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Employment Law Reforms in Italy and the Controversial Jobs Act

Heading in a better direction?

Italy’s Renzi led government is wrestling with the sticky issue of employment law reforms has given its reform proposals the “Jobs Act”. No, that is not a translation. Italy’s government has indeed decided to give its attempt at employment law reform an English title.

The Jobs Act is Italy’s fourth attempt in the new millenium to improve employment laws and create a work climate which benefits both employers and employees. To date, none of the attempts have had the desired effect. Well, not for employees. Will the Jobs Act work? There are, alas, indications it won’t take Italy’s economy in a promising direction.

The first attempt to reform Italy’s employment laws was made way back in 2001 by the then Berlusconi government. It did not have a positive effect and led to huge levels of job instability in Italy, especially for the nation’s young. The 2001 reform was actually a consequence of EU Directive No. 1999/70/CE, so it was not an initiative which originated in Italy.

Italy’s Precarious Years – Not Over Yet

In the years following the 2001 reform, Italian added a new word to its vocabulary: precari. This word came to be used to refer to Italians whose short term work contracts were precarious in nature. Many Italians, mainly the young, found themselves with unstable temporary work contracts with little or no prospects for career growth. These jobs, such as working in call-centres, were not too well paid and nor did they provide employees with much in terms of transferable skills.

For these ‘precariously‘ employed individuals, buying a house and starting a family was an impossibility. Logically, people with unstable poorly-paid jobs do not consume as much as those who earn more and feel their jobs are moderately secure. They cannot save much, if anything, either. In other words, owing to job instability, Italy’s economy was destined to go nowhere growth-wise, and that’s not to mention Italy’s age old problem of low birth rates which unstable employment conditions have exacerbated. Adding to Italy’s woes is the number of elderly whose pensions require funding.

Anemic real GDP growth figures from Eurostat indicate that the 2001 reforms did not make much difference at all.

Real GDP growth



EU 27

2002 0.5% 1.3%
2003 0.0% 1.5%
2004 1.7% 2.6%
2005 0.9% 2.2%
2006 2.2% 3.4%
2007 1.7% 3.2%
2008 -1.2% 0.4%
2009 -5.5% -4.5%
2010 1.7% 2.0%
2011 0.4% 1.7%
2012 -2.4% -0.4%
2013 1.9% -0.1%

The 2003 Reform Attempt Died – Attempt 2

Something needed to be done. Silvio Berlusconi’s government did try to solve instability problems the 2001 reform caused. However, a 2003 reform proposal ended up being shelved in the face of vociferous union opposition. The man behind the 2003 reforms which never came to be was the late Marco Biagi who was assassinated primarily because of the reforms he was working on. Such is the resistance to employment law reforms in Italy, that people can die trying to implement them.

After the death of Biagi and the failed 2003 reforms, not much else happened on the employment law front. Meanwhile, the global economic crisis began to affect Italy and what was a bad situation became much worse. Indeed, Italy had to wait more than 10 years and until after Berlusconi had gone before any attempt was made to do what needed to be done.

In the aftermath of Berlusconi, it was the 2012 government of technocrat prime minister Mario Monti and his employment minister Elsa Fornero which decided to grasp the employment law reform hot potato and try to bring about some changes – over 10 years after the 2001 reform which didn’t, remember. Not being career politicians, neither Monti nor Fornero had to fear that an unpopular reform would damage their party’s electoral hopes.

The Monti-Fornero Reform – Attempt 3

Along came Law No. 92/2012, otherwise known as the Monti-Fornero Reform. Italian employment law expert professor Michele Tiraboschi did not rate the Monti-Fornero Reform too highly. What was in essence an “innovative” reform in Tiraboschi’s assessment, ended up being watered down too much. Obviously, the effect of the economic crisis did not helped matters. Today, businesses in Italy are closing right, left and centre, and when businesses close, unemployment levels go up. Unfortunately for the Italian economy, and as predicted by Tiraboschi, the 2012 reform didn’t really do the trick and unemployment levels are still rising.

An obvious consequence of high levels of unemployment is that consumption levels in Italy have fallen significantly and they are still falling.

Forceful Renzi – Attempt 4

Enter Italy’s latest Prime Minister Matteo Renzi and his Jobs Act which is designed to reverse the decline.

The Jobs Act is an attempt to present Italy with a fresh round of employment law reforms designed to encourage Italy’s employers to hire more people – especially more young people. In addition, the Renzi employment law reforms may result in Italy ending up with an unemployment benefit system similar to that of the United Kingdom and other European nations.

