Jobs market reforms get Italy back to work

by Tommaso Venditti

The “Jobs act” has been one of the main reforms carried out by Renzi. It is essentially a system of interventions into the Italian labour market. The three-year time frame in which the measure was enforced (2015 through 2017) has been revealed to have been successful in terms of boosting the number of those in employment, by almost 800,000, according to Istat.

Nevertheless, prior to drawing conclusions on its success, it is important to trace back the reasons for such a reform and the particular environment which gave birth to it. Specifically, issues related to the dual labour market in Southern Europe. This structure is marked by the coexistence of permanent and temporary contracts, where dysfunctional performance is due to the “employment protection gap”, where legislation can be a burden for long-tenured workers.

A flexible system of job creation and destruction is what policy makers should aim for, as far as the Italian market is concerned. The European sovereign debt crisis of 2008 and the resulting GDP crash around the world led to debates on redesigning unemployment protection legislation and the need for structural reforms. It is in this crucible in which Renzi’s “Jobs act” was shaped.

This is the first true reform attempting to disrupt the dualistic paradigm of the Italian labour market. In fact, it acts to reduce the costs of firing those on permanent contracts, and at the same time easing transitions towards them from temporary contracts. The cornerstones of the “Jobs act” are:

  1. Permanent contracts “with rising levels of protection”
  2. Complementary reforms strengthening social safety nets and labour policies

The changes to long-term contracts play a major role in the reform due to the fact that firing costs are reduced, fixing compensation “ex ante” to levels based on the amount of years worked per person and dramatically limiting the influence of labour judges.

The result is increased flexibility of the market, not dissimilar from the US model. This should lead to higher competition, against the traditional immobility and unproductivity of Italy’s labour market – largely driven by complacency and the certainty of retaining employment.

As an immediate result, hiring improved but eased back in the following years, in particular during 2016-2017. Moreover, the dismissal rate slightly decreased. In terms of transition lengths, that is, the average period of a worker staying in a short-term contract; only one fifth of contracts in Italy become permanent every year (against a European average of around 30 per cent). 

The improvements to social safety nets are linked to reform of unemployment benefits, which included a natural prolongment of dismissal rules; these are intended to resolve issues from previous reforms’ attempts to improve social safety nets.

As a result of the “Jobs act”, the number of people entitled for unemployment benefits increased and the period of such support has been extended from 12 to 24 months. To access them, social security contributions of 13 weeks are required over the last 4 years prior to being dismissed. Consequently, those entitled to this protection reached 97 per cent of all those in employment (a recorded increase of 1.5 million) one of the highest rates in Europe. Considering that a scenario of transformation of traditional jobs is indeed realistic, it is of vital importance to promote active policies devoted to the facilitation of the transition from one workplace to another and to promote professional retraining.

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