At the end of the war, a large part of Italy's industry, agriculture, and infrastructure lies destroyed. The Allies and the United Nations Relief and Rehabilitation Administration contribute substantial quantities of food and clothing. But unemployment is high, and political turmoil delays reconstruction. In the South, agricultural laborers rise up and attempt to occupy uncultivated lands.
Prime Minister De Gasperi and his successors carry out various attempts at social reform, especially in the area of land reform. But the rapid industrialization of the North and the concurrent rise in national income cause massive emigration from the agrarian South despite government initiatives for investment in that region. The economic and social divide between the North and the South widens.
The low wages that enabled Italy's "economic miracle" begin to cause discontent among Italy's workers. Successive governments make very little progress in structural reforms regarding education, the penal and civil codes, health services, or pensions. Emigration to industrialized European countries rises. Within Italy, South-to-North emigration continues.
Unrest over wages, working conditions, political chaos, and social services culminates in violent outbursts by students and industrial workers. Labor contracts covering five out of 13 million workers are renegotiated in 1970. Labor costs and wages increase. Italy begins to see educational reforms, an overhaul of the social security system, and the gradual legalization of divorce and abortion.
The parliamentary left breaks off dialogue with Italy's new social forces and proposes a "historic compromise" with the Christian Democrats. As a result, social movements disassociate themselves from institutional representation and become increasingly violent. Repression by employers and the police tightens. Unemployment rises as Italy suffers from the effects of soaring oil prices.
Fringe militants and workers in the North affected by factory restructuring form the Red Brigades, an extreme left terrorist organization practicing "proletarian justice." In 1978 the government introduces a welfare model that offers many universal and free services, including a state-run health service.
The labor market suffers from the cumulative effect of the system of wage indexation designed to compensate for inflation. The government introduces "social shock absorbers" such as wage guarantee funds, job-security agreements, and early retirement to dampen the effect of industrial restructuring.
The government abolishes the system of wage indexation and implements an Incomes Policy Agreement. Wage hikes are kept within the projected inflation rate while companies are granted the ability to introduce profit-related and performance-related pay. The pension system is completely reformed, with the creation of a single pension scheme for all workers. Unemployment rises to 12.3 percent.
As unemployment remains high, an underground economy absorbs many people who work for low wages and without standard benefits. A jobs package allows the creation of private employment agencies for temporary work and allocates $550 million to finance workfare programs and work grants for young people. A 1997 government commitment to a 35-hour work week goes unfulfilled.
With the economy stagnant and political life polarized by Berlusconi's government, many fear that Italy is entering a period of social malaise. The political assassination of a ministry advisor rekindles memories of the Red Brigades' late '70s reign of terror. The death of Fiat boss Giovanni Agnelli unites businessmen and trade unionists in mourning, marking the end of an era for Italian industry.
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