Italian politicians have promised huge labor market reforms for decades. Unfortunately, saying something does not mean it will be done, in particular when the purpose is to reform one of the most inflexible labor markets in Europe. In addition, if one considers that Italy is one of the countries in which unions are more influent and ideologically deviated, the idea of carrying out an effective labor market reform seems to be bold, if not unrealizable.
Matteo Renzi’s Labor Reform
But this time, something different occurred. The tenacious attitude of the Italian Prime Minister Matteo Renzi allowed the government to overcome the obstacles posed by the unions on the one hand and by the opposition parties on the other hand and to provide the Italian labor market with a different, more flexible structure, without ignoring the importance of social support to the unemployed. Yesterday, Mr. Renzi called the advent of this reform “a revolution, waited for a long time by a whole generation of workers”, the one hit by the uncertainty associated with an eternal short-term job.
The labor reform proposed by the Democratic Party, commonly known as Jobs Act, may be described by three main features:
1. It modifies part of the Workers Statute, weakening employment protection legislation against economically motivated dismissals;
2. It extends and strengthens the role of unemployment benefits (up to 24 months) and offers a special support program to workers in precarious conditions (low income individuals, workers close to retirement age);
3. It eliminates numerous forms of short-term contracts, introducing a new form of contract with protections increasing with tenure, ideal to combine flexibility and workers’ protection.
Other measures were contained in the so-called Stability Law approved by Italian Parliament in December, that, combined with the labor market reform already described, could exert positive effect on employment in 2015. For instance, a three-year long tax relief will be granted to employers that will hire workers under the new form of contract in 2015.
Criticisms to the New Labor Reform
The opposition parties, as well as one part of the Democratic Party, have criticized the reform with a twofold approach. On the one hand, the reform is considered to increase the uncertainty around jobs and not to help the creation of new ones. On the other hand, the methodological process that brought to the approval of the reform has been criticized: Mr. Renzi – the opposition parties say – should have considered more the opinions expressed by the Parliament Commissions.
Mr. Renzi expressed his feeling of hope about the economic recovery of the country in the next year and the effectiveness of the measures proposed by the government in increasing employment. Of course, reforming the labor market is not enough to create employment. What Italy desperately needs are investments. For foreign investments to be attracted, Italy needs further reforms (in particular a strong and permanent fiscal reform that encourages labor relatively to capital rents), some of which are under the scrutiny of the Parliament (Public Administration Reform, privatizations and deregulations in specific markets).
As a matter of fact, the government was successful in carrying out a reform waited for years, but the intensity of the political debate around the issue suggests that it will not be easy to approve reforms of similar importance in the future. The major obstacles will come together with the institutional reforms (the Constitutional amendments proposed by the government), as well as with the other economic reforms. Mr. Renzi and Mr. Alfano, the leaders of the two major government parties, publicly announced that the legislature will last until 2018. This will probably be beneficial for the country as a whole, but Italian political life can always reserve surprises.