The Italian government’s recent declaration of support for the cause ‘gilets jaunes’ (yellow vest) protesters in France, even going so far as to proclaim ‘don’t give up’, has reinforced their support of the sovereignty of the people of the Republic of France – and at the same time those of the Republic of Italy.
Not yet even 12 months old, the new government, headed by Matteo Salvini (leader of the League party and acting interior minister) and Luigi Di Maio (leader of the 5 Star party and acting deputy prime minister) has reinforced its support for the ‘people’ through a series of legislative decrees. While on one hand this is quite honorable, on the other it can lead to impediments for business.
It all started quite quickly with the passing of the Dignity Decree (Decreto di Dignita), not even
75 days after the government came
to power, which introduced a series of reforms to an Italian labour market that was certainly more favorable to employees than businesses. With the third highest unemployment rate in Europe (recorded by Eurostat at 10.3% in December 2018), it is something which appears needed to be addressed – especially if one takes into consideration that youth unemployment for the same period was recorded at 31.9%.
It is on the youth that the government is especially concerned with as we see through the incentives it has given to business through the Dignity Decree. This includes a 50% reduction on social security contributions for any new employees hired on indefinite work contracts and the reintroduction of vouchers as a payment method for students and unemployed workers. More recently with the 2019 Budget Law there are even more incentives for companies to hire both PhD students under 34-years old and youth (under 30-years old) who are the top of their class with savings of up to €8,000 on social security contributions per new hire on an indefinite work contract – either full or part time.
However, while the government is greasing the labour wheel on one end it is creating impediments for employers on the other – in terms of having a flexible workforce. For example, within the Dignity Decree the amount of time a company can hire a fixed-term worker has been decreased from 36 months to 24 months – and only 12 months if there is no justifiable reason to extend a contract. In addition, the decree has also increased the penalties for employers caught dismissing workers without ‘just cause’ from four to 24 months of wages to six to 36 months.
In addition, if your business has received assistance from the government in the past five years and you decide to transfer your business operations out of the country – as it would be a more efficient for your business – then your organisation will need to repay the Italian government two to four times the value of the financial assistance provided.
Moves such as these are bringing back the shadow of a time when it was incredibly difficult for employers to dismiss workers in Italy. The more obstacles employers have to running a flexible workforce the more difficult it is to run a business efficiently. Constraining employers to hire workers only on full-time contracts is not the answer. In fact, there is a risk it may have the opposite effect and lead to international investors shunning Italy for other countries where labour markets are more flexible. In fact, recent statistics appear to indicate that Direct Foreign Investment in Italy has slowed since the new government was elected.
In 2016 the OECD published the report Enhancing Economic Flexibility: What is in it for Workers which revealed that ‘making employment protection of regular contracts more flexible is associated with more transitions into employment in countries that have above-average activation programs’. In addition, ‘Active labour market policies (ALMP) contribute to creating an environment where making
regular-contract protection more flexible translates into greater hiring chances for jobless people’. Those that are most adversely impacted by flexible labour policies are low-skilled/under-educated workers.
This last group are those the government may be appealing to with its more job protectionist policies. This is perhaps also illustrated by a new incentive in the 2019 Budget Law, at the other end of the scale of the incentive for academic excellence, which offers companies €1,500 in tax rebates for hiring new truck drivers under 35 years of age on full-time contracts (but only if the company reimburses the new employee for the cost of obtaining the special license for the transit of goods).
In Italian, fixed-term contracts are referred to as ‘precarious’ work contracts. We are sure the use of this term does not help the situation as it makes it seem as if such a contract is ‘dangerous’, but it is not. It is only ‘uncertain’ in that it is not permanent. In this labour market a job is a job and we doubt offering a ‘citizens wage’ to those who do not work is going to reinstate confidence in the system, but that is a discussion for another day.
A flexible labour market allows businesses to remove the ‘dead wood’ from their organisations and replace it with a more efficient and proactive workforce. This is what makes an organisation great, an economy great, a country great. Italy certainly is and would be even more if it allows business to operate as it should.