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While Mr Renzi firmly believes his reforms will make a difference and is prepared to force them though Italy’s parliament, plenty of others, do not. Indeed, Italy’s biggest union, the CGIL, believes the proposed reforms may well worsen the situation and may even further increase not diminish levels of job stability. Michele Tiraboschi does not believe the Renzi reform will do much good either. Instead of Italy pointing towards permanent employment, Tiraboschi notes, Renzi is still, like those before him, pushing temporary work contracts.

Moreover, Tiraboschi also believes the Jobs Act reform may go against EU directives which impose limits on the number of short-term employment contracts. In other words, despite Italy’s Prime Minister’s claims, though the Jobs Act might make unemployment levels look prettier, it most probably won’t have the desired effect in terms of boosting Italy’s economy.

Why Does Italy Have a Fixation with Short Term Contracts?

Italy’s employers dislike offering employees permanent jobs simply because they perceive employment costs to be far too high. Italy’s reams of red tape coupled with the difficulty of sacking full-time employees and high taxes make short term contracts which allow employees to be dumped easily when they are no longer useful or, when the law requires their contracts become permanent, highly attractive.

The downside is that with these disposable contracts (and employees), Italy has ended up with a massively unstable employment. While this works well some employers – high unemployment means employees are easy to come by – for employees and Italy’s economy, it’s a disaster.

Italy’s employers will go to great lengths to ensure employment contacts can be terminated once an employee becomes potentially too costly. One, illegal, practice in Italy is to force employees to pre-sign resignation letters. Aside from acting like a Sword of Damocles, these resignation letters can be pulled out when, for example, women fall pregnant. Tactics such as these and the practice of promising full time employment contracts to employees to keep them working hard only to let them go when their temporary contracts expire have made Italians wary of short term work contracts in any shape or form. The number of NEETs (Not in Education, Employment or Training)  in Italy is, unsurprisingly, rising.

On the other side of the coin are poorly performing employees who cannot be sacked because laws in Italy which are overly protective of employees with permanent work contracts. This phenomenon renders short term contract even more appealing for Italian employers.

Better for Italy

What would be better for Italy are employment conditions similar to those in the United Kingdom and other nations, such as Austria, where people are, generally, employed via permanent contracts. This is basically what Tiraboschi would like to see. In the UK companies can cut numbers when economic conditions render it necessary.

In Italy, the inability of companies to downsize easily and cheaply during market downturns means that businesses which may have otherwise survived have closed down. Had better reforms been implemented before, many of Italy’s businesses may not have closed down and would then have been able to grow again once the market picks up. It’s too late now. Dead companies can neither grow nor employ anyone.

Permanent Work Contracts – Better for Economies

Permanent work contracts, though they may not end up being for the long term, at least create the illusion of stability which means banks are happier to finance house purchases, employees are more likely to start families and to start buying all the items which tend to help economies and businesses grow. Employees who believe their jobs are relatively safe are more likely to be productive too.

With the Jobs Act proposal, Italy may well find itself back in the same boat its been in since 2001 and its economy probably won’t go anywhere, though Mr Renzi believes it will.

However, instead of opting for jobs with short term employment contracts which may or may not become permanent one fine day, Italians may look elsewhere for jobs, as indeed some are doing. Others may turn to crime – Italy’s mafias will find recruitment much easier in times of economic hardship, or they may take jobs in Italy’s underground or black economy. Italians who are unwilling to join Mafia Inc., seek irregular work or who cannot find stable jobs are simply leaving Italy.

Italian’s working in Italy’s massive hidden black sector do not pay taxes or contributions and nor do their employers. This means that Italy’s government does not receive tax income so it cannot reduce its massive national debt, nor can it invest in public works or education. Italy needs to prepare its population for the future so education and training is a necessity. In addition, public works could help provide Italy’s south with better infrastructure which would potentially boost the economy of the nation’s depressed south.

It looks as if Mr Renzi’s Jobs Act is more likely to hold Italy back than it is to help the nation pull itself up out of recession and put itself firmly back on the road towards economic recovery. Not that employment law reform will be the magic bullet which kick starts Italy’s economy. Italy also needs lots of other reforms. Italy’s Prime Minister does appear to be aware of this, though if his Jobs Act proposals are an indication of the overall quality of his reforms, the nation is unlikely to pull itself out of recession as fast as it could.

The Jobs Act may become law before the start of this summer.

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