CNEL PUBLISHES ITS FIRST REPORT ON PRODUCTIVITY

The National Council for Economics and Labour (CNEL) has released its Annual Report on Productivity 2025, prepared by the National Productivity Committee (click here for the Committee - italian version only) which operates within CNEL. Between 2022 and 2024, Italy recorded positive results in terms of economic growth, employment and exports — particularly significant when compared with the challenging international context and the performance of other European countries. The Report will be presented today at 4:00 p.m. in the Marco Biagi Plenary Hall at CNEL (Click here for the programme and Save the Date - italian version only).

Despite these encouraging macroeconomic indicators, productivity dynamics have not mirrored overall economic performance. This apparent inconsistency can be attributed to the interaction between certain structural characteristics of the Italian economy — such as a relatively low-skilled and rapidly ageing workforce, and the predominance of small-sized enterprises — and the price shock of 2022–23, which eroded real wages and encouraged firms to invest in labour rather than capital.

While in the short term Italy has managed to withstand a complex global environment, in the medium term there is a risk of a vicious cycle: low wages discourage investment in ICT and intangible assets, reduce firms’ demand for skilled labour and limit resources devoted to human capital development. This, in turn, perpetuates the stagnation of productivity and wages. The Report sets out a series of policy recommendations, outlining a strategy that places skills, innovation and enterprise growth at the core of Italy’s productivity agenda.

Key findings

THE FIRST ANNUAL REPORT OF THE NATIONAL PRODUCTIVITY COMMITTEE 

The 2025 Report on Productivity is the first annual report prepared by the National Productivity Committee, established within CNEL in implementation of the European Union Council Recommendation of 20 September 2016 and coordinated by Council Member Carlo Altomonte. Following European standards, the Report provides a comprehensive overview of national productivity trends, comparing Italy’s performance with that of other EU countries.

PRODUCTIVITY GROWTH IN ITALY LAGS BEHIND MAJOR EUROPEAN PARTNERS

Since the mid-1990s, Italy has gradually fallen behind in productivity growth, showing a weaker trajectory compared with its main European partners. Over the period 1995–2024 — the last three decades — the average annual growth rate was around 0.2%, compared with 1.2% in the EU27 (1.0% in Germany, 0.8% in France, 0.6% in Spain).

PARTIAL RECOVERY BETWEEN 2009 AND 2014, FOLLOWED BY STAGNANT PRODUCTIVITY

In the first five years following the global financial crisis (2009–2014), Italy experienced a partial recovery in productivity (+0.6%), primarily driven by the intense selection process in the Italian industrial sector, the restructuring of the banking system, labour market reforms, and the introduction of innovation incentives. These measures rewarded the most efficient firms, facilitated a reallocation of workers, and consequently supported a stronger aggregate productivity growth. In the subsequent five-year period (2014–2019), however, productivity growth in Italy slowed to just +0.1%, and remained largely stagnant over the following five years.

IN THE NON-AGRICULTURAL PRIVATE SECTOR, EXCLUDING FINANCIAL AND REAL ESTATE SERVICES, PRODUCTIVITY ROSE BY 1.6% BETWEEN 2019 AND 2024

Even during the most recent period (2019–2024), which encompassed the pandemic crisis and the subsequent recovery of GDP, overall productivity in Italy remained broadly stagnant. However, within the non-agricultural private sector, excluding financial and real estate services, productivity growth reached 1.6% over the five-year period, driven primarily by construction and private services, particularly trade and knowledge-intensive sectors.

EMPLOYMENT GROWTH BUT PREDOMINANCE OF LOW-VALUE-ADDED ACTIVITY

The most recent five-year period (2019–2024) was marked by strong employment growth (+4.4%), which remained resilient even during the years affected by the energy shock. Between 2022 and 2024, employment increased at a rate almost twice the EU average, driven by expansion in labour-intensive sectors characterised by moderate productivity, such as construction, hospitality, healthcare, and social services. Supported by contained wage growth, employment rose overall, but primarily in low-value-added activities.

FIRMS HAVE FAVOURED LABOUR EXPANSION OVER INVESTMENT IN CAPITAL ASSETS

In Italy, the user cost of capital has steadily increased. As a result, in recent years firms have tended to expand labour, which is relatively more cost-effective, rather than investing in capital assets, particularly those supporting digitalisation and technological upgrading. This approach has led to higher employment (+1.6% in 2024), but at the cost of a decline in labour productivity (-0.9% per employee in the same year). Such a trade-off is largely avoidable, as it depends on the sectors in which employment is created and the skills of the workforce.

