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Employment has reached an all-time high and unemployment has fallen to 5%, marking a significant improvement for Italy. The next challenge is to turn this progress into higher wages and broader opportunities for women, young people and the country’s weaker regions
For decades, Italy’s labour market has been associated with stubbornly high unemployment, low participation and a persistent gap with Europe’s stronger economies. The latest OECD figures suggest that this familiar picture is becoming increasingly incomplete. Italy entered 2026 with employment at its highest level on record and unemployment at a historic low. In the first quarter, the employment rate reached 62.8%, following particularly strong growth over the previous two years. By May, unemployment had fallen to just 5%, only marginally above the 4.9% OECD average. The direction of travel is particularly noteworthy. Italian unemployment fell by 1.5 percentage points in just one year, even as roughly two-thirds of OECD countries experienced an increase. Italy therefore belongs to a relatively small group of Southern European economies — alongside Spain, Portugal and Greece — where unemployment continued to decline. Other indicators reinforce the impression that something significant has changed. An OECD economic assessment published this year noted that employment growth after the pandemic had been robust and that much of the increase involved permanent jobs. By late 2025, temporary workers accounted for around 13% of employment, the lowest proportion in 15 years.
Yet Italy’s improving headline numbers also expose the scale of its untapped potential.
The country’s 62.8% employment rate remains 9.3 percentage points below the OECD average of 72.1%. Women and young people account for particularly large parts of that difference. In other words, Italy has achieved record employment while still leaving a substantial reservoir of potential workers outside employment. Closing even part of that gap could provide an important source of future economic growth as the population ages.
Geography represents another challenge — but here, too, the trend is not entirely negative.
Employment opportunities continue to vary dramatically across Italy. Unemployment in the weakest-performing group of Italian regions is more than four times higher than in the strongest, compared with a ratio of around two across the OECD. However, territorial employment disparities have narrowed by 10.4% since the early 2010s, largely because areas that started from weaker positions have improved. That progress matters because Italy’s regional divide is not simply a statistical problem. When younger and better-educated workers leave areas offering fewer opportunities, those territories lose precisely the human capital needed to generate new businesses, investment and productivity.
The more immediate weakness is pay.
Real wages rose by 1.3% year-on-year in the first quarter of 2026, helped by lower inflation, but remained 6.1% below their level in early 2021 — the largest shortfall among the major OECD economies. Renewed increases in energy prices are now complicating the recovery. The OECD expects Italian real wages to decline by 0.9% in 2026 before edging up just 0.2% in 2027. Italy therefore faces an unusual situation: its labour market is performing much better in terms of job creation than in terms of purchasing power. The next phase will require converting employment gains into stronger productivity and ultimately better wages.
There are some encouraging structural signals. Non-compete agreements, which can restrict workers from moving to rival employers, cover an estimated 7% to 18% of Italian private-sector employees, according to surveyed employers, compared with roughly 20% to 30% across OECD countries. Around 30% of Italian firms surveyed also reported awareness of no-poaching or wage-fixing arrangements in their industry, below the 48% average across the countries surveyed. None of this eliminates Italy’s longstanding weaknesses. But the OECD figures suggest that the starting point for addressing them has improved substantially. Italy is no longer confronting high unemployment and low employment simultaneously. It is confronting a more promising problem: how to build on record employment, bring more women and young people into work, spread opportunities more evenly across the country and ensure that a stronger labour market finally produces stronger household incomes. That distinction is important. Italy’s labour market still has considerable ground to cover — but it is entering that challenge from its strongest employment position on record.
Alessandro Fiorentino