28 Giugno 2012
The Italian Parliament on Wednesday approved a reform of the labour market that lays the foundation for increased productivity, economic growth and employment.
The reform creates a more flexible labour market overall that is less segmented thanks notably to the introduction of an unemployment insurance system, which provides supports also to those most concerned by the increased flexibility. It allows firms to cope with temporary adverse cyclical developments cutting hours worked instead of shedding labor, thus preserving valuable human capital. The reform is complemented by active labour market policies to help the young into their first job and assist those temporarily unemployed find another job rapidly.
The implementation and impact of the reform will be carefully and regularly monitored, including with a view to take additional measures if and when necessary.
More flexibility, less segmentation.
The reform safeguards, and increases, the high flexibility in the Italian labour market, achieved since the early 90s, whilst removing the scope for improper uses.
The use of temporary contracts is made easier by reducing red tape, enabling companies to cope better with cyclical developments. A person employed and trained for an adequate length of time is, however, expected to be offered an open-ended contract.
Open-ended contracts are generally made more attractive for employers. First, by widening the scope for hiring on apprenticeship contracts, giving more opportunities to screen and train young workers. In a country like Italy, which is the European Union’s second manufacturing nation after Germany, such contracts must become the main port of entry into the labour market. Second, the standard open-end contract becomes more flexible in that it will be easier for employers to adjust their workforce in response to their specific needs.
The reform introduces a fast, compulsory, out-of-court settlement procedure at local level to handle disputed dismissals for economic or other objective reasons. If conciliation fails, the worker can obviously take the case to a judge, as in France, Germany or other countries. Only when the economic or other objective reasons for dismissal were found ‘manifestly inexistent’, will a judge be able to decide for reinstatement plus a maximum 12 month wages compensation, which is expected to happen only in extreme cases. Before there was no limit to the financial compensation. In all other cases where a judge ascertains that the economic dismissal was simply not justified, the compensation will be capped at 24 month wages. Again there was no limit before.
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.
At the onset of the current economic and financial crisis, the Bank of Italy warned that as many as 1.6 million workers would not be entitled to any unemployment benefits in the event they lost their job; the coverage, for the remaining workers, would vary between 1 and 22 months depending on a number of items, such as the kind of working arrangement, sector affiliation, firm size, seniority at the specific firm. This segmentation reflected the countless marginal interventions on the system over the past years and, beyond being unfair, could slow down mobility of workers and generate significant inefficiencies
Active labour policies
The unemployed will also receive more advice and help to ensure their quick return to the labour market, as part of a policy that protect individuals as opposed to the job held at any point in their working lives.
The reform in particular helps young people acquire the skills necessary for them to enter the market. Those, young or more senior, who lose their job will also get help to get back into work rapidly, as part of active labour policies being put into place. 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.