CHALLENGES IN KEEPING PACE WITH THE INNOVATION FRONTIER

Italy, in particular, exhibits a substantial gap compared with the European average in intangible investment, that is, investment in non-physical assets such as software, research and development, and organisational capital. While these investments have grown at a rate three times higher than tangible assets in most advanced economies since 2014, Italy has experienced the opposite trend, underscoring the country’s difficulty in keeping pace with the innovation frontier. Between 2013 and 2023, the average annual growth rate of intangible investment in Italy remained below 2.5%, compared with +4.7% in France, +6.1% in Sweden, and +5.8% in the United States.

STRUCTURAL DIGITAL SKILLS GAP HINDERS PRODUCTIVITY

Alongside the stock of technological capital, human capital is also crucial for productivity. Higher skill levels are associated with greater labour productivity: approximately 25% of the gap between the OECD average and the highest-performing countries in terms of labour productivity can be attributed to differences in skill levels. Italy suffers from a structural digital skills gap in its workforce: only 16% of workers possess advanced ICT skills, compared with around 30% in Germany and France, and only 15% of graduates hold degrees in STEM disciplines, compared with a European average of 26%. This gap constrains the adoption of digital technologies in the country, with negative consequences for productivity.

STRONG ALIGNMENT BETWEEN SKILLS AND TASKS

Beyond the level of skills, it is equally important to ensure the appropriate allocation of workers across sectors and firms. In OECD countries, skill mismatches alone account for approximately 12% of the productivity gap with the highest-performing economies. Labour productivity tends to be higher in sectors with lower skill mismatches, particularly where the most highly skilled workers are employed in larger, more dynamic firms.

ICT EMPLOYMENT GROWTH IN SOUTHERN ITALY

During the post-pandemic recovery (2019–2023), per capita GDP growth in Southern Italy was relatively strong (+1.5% per year), driven by NRRP investments and the public sector. However, 

these gains have not closed the territorial gap with Central and Northern regions, including in productivity, which remains over 20% higher in the latter. Southern regions continue to have a lower proportion of employment in high-tech sectors, limiting their growth potential. Nevertheless, there are signs of a shift towards these sectors: for instance, ICT employment in the South increased by 50% in the post-pandemic years, more than twice the national rate.

SMALL FIRM SIZE NEGATIVELY AFFECTS PRODUCTIVITY

Productivity is strongly influenced by firm size, which in turn is associated with three key factors: export propensity, digitalisation, and innovation. Large firms are over 70% more productive than medium-sized ones, and in ICT services the gap is even wider, highlighting the complementarity between scale and intangible capital. Yet in Italy, 94.7% of firms have fewer than 10 employees, a share far higher than in Germany or France. This prevalence of micro-enterprises significantly limits aggregate productivity.

EXPORT, DIGITALISATION, AND INNOVATION AS KEY DRIVERS OF FIRM PRODUCTIVITY

In addition to firm size, export activity, digitalisation, and innovation are major determinants of productivity, often closely interconnected. Exporting firms enjoy a substantial productivity premium, which rises with firm size and is particularly pronounced in medium- to high-tech sectors. The adoption of digital technologies is likewise associated with a productivity premium, estimated at around 15–30%, and amplifies the advantages of larger firms, which are better positioned to integrate new technologies. Innovation is another decisive factor: innovative firms demonstrate, on average, 20% higher productivity. Public policies aimed at reinforcing these drivers, combined with regulatory simplification and financial and fiscal incentives that support firm growth, are essential to sustain productivity and enhance the competitiveness of the economic system.

ACTION PLAN NEEDED TO IMPLEMENT COMMITMENTS UNDER THE STRUCTURAL BUDGET PLAN

The Report sets out a series of economic policy recommendations across three key areas: skills and investment, the structure of the production system, and regional disparities. In the area of skills and investment, a key starting point is the Government’s commitments with the European Commission outlined in the 2025–2029 Medium-Term Structural Budget Plan (PSBMT). These commitments should be progressively translated into a clear framework of objectives and targets, covering both firm support measures and training initiatives, forming a coherent and measurable action plan with time-bound monitoring through to 2029.

STRENGTHEN R&D, TRAINING, AND ITS PROGRAMMES (Istituti Tecnici Superiori, Italy’s post-secondary technical institutes)