Italy’s technocratic cabinet on Friday decided to forego speedy implementation of labor market reforms in the face of resistance from trade unions and left-wing members of parliament.
The reform measures, which should make it easier for companies to fire workers and lift restrictions on a number of professions, will be submitted as a regular draft bill to parliament which means it could take months to implement. Had the government opted for an emergency decree procedure, it could have made the changes law within sixty days.
The retreat is a setback for Prime Minister Mario Monti who had so far managed to enact austerity and pension reform measures with broad parliamentary consent. The former European commissioner who was tasked to lead Italy in November of last year has run into stronger resistance over labor reforms which opponents say could trigger a wave of layoffs.
Both Italy’s largest trade union and the center-left Democratic Party are angered by a proposal that would remove the obligation on the part of businesses to rehire workers that are deemed by a court to have been wrongfully laid off and allow employers to offer monetary compensation instead.
Left-wing parties have otherwise been supportive of Monti’s reform agenda while former premier Silvio Berlusconi’s conservatives were critical. Now the roles are reversed: the right has warned that it will not tolerate backpedaling.
Yet it was Berlusconi who backed down from attempts to ease firing rules in 2002 when millions of Italians took to the streets in protest and militants murdered a government advisor on labor policy.
Despite public resistance, there is little doubt that the two tier employment system that exists throughout Southern Europe must end if these countries are to remain competitive. Currently, older workers monopolize protected positions while the young can find only short-term contacts or no jobs at all. Companies are reluctant to hire because it’s nigh impossible to lay workers off even if times are tough.
Moreover, because workers tend to appeal layoffs, labor decisions are often mired in years of legal battles in Italy’s slow courts.
The proposed reform would allow companies to fire people for economic reasons without granting them legal recourse. In exchange, workers would get a financial compensation, the equivalent of up to 27 months’ worth of salary. Automatic reinstatement would remain only in cases of proven discrimination.
There would also be universal unemployment insurance as opposed to the limited one that is now in place which only applies to workers in cradle to grave contracts, usually in industrial sectors.
A third of Italians between the ages of eighteen and 24 are unemployed. Just 57 percent of people have a job which one of the lowest labor participation rates in the eurozone.