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The Recent Reform of the Labour Market in Italy: a Review 6 ISSN 2443-8022 (online) The Recent Reform of the Labour Market in Italy: A Review Dino Pinelli, Roberta Torre, Lucianajulia Pace, Laura Cassio and Alfonso Arpaia DISCUSSION PAPER 072 | DECEMBER 2017 EUROPEAN ECONOMY Economic and EUROPEAN Financial Affairs ECONOMY European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission. Authorised for publication by István Pal Székely, Director for Economies of the Member States III. LEGAL NOTICE Neither the European Commission nor any person acting on its behalf may be held responsible for the use which may be made of the information contained in this publication, or for any errors which, despite careful preparation and checking, may appear. This paper exists in English only and can be downloaded from https://ec.europa.eu/info/publications/economic-and-financial-affairs-publications_en. Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). More information on the European Union is available on http://europa.eu. Luxembourg: Publications Office of the European Union, 2017 KC-BD-17-072-EN-N (online) KC-BD-17-072-EN-C (print) ISBN 978-92-79-64935-6 (online) ISBN 978-92-79-64936-3 (print) doi:10.2765/049593 (online) doi:10.2765/27379 (print) © European Union, 2017 Reproduction is authorised provided the source is acknowledged. For any use or reproduction of photos or other material that is not under the EU copyright, permission must be sought directly from the copyright holders. European Commission Directorate-General for Economic and Financial Affairs The Recent Reform of the Labour Market in Italy: A Review Dino Pinelli, Roberta Torre, Lucianajulia Pace, Laura Cassio and Alfonso Arpaia Abstract Italy undertook a major reform of the labour market in 2014-2015 (Jobs Act). This paper provides a compendium of the key changes introduced. The analysis shows that the Jobs Act has contributed to bringing Italian labour market institutions more closely into line with international benchmarks and with the principles of flexicurity. Employment protection legislation for permanent contracts has been brought into line with that of major European partners, although it remains more restrictive than the OECD average. The focus of passive labour market policies has shifted from job to worker protection, which will facilitate the reallocation of workers to more productive occupations. The designed strengthening of active labour market policies would improve job matching and reduce structural unemployment, but thorough implementation remains the key factor for achieving this critical goal. Extending the new rules on employment protection legislation also to existing permanent contracts and the strengthening of the collective bargaining framework could be considered as a follow up to the recent reform. Flanking measures to open product markets and reform the public sector are crucial to deliver the entire potential impact of the reform. JEL Classification: J08, E24. Keywords: Italy's labour market reform, structural reforms, employment protection legislation, unemployment insurance, short-term wage schemes, active labour market policies, short-time work schemes. Acknowledgements: We would like to thank Gaetano D'Adamo, Melanie Ward-Warmedinger, Artur Carvalho, Marie Donnay, Ernesto Reitano, Valentina Remida, Pietro Bonvecchio and Vassileios Thomas Karantounias for their useful inputs and comments. Lazaros Dimitriadis provided excellent research assistance. All errors are ours. The closing date for this document was July 2017. Contact: Dino Pinelli, [email protected]; Roberta Torre and Lucianajulia Pace (intern), European Commission, Directorate-General for Economic and Financial Affairs; Laura Cassio and Alfonso Arpaia, European Commission, Directorate-Generale for Employment and Social Affairs. EUROPEAN ECONOMY Discussion Paper 072 CONTENTS 1. INTRODUCTION ................................................................................................................ 5 2. EMPLOYMENT PROTECTION LEGISLATION .................................................................... 7 3.1 EMPLOYMENT PROTECTION LEGISLATION IN ITALY BEFORE THE JOBS ACT ........................ 7 3.2 HOW THE JOBS ACT CHANGES EMPLOYMENT PROTECTION LEGISLATION IN ITALY............ 9 3.3 THE EARLY IMPACTS OF THE CHANGES INTRODUCED BY THE JOBS ACT ............................ 12 3. PASSIVE LABOUR MARKET POLICIES ............................................................................ 