Italy's employment hits record high but real wages set to fall further, OECD warns
Italy's employment rate reached an all-time high of 62.8% in early 2026, yet real wages are projected to decline again this year, leaving the country with the largest purchasing-power gap among major OECD economies.
Employment at a record, but still trailing
Italy's labour market delivered a historic milestone in the first quarter of 2026, with the employment rate climbing to 62.8%. The figure marks the highest level on record, driven by robust job creation over the past two years. However, the OECD Employment Outlook 2026, presented in Paris by Secretary-General Matthias Cormann and acting director Mark Pearson, shows the rate remains 9.3 percentage points below the OECD average of 72.1%, one of the widest gaps in the 38-nation group. The shortfall is especially acute among women and young people, and employment growth has slowed markedly over the past year, diverging from the sustained gains seen in other Southern European countries.
- Italy
- 62.8 %
- OECD average
- 72.1 %
At the same time, unemployment fell to a historic low of 5% in May 2026, in line with the OECD average of 4.9%. The 1.5 percentage-point drop over twelve months runs counter to the trend in two-thirds of OECD countries, where joblessness has started to rise again. Italy belongs to a small cluster of Southern European economies (Greece, Portugal and Spain) where unemployment has kept falling.
Wages continue to erode
Despite the jobs boom, pay packets are losing ground. Real wages grew 1.3% year-on-year in the first quarter of 2026, helped by temporarily low inflation, but they were still 6.1% below their level in the first quarter of 2021. That is the widest gap among the major OECD economies.
This loss is equivalent to giving up about twenty days of pay compared to five years ago.
The recent surge in energy prices, linked to tensions in the Persian Gulf, is pushing inflation back up and dragging real wages down again. The OECD projects inflation of 3% in 2026 and 2.2% in 2027, with nominal wages rising by roughly 2.2% and 2.4% respectively. As a result, real wages are forecast to contract by 0.9% this year and to eke out only a 0.2% gain in 2027, constrained by the limited number of collective-contract renewals scheduled for next year and persistent slack in the labour market.
Inflation in Italy is at similar levels to other countries, but our nominal wages are lower, so as soon as the inflation tide rises, wages end up underwater.
Regional divides and structural barriers
The report also highlights deep territorial inequalities. In the weakest quintile of Italian provinces, unemployment is more than four times higher than in the strongest quintile, compared with an OECD average of about two. While the gap has narrowed by 10.4% since 2010, internal mobility risks widening it: those who leave low-employment areas tend to be younger, better educated and already employed, draining the most dynamic workers from struggling regions.
Structural rigidities add to the wage stagnation. The widespread use of non-compete clauses, which bind almost one in five private-sector employees, hampers both pay growth and labour mobility, the OECD notes.
Outlook and risks
The OECD's baseline assumes the energy-price shock from the Middle East conflict will be relatively short-lived. Even so, the combination of subdued nominal wage growth, few contract renewals and cooling labour demand leaves little room for a rapid recovery in purchasing power. Andrea Garnero, senior economist at the OECD's Directorate for Employment, Labour and Social Affairs, stressed that Italy remains the large OECD country with the biggest real-wage gap to close.
