Subsidising Silence: How Policy Ideas Entrench Italy’s Use of Employment Subsidies

This blog post is based on an article published in the Journal of Social Policy by Roberto Rizza, Dario Raspanti, and Francesco Albanese.

If you ask policymakers in Italy why job creation remains weak, the answer often sounds familiar: labour costs are too high. Taxes and social contributions, it is argued, discourage firms from hiring and undermine the competitiveness of Italian businesses. If labour is too expensive, the solution seems obvious – make it cheaper.

This diagnosis has profoundly shaped labour market policy. For decades, Italian governments of different political colours have relied heavily on employment subsidies: fiscal incentives that reduce the cost of hiring workers by lowering employers’ social contributions or providing tax credits. These measures are presented as practical tools to boost employment quickly and support firms facing economic pressures.

Yet there is a puzzle. Across Europe, active labour market policies (ALMPs) usually focus on training programmes, employment services, and job-search assistance designed to improve workers’ skills and help them find jobs. In Italy, however, employment subsidies dominate the policy landscape. Spending on them has consistently exceeded investment in training, employment services, or other enabling policies.

Why has Italy become so reliant on this instrument?

Our research suggests that the answer lies not only in economic structures or institutional constraints, but also in the power of ideas.

The power of a simple story

Public policies often begin with a story about what the problem is. In Italy’s labour market debate, a particularly powerful narrative frames high labour costs as the main obstacle to job creation. According to this view, employers face an excessive tax burden that discourages hiring and limits economic growth.

If labour costs are the problem, the policy response appears straightforward: reduce them. Employment subsidies fit perfectly within this diagnosis because they directly lower the cost of labour for employers.

Over time, this framing has helped normalise a policy approach centred on cost reduction. Alternative explanations for weak employment growth – such as limited innovation, weak skill formation systems, or the structure of the Italian economy – receive far less attention in public debate.

Tracing the narrative

To understand how this narrative shaped labour market policy, we analysed public discourse in Italy between 2014 and 2020. The study combined qualitative analysis with computational text analysis to examine how labour market challenges were discussed in national newspapers and parliamentary debates.

The findings reveal a striking pattern. Employers’ organisations consistently frame excessive labour costs as the central barrier to employment growth. Their public statements emphasise the need for tax reductions, contribution relief, and other fiscal measures aimed at easing the burden on businesses.

These arguments are amplified through influential media outlets and gradually diffuse into broader public debate. As the narrative spreads, it shapes how labour market problems are understood and which policy responses appear legitimate.

In this sense, employers’ organisations exercise what scholars call ideational power: the ability to influence policy outcomes not only through lobbying or institutional access, but also by shaping how problems themselves are defined.

From narrative to policy consensus

The influence of this narrative becomes particularly visible in parliamentary debates. Across the political spectrum, politicians frequently stress the need to reduce the “tax wedge” on labour – the gap between what employers pay and what workers receive after taxes and contributions.

Right-wing parties typically emphasise competitiveness and support for small and medium-sized enterprises. Centre-left parties often frame tax reductions as a way to promote stable employment or support disadvantaged groups such as young workers. Despite these differences in emphasis, there is broad agreement on one point: reducing labour costs is seen as essential for improving employment outcomes.

This cross-party consensus helps explain why employment subsidies have remained a central feature of Italian labour market policy for decades. Governments change, but the underlying diagnosis – and the policy solutions it implies – remain remarkably stable.

The strange absence of subsidies in the debate

Ironically, employment subsidies rarely occupy centre stage when policymakers explicitly discuss active labour market policies. In public debates about ALMPs, the focus usually shifts towards training programmes, job-matching services, or employment agencies.

Yet in practice these policies receive far less funding than employment subsidies.

This gap between discourse and policy is revealing. It suggests that many actors implicitly recognise that subsidies do not fully align with the traditional goals of active labour market policies, which are typically associated with improving employability and supporting labour market integration.

Nevertheless, the dominant narrative about labour costs ensures that subsidies continue to receive political support.

A form of corporate welfare?

Italy’s reliance on employment subsidies also resonates with broader debates about corporate welfare – the growing tendency for governments to support businesses through public transfers, often with limited conditions attached.

In many cases, Italian employment subsidies involve substantial public resources but impose few requirements on firms regarding training, innovation, or long-term employment creation. While these measures may temporarily stimulate hiring, their impact on productivity or structural economic change remains uncertain.

In effect, public policy ends up subsidising labour demand without necessarily addressing deeper structural weaknesses in the economy.

Rethinking the problem

None of this means that employment subsidies are inherently misguided. In times of economic crisis, reducing labour costs can help firms maintain employment and prevent layoffs.

The problem arises when such measures become the dominant instrument of labour market policy. When the debate focuses almost exclusively on labour costs, other issues – such as skill development, technological upgrading, and workforce productivity – risk being sidelined.

Italy’s long-standing reliance on employment subsidies therefore reflects not only economic realities but also the narratives that shape policy thinking.

If policymakers want to move beyond short-term fixes, the first step may be to rethink the story they tell about the labour market itself.

Reference

Rizza, Roberto, Dario Raspanti, and Francesco Albanese. 2026. “Subsidising Silence: How Policy Ideas Entrench Italy’s Use of Employment Subsidies.” Journal of Social Policy: 1–26. doi: 10.1017/S0047279426101378.

About the Authors

Roberto Rizza is Full Professor of Sociology of Economic and Labor Processes, University of Bologna, Italy.

Dario Raspanti is Assistant Professor in Political and Social Sciences, University of Florence, Italy.

Francesco Albanese is Researcher and PhD student in Political and Social Sciences, University of Bologna, Italy.