Almost one in five workers in Italy are self-employed, or 19.3 percent – roughly 50 percent more than the European Union average of 13 percent.
Compare that rate to Germany (7.5 percent) or Norway (3.9), and it's clear Italy is an outlier among wealthy European nations. Only Greece has a higher rate in the EU, at 26 percent.
Even on a global scale, Italy has a high self-employment rate. OECD data ranks Italy 8th among countries with the highest proportions of self-employed workers.
But the reasons behind Italy's high numbers reveal something surprising about how the country's economy works – and it's about more than entrepreneurship.
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We spoke with Dr Lorenzo Codogno, former chief economist at Italy’s Treasury Department and co-author of ‘Meritocracy, Growth, and Lessons from Italy's Economic Decline’, to understand what’s driving this pattern.
“Taxation on labour is by far the biggest factor”, Dr Codogno explains. Italy’s economy has what he calls a “perverse incentive” structure. Self-employment taxes are much lower than taxes on employed workers, combined with “extremely high” social security contributions.
“People are better off having their own small company and being classified as self-employed, and effectively working for a company”, he says.
“That's a trick, so to speak, to avoid taxation. It’s a widespread phenomenon – there are even some functions in big companies that are fully allotted to external suppliers”.
This arrangement saves companies money while giving the workers in this scenario slightly lower tax bills.
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But there are more benefits for the companies than for the workers. According to Codogno, there are few safeguards protecting those who do the full job of an employee without receiving employee benefits.
Another factor at play is what Codogno calls “economic fragmentation” – seen in Italy’s large number of small, local shops, from artisanal leather-makers to the neighborhood butcher.
It’s one of the things that makes Italian towns so appealing and fosters that community spirit people cherish.
But, as Codogno explains, these small shops also fragment the country’s business activity, preventing the economy from scaling, particularly in the distribution sector.
Changes over time
In 1995, 29 percent of Italians – or about one in three – were self-employed. This rate has dropped slowly yet consistently in the 30 years since.
Over the years, some sectors have become less fragmented, such as distribution, where small shops are slowly giving way to chain stores and shopping malls.
“This has changed over the past 20 years, but not enough to fully catch up with other countries. In other countries, it's very difficult to find small shops, unless they are what they are called convenience shops in the UK, but this is a particularly large phenomenon in Italy”, Dr Codogno says.
More recently, employers are becoming more open to offering contracts to full-time employees. Dr Codogno attributes this to the cheaper cost of labour post-pandemic.
“Labour has become cheaper, as a fact for production, partly because of the squeeze in real wages due to inflation. And therefore, there has been a steady increase in employment, with full contracts. Simply because, for a company, it has become cheaper in relative terms”.
The phenomenon may be less pronounced than it was a few years ago, but self-employment remains a popular option in Italy.
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