but surely not the kind of job they could have found if they had support.

Leonardi: If the welfare state leaves the unemployed alone, they may find a job, but surely not the kind of job they could have found if they had support.

Barbieri: Let me be the sociologist. We still do not know much about the types of new jobs that will emerge in the course of digitalisation, nor who will be working in these jobs. But if only young people will work in these jobs this will become an issue for the next years – both in terms of contribution to the national pension system and in terms of social exclusion. Overall, young people are the future of the country. However, labour market policies in Italy consistently tend to worsening both labour market and working conditions for young people. We have always been shifting the burden of the lack of reforms and the burden of public debt onto the young. The younger generation will have to pay for the enormous public debt. If they cannot find stable jobs, they will not only have personal problems, but also collective ones.

picture: ArTo/stock.adobe.com

DOI:  10.48720/IAB.FOO.20241023.01