Great Recession and Labour Market In Italy: The Case of Albanian Immigrants

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1. INTRODUCTION 
The global crisis that erupted in 2008, as a result of disequilibria in financial markets, was of one of 
the biggest crisis since the Great Depression of 1929, without precedents in post-war economic 
history. The crisis started as a seemingly isolated turbulence in the sub-prime segment of the US 
housing market at the end of summer 2007 and, suddenly, turned into a severe economic crisis with 
dramatic consequences on real economy (drop in GDP and consumption, falling exports, rising 
unemployment, growth of layoffs, etc). One of the most serious consequences of the crisis regarded 
labour markets of developed economies, with a rapid increase in unemployment and the interruption 
of a decade-long process of employment growth. The global economic crisis affected also the 
migration patterns, affecting the size and characteristics of migration flows, the employment situation 
of foreign workers in the host countries, the processes of integration, the level of remittances and 
migration policies. In particular, the Great Recession hit immigrants hard, and almost immediately, 
in most OECD countries, with a more pronounced impact than for the native-born population. 
According to existing literature, this is because immigrants tend to concentrate in the economic 
sectors that are most sensitive to the business cycle, such as construction, agriculture, domestic and 
care services for households and in small firms.  
The Great Recession hit Italy hard and twice: first, during the diffusion of the 2008 global financial 
crisis and, second, during the sovereign debt crisis that started in 2011, when Italy suffered the 
consequences of a speculative attack on the international financial markets because of its high public 
debt over GDP ratio. The devastating impact of the recession on the Italian economy, together with 
the fact that Italy is one of the leading countries of the European Union for recent immigration flows, 
reaching 5 million foreigners in 2015 (8.2% of the population), makes the Italian labour market an 
interesting ground of investigation for the effects of Great Recession on immigrants and natives. The 
impact of the recession on immigrants compared to natives is a much debated theme by scholars all 
around the world. Some studies confirm a labour market penalty for immigrants relative to natives 
and argue that this gap has been widening during the last recession. Other studies, instead, do not find 
any discriminating impact of the recession on immigrants. However, there are no specific studies on 
the impact of the recession on Albanian immigrants, especially in Italy. Albanian immigrants in Italy 
are an interesting case study because they are the largest ethnic group coming from Europe and the 
second community among non-EU individuals legally residing in Italy. Furthermore, Albanian 
immigrants are a unique case because over a million Albanians (about 27.5% of the total Albanian 
population and 35% of the active population) live abroad. The massive migration outflows of 
Albanians occurred over a short period of time, when the country moved almost overnight from 
absolute isolation to large-scale migration in the ‘90s. Indeed, the uniqueness of Albanian migration
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is further characterised by the fact that it has been directed almost exclusively towards two 
neighbouring countries: Italy and Greece. In this perspective, the objective of this dissertation is to 
study the impact of the Great Recession on the Italian labour market, empirically assessing if there 
has been a different impact of the recession on Albanian immigrants compared to natives. The 
analysis covers the period from 2007 to 2015, allowing us to study the labour market dynamics of 
immigrants and natives and to identify the impact of the Great Recession. Furthermore, the separation 
of immigrants in Albanian citizens and Eastern European immigrants permits a complete analysis of 
the Italian immigrant population, being these groups the core of foreigners legally residing in Italy. 
The empirical analysis is based on both cross-section and “pseudo panel” data derived from individual 
data of the Italian Labour Force Survey (ILFS). This thesis is organised in four central chapters with 
the following structure. Chapter II offers an overview of Albania, with a description of the current 
macroeconomic and demographic situation of the country and its recent history. In the rest of the 
chapter, Albania is connected to Italy through the analysis of Albanian migration flows and with a 
concluding overview of the Albanian community in Italy. Chapter III focuses on the Great Recession 
by offering a wide analysis of how it turned from a crisis in the US financial sector into the most 
severe economic crisis of the post-war history. Section 2 of Chapter III, in particular, analyses the 
evolution of the recession by presenting some common macroeconomic indicators, such as GDP 
growth rate, inflation rate, international trade, consumer and business indexes and public finance 
conditions of some selected countries, with a particular attention to the Italian economy. Finally, the 
last two sections of the chapter analyse labour markets trying to study how the recession has affected 
employment and unemployment rates and focusing on the case of immigrants. Chapter IV reviews 
the literature related to the research question of the thesis by presenting some studies on the effects 
of the crisis on the Italian labour market and on the labour market performance of immigrants in Italy. 
The core of the chapter contains the literature review on the impact of the crisis on immigrants 
compared to natives (Section 3), while the last section of the chapter discusses the few studies focused 
on Albanian immigrants. Chapter V reports the main results of the empirical analysis carried out using 
ILFS data provided by Istat. In the first section the dataset and the main variables are presented, while 
in section 2 we discuss the empirical strategy and the instruments used in the analysis. In this section, 
the motivation that led to the construction of a pseudo panel dataset and the theory behind pseudo 
panels are also largely explained, with a focus on the strategy followed to construct the dataset. The 
main descriptive statistics and econometric estimates are presented and discussed in the last two 
sections of the chapter. Finally, the conclusive chapter summarises the research findings of the thesis 
by proving also research contributions to the literature and policy implications, followed by a 
discussion on the limitations of this study and directions for future research.
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2. MIGRATION FLOWS: THE CASE OF ALBANIAN IMMIGRANTS 
2.1  The Country 
The Republic of Albania (Republika e Shqipërisë
1
) is a country in South-Eastern Europe. It is 
bordered by Montenegro to the northwest, Kosovo to the northeast, the Republic of Macedonia to the 
east, and Greece to the south and 
southeast (Figure 2.1). It has a coast on 
the Adriatic Sea to the west and on the 
Ionian Sea to the southwest for a total 
length of 476 km. Albania is less than 
72 km from Italy, across the Strait of 
Otranto which connects the Adriatic 
Sea to the Ionian Sea. The 
geographical extension is about 28,748 
square kilometres. Albania is a 
parliamentary republic and is a 
member of the United Nations, NATO, 
the Organization for Security and Co-
operation in Europe, the Council of 
Europe, the Organisation of Islamic 
Cooperation and the World Trade 
Organization. It is also an official 
candidate for membership in the 
European Union from June 2014. Table 2.1 summarizes some basic features of Albania compared to 
Italy. The country's capital, Tirana, represents its financial and industrial centre, with a metropolitan 
population of almost 811,649 people in 2015. The total population of the country was on 1st January 
2016 2,886,026 inhabitants (as provided by INSTAT, the Albanian institute of statistics) while the 
population of Italy was 60,656,000 inhabitants (Istat, 2016). Approximately 97% of the population is 
Albanian, 1.9% Greek, while other ethnic groups are represented in smaller shares. Islam is the 
religion of 70% of the population, while 20% are Christian Orthodox and 10% Catholic. The Albanian 
population is relatively young compared to European Union countries, in fact, 29% of Albanians are 
aged at or below the age of 15, while for the citizens of EU countries the percentage is 18%. The 
fertility rate fell compared to 3.3 children per woman in 1990, but still remains the highest in Europe 
                                                           
