The introduction of compensation caps is aimed to push parties into a settlement rather than taking the case to Court. Moreover, firms will no longer be subject to any administrative sanction related to the payments of social contribution arrears.

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 - with the exclusion of professional services providers - an employee of that company unless proven otherwise.

These aspects of the reform will reduce the market dualism, which was unfair and a potential determinant of weak productivity developments as well as abuses and tax elusion. But it preserves and enhances the high degree of flexibility of the labour market, which is essential in a competitive and innovative external environment

A social safety net coherent with a more flexible labor market

The reform provides for a universal unemployment insurance benefit (Assicurazione Sociale per l’Impiego-Aspi) to which all companies will contribute. Under the reform, a much larger fraction of the workforce will be entitled to unemployment insurance in case of job loss, including workers with shorter tenures that, in the current system, are often lacking the eligibility requirements. Although the duration of benefits will be longer for most workers (12 months for those under 55, 18 months for more senior workers) others currently entitled to longer durations - often used to fill the gap between job loss and retirement - will see the potential coverage curtailed.

The revision of the system also touches on its funding. While certain contributions will no longer be due because the related instruments are eliminated and substituted by the Aspi, fixed-term contracts underwritten for reasons other than substitution of workers or seasonal features of the economic activity, 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 claim up to six months of the additional levy if the worker is given a stable contract.