6 Aprile 2012

The Italian government on Thursday sent to Parliament a draft law to reform the labour market. The plan will make the labour market more flexible overall and significantly reduce the present duality in the market, notably by introducing a universal social safety net. The draft law is complemented by active labour market policies to help the young into their first job and assist those who lose theirs to find another rapidly. The reform lays the foundation for increased productivity, economic growth and employment.

Reducing segmentation in the labour market
The introduction a decade ago of different types of fixed-term contracts has made the Italian labour market more flexible, a feature that the present reform safeguards while removing scope for abuses and promoting the use of permanent contracts (a tempo indeterminato). The aim is to reduce the segmentation in the labour market which is recognized internally and internationally as one of the main reasons why productivity and economic growth in Italy have lagged behind the EU average. To achieve this, the government proposes, in particular, to increase the value of apprenticeship contracts as the main port of entry into the labour market of Italy, the European Union’s second manufacturing nation after Germany. Once equipped with the skills an employer needs, a good apprentice ought to be offered a labour contract as opposed to being replaced at length as a source of cheap labour. The reform also aims to curb the abuse of ‘partite IVA’ (VAT) or false independent work, as a person who works for more than six months in a company from which it derives most of his or her revenue, ought to be an employee of that company unless proven otherwise. Professional service providers are excluded.

A universal social safety net for all
The reform provides for a universal unemployment social benefit (Assicurazione Sociale per l’Impiego-Aspi) to which all companies will contribute. The current system applies only to a limited number of people, mostly in big companies. The Bank of Italy warned at the beginning of the crisis that as many as 1.5 million workers would not be entitled to any employment benefits in the event they lost their job. Under the reform all jobless people will receive unemployment benefit but for less time – 12 months for those under 55 and 18 months for more senior workers as opposed to four years at present. The unemployed will also receive more advice and help to ensure their quick return to the labour market. To help finance the introduction of a universal social safety net, most fixed-term contracts will be the subject of an additional 1.4% social security contribution. This is fair because fixed-term contracts cost more to society – a person on a fixed contract is more likely to be unemployed and to be on benefits than one on a permanent contract. This is also in line with international practice. Companies will be able to reclaim up to six months of the additional levy if the worker is given a stable contract.

A flexible labour market for all
The reform aims to make it easier for employers to hire and, when justified, fire, building on the experience of other countries where flexible markets have led to lower structural unemployment. Dismissals on the grounds of race, gender or other forms of discrimination are and remain clearly illegal. This applies to all companies because non-discrimination is a fundamental right. Disciplinary dismissals can also be appealed within limits regarding both time and financial compensation, which did not exist before. Finally, the reform introduces a more predictable and speedier procedure to handle disputed dismissals for economic or other objective reasons. First, it introduces a fast, compulsory, out-of-court settlement procedure at local level (‘Commissione Provinciale di Conciliazione’). Secondly, if conciliation fails, the worker can take the case to a judge as in France, Germany or other countries. The judge will be able to decide for reinstatement (plus a maximum 12 month wages) only where the economic or other objective reasons for dismissal were found ‘manifestly inexistent’ (‘manifestamente insussistenti’), which is expected to happen only in extreme cases. In all other cases where the judge ascertains that the economic dismissal is simply not justified, the compensation will be capped at 24 month wages.
The provision of a compensation cap both for disciplinary and for economic dismissal is new in the Italian system and is aimed to push parties into a settlement rather than taking the case to Court.

Active labour policies
As part of a policy to help and protect individuals, as opposed to the job held at any point in their working lives, the reform puts in place active labour policies to help young people acquire the skills necessary for them to enter the market and, for those who lose their job, get back into work rapidly. This is a task for the State and the regions altogether.

Besides the better qualification for young people, the policies involve life-long learning and training; a better evaluation of companies’ work needs; improved matching of offer and demand and other active policies.

To finance such policies the State and the regions will make a more efficient use of available resources as well as of European funds, which are being re-directed to promote job creation and more efficient working labour markets.

For more information on the reform see the website of the Prime Minister’s office and that of the Labour Ministry.

Background information: Why do we need the reform?
The current system is both inefficient and unfair. Inefficient because it discourages job creation, in particular for the young. At 30%, Italy has the EU’s third highest unemployment rate among the under 25’s. The employment rate [% of those aged 15-64 who are employed] was 56.9% in 2010, according to Eurostat, the third lowest after Hungary and Malta. For women it was lower still at 46%, second only to Malta’s.
Unfair because the current system encourages temporary and other types of precarious contracts, with little or no rights. This is clearly at the expense of the young and of people working in new sectors. There are clearly two categories of workers. Those who enjoy permanent contracts and the rights that go with them. They work in the public sector and, to a large extent, in firms with more than 15 employees. On the other side of the divide: the young and workers in new sectors and small companies.
These and other current structural weaknesses of the labour market are generally credited as one of the main reasons why labour productivity in Italy is low and the economy does not grow and create jobs. Companies do not train workers if they are on temporary contracts. The system is also credited with having delayed the restructuring of companies and sectors rendered necessary by technological developments and the emergence of new competitors as well as market opportunities.