17 4.1 PASSIVE LABOUR MARKET POLICIES IN ITALY BEFORE THE JOBS ACT ................................ 17 4.2 HOW THE JOBS ACT CHANGES PASSIVE LABOUR MARKET POLICIES IN ITALY ................... 22 4. ACTIVE LABOUR MARKET POLICIES ............................................................................. 26 5.1 ACTIVE LABOUR MARKET POLICIES IN ITALY BEFORE THE JOBS ACT .................................. 26 5.2 HOW THE JOBS ACT CHANGES ACTIVE LABOUR MARKET POLICIES IN ITALY ..................... 31 5. CONCLUSIONS .............................................................................................................. 34 6. ANNEX ............................................................................................................................ 36 7. REFERENCES ................................................................................................................... 41 3 1. INTRODUCTION Italy undertook a major reform of the labour market in 2014-2015 (Jobs Act). In March 2014, urgent measures were introduced to foster employment and simplify bureaucratic procedures for temporary contracts.1 In December 2014, a wide-ranging enabling law was adopted, paving the way for eight legislative decrees, which were all adopted by September 2015.2 The Italian labour market was already deeply reformed during the 1990s. Following the financial crisis of 1992 and the sizeable devaluation of the Italian lira, tripartite agreements between the government and social partners led to abolition of the automatic mechanism of wage indexation (Scala mobile) and the reform of the framework for collective bargaining.3 A few years later, the Treu Package (1997) and the Biagi Law (2003) relaxed the rules for the use of standard temporary contracts and introduced a wide set of new (“atypical”) temporary contracts without however revising employment protection for open-ended contracts (Annex, Table 6.1). Employment growth was strong in the aftermath of the reforms (reaching 1.4% per annum on average from 1997 to 2007) and the unemployment fell to a record low rate by 2007 (at 6.2%, nearly 1.5pp below the euro area average), as the availability of new forms of employment responded to employers' demand for flexibility and workers needs to reconcile work responsibilities with other needs. At the same time, however, labour productivity growth deteriorated dramatically, leading to strong competitiveness losses and declining GDP per capita relatively to other EU countries. The 1990s reforms of labour market institutions were not neutral to the productivity slowdown. The strong take- up of the new (temporary) contractual forms created a dual labour market with more low-skill workers into employment and reduced incentives to invest in education and firm-specific skills (Larch, 2004; Sestito, 2002; Daveri and Parisi, 2015; Rosolia and Torrini, 2007, 2016). The traditional bias in passive policies towards job protection continued to slow down the re-allocation of resources towards more productive firms (Calligaris, 2016). With the long-lasting crisis, the weaknesses of Italy’s labour market institutions became evident and the unemployment rate shot up to more than 12.5% in 2014, 1pp above the euro area average. Young people were the most exposed, as they were more likely to be hired on temporary contracts. Youth unemployment rate skyrocketed reaching over 40% by 2014. The inability of the social safety net to cope with prolonged period of unemployment and the weaknesses of active labour market policies contributed to a strong increase in long-term unemployment and poverty rates. Given the ensuing strain on public finances, it became evident that a labour market compact unsupportive of labour market efficiency was not sustainable. 1 Decree law n. 34 (“decreto Poletti”), entered into force on 20 March 2014. 2 Law n. 183/2014, implemented by the following legislative decrees: Legislative decree 23/2015, reforming employment protection legislation for permanent contracts; Legislative decree 22/2015, redesigning the system of unemployment benefits; Legislative decree 80/2015, including measures to reconcile work and family life; Legislative decree 81/2015, reorganising the typology of labour contracts; Legislative decree 148/2015 reforming wage supplementation schemes (‘Cassa integrazione guadagni’); Legislative decree 149/2015, reforming inspection activities; Legislative decree 150/2015, reforming and strengthening active labour market policies; Legislative decree 151/2015, including simplification measures and other dispositions
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