The aim of this paper is to explain the economic causes and consequences of the sharp decline in Italy’s fertility rate, the most dramatic decline in the world together with that in Japan. The main cause is shown to originate in the mid-seventies: a sudden increase in the unemployment rate among young people, which has remained at a high level since then, for 40 years being closely associated with the country’s economic activity. The same pattern has been found for many other countries, albeit in a less severe form. The main consequence of high unemployment among young people is the delay in achieving a level of permanent income such as to permit the starting of a family: this economic constraint is further reinforced by the length of formal education, especially for young women. We show that in Italy it is essential to form a two-earner family in order to pass the threshold for a decent standard of living, especially when there are children. The main consequence of the decline in fertility in Italy has been a dramatic increase in the proportion of elderly dependent members of the family, absorbing households’ savings and decreasing the domestic financing of investment. We suggest that in the face of a sharp fertility decline, two options are viable: a market option, namely an increase in immigration, as in Italy, or the adoption of more capital-intensive and labour-saving techniques, as in Japan; we argue that both are short-lived solutions. A political option, i.e. intervention which intentionally rebalances and stabilizes permanent family income, as in family policy in France and northern European countries, has proved to be a solution. We show that past political decisions in Italy have gone in the opposite direction, rendering disposable family income lower and even more unstable. As a consequence, there is the distinct possibility that the first “lost decade” of the Italian economy will be just the beginning of a steady decline. We suggest that in this situation the only way out is a policy of “tying one’s hands”, in other word an economic and social pact which takes the long-term interest of the country seriously and therefore considers the young and especially the very young as a priority. We argue that in Italy at this point the only credible instrument able to change the political agenda immediately is that of giving a voice in the political process to the very young and the young.
