What the Economist thinks about Italy’s labour market reforms

The two decrees supported by the coalition headed by Matteo Renzi that nearly ten days ago enacted the core of an employment reform in Italy were described by the Economist as "a bold move to free up employment".

As the Economist described them, the recently approved measures "aim to close a yawning gap between Italy's labour-market 'outsiders', who are mostly younger workers on short-term contracts with scant entitlement to welfare benefits, and the protected 'insiders', typically older workers, who enjoy both job security and the certainty of an adequate pension."

In order to achieve this aim, "the reform sweeps away a skein of temporary contracts, replacing them with one that affords new employees progressively greater safeguards until, after three years, they become entitled to a permanent job. On the other hand, the reform ends the right to reinstatement of workers judged to have been unfairly fired. (That entitlement will now be reserved mainly for victims of discrimination.) Compensation will be given instead."

The reason why this change has been perceived as extremely controversial in Italy is related to the fact that it nullifies a clause in Italy's 1970 Workers' Charter the so called "articolo 18", which has since even been perceived as the ultimate source of protection and guarantee to all workers.

Although this is a very important and in a way bold move to free up Italian labour market, according to the Economist the new reforms has several limitations as well: "it does not affect public-sector workers, who are almost impossible to get rid of. It only applies to new hirings (though, since so many of Italy's workers are now on short-term contracts, its effects will soon be felt)".

Italian Prime Minister Matteo Renzi believes that with this reform "rights enter the vocabulary of a generation that hitherto has been excluded," while the finance minister Pier Carlo Padoan is convinced that the new rules will have a significant impact in terms of employment opportunities and prosperity. This positive attitude has been shared by employers, who will get generous incentives to use the new contract, but not by Italian unions.

According to the British magazine, the most important question to answer is what is coming next. Nobody can be sure that employers will in fact "start to hire more freely. And since those already in permanent work will be put on the new (and, for them, less advantageous) contract if they change jobs, there is a chance the reform could discourage labour mobility.

Follow @castaritaHK