1
   “Shqipëria” literally “land of eagles”. 
Source: United Nations Geospatial Information Section 
 
Figure 2.1: Map of Albania
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with 1.8 children per woman. Albanians have lower life expectancy at birth than Italians (77.8 
compared to 83.1, in 2014) and also a lower Human Development Index (0.73 compared to 0.87). 
The difference in economic development between the two countries is clear if one looks at the per 
capita income in 2013, when Italians have a figure that is almost 3 times the Albanian one (Table 
2.1). 
 
Albania's population has declined since 1989, reflecting the decline in fertility rate but also significant 
migration flows. More than 300,000 people, in fact, are estimated to have left Albania since 1992 
after the collapse of the communist regime. There has also been increasing migration from rural to 
urban areas within the country, transforming the society, that sees, in 2016, 55% of the population 
living in urban areas. The main internal migrations flows occurred to the capital Tirana.  
The history of Albania starts in 1912, when there was the declaration of independence from the 
Ottoman Empire. In 1939 the country was conquered by Italy, then it was occupied by Germany in 
1943. The following year the communist partisans took over the country starting the communist 
regime of Enver Hoxha. During this regime Albania allied itself first with the USSR (until 1960), and 
then with China (to 1978). In the early 1990s, Albania ended 46 years of communist regime and 
established a multiparty democracy opening its borders after the very long isolation of the communist 
era. Throughout the transition period Albania has faced a number of extremely complex challenges, 
in order to establish stable institutions guaranteeing democracy, the rule of law and human rights, as 
well as to operate a functioning market economy and to cope with competition and market forces. 
Albania has enjoyed a high sustained rate of economic growth over the past several years, averaging 
about 5–6 per cent per year, placing Albania into the group of countries with a high Human 
Development Index (HDI). Albania represents a considerable market in the region due to several 
Table 2.1: Albania and Italy in figures 
 ALBANIA ITALY 
Capital Tirana Rome 
Population (1st January 2016) 2,886,026 60,656,000 
Area (in sq. km) 28,748 301,340 
Language Albanian Italian 
Per capita income PPP (current international $) (2013) 10,260$ 29,600$ 
Human Development Index (2014) 0.73 0.87 
Life Expectancy at birth (2014) 77.8 83.1 
Source: Albanian Institute of Statistics (INSTAT), ISTAT, Human Development Report 2014, World Development 
Indicators
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agreements on free trade with neighbouring countries and European Union, as well as an attractive 
investment destination (UNDP, 2015). Albania has made progress in its democratic development 
since first holding multiparty elections in 1991, but deficiencies remain (CIA, The World FactBook, 
2015). International observers judged elections to be largely free and fair since the restoration of 
political stability following the collapse of pyramid schemes in 1997; however, most of Albania's 
post-communist elections have been marred by claims of electoral fraud. Although Albania's 
economy continues to grow, the phase of growth has slowed in the years after the financial crisis of 
2008, and the country is still one of the poorest in Europe. A large informal economy and an 
inadequate energy and transportation infrastructure remain obstacles (CIA, The World FactBook, 
2015). The slowdown of the economic growth can be seen in the remittances, a significant catalyst 
for economic growth, which declined from a share of 12-15% of GDP before the 2008 financial crisis 
to a share of 5.7% of GDP in 2014, mostly from Albanians residing in Greece and Italy (Bank of 
Albania, 2015). According to statistics provided by the Bank of Albania, in 2015 19.5% of Albania's 
GDP was produced by the primary sector, 22.7% by the secondary sector and the tertiary sector 
produced 57.8% of GDP. As regards labour market according to INSTAT, in 2014 50.5 % of the 
population aged 15-64 years old was employed, 11 % was unemployed and 38,5 % was economically 
inactive. The employed are 44.7% in agriculture, 15.5% in industry and 39.8% in services. The 
agricultural sector, which accounts for almost half of employment but only about one-fifth of GDP, 
is limited primarily to small family operations and subsistence farming, because of a lack of modern 
equipment, unclear property rights, and the prevalence of small, inefficient plots of land (CIA, The 
World FactBook, 2015). Complex tax codes and licensing requirements, a weak judicial system, 
endemic corruption, poor enforcement of contracts and property issues, and antiquated infrastructure 
contribute to Albania's poor business environment, which makes it difficult attracting foreign 
investments.