Renzi clears hurdles over labour reform

Italian presidency

Italian Prime Minister Matteo Renzi in Brussels, March 2014. [Palazzo Chigi/Flickr]

Italian Prime Minister Matteo Renzi’s success in staring down opposition from within his party over labour reform has delivered a symbolic political success but its impact on hiring and firing rules appears limited.

The top brass in prime minister’s centre-left Democratic Party (PD) backed his proposals to change job protection rules by 130 votes to 20 late Monday, despite angry opposition from party heavyweights Massimo D’Alema and Pierluigi Bersani.

The battle over labour regulations, enshrined in Article 18 of the workers statute, has been a heavily symbolic issue from the start, pitting unions and left-wingers determined to defend established rights against critics who say the system is unfair and deters companies from hiring new staff.

Under pressure from business leaders and European officials to deliver on his ambitious reform promises, Renzi chose to take on the left head-on and stake his credibility on the battle.

His tough stance could help him convince the European Commission that debt-laden Italy is serious about shaking up its hide-bound economy and therefore deserves more flexibility with European Union budget rules.

However the actual importance of Article 18 in day-to-day business is heavily disputed and details of what will actually change once the reform gets through parliament, probably not before next year, have still to be provided.

As things stand the proposed changes, which will not affect the public sector, will only apply to new hires, Filippo Taddei, the PD’s main economic spokesman told Reuters. But with the package due in the Senate on 7 October, one PD source, who asked not to be named, warned “this is an element which could change”.

The rules, which protect workers against unfair dismissal, currently only apply to companies that employ at least 15 workers, excluding the thousands of small firms that dominate the private sector in Italy.

Previous reform under technocrat Prime Minister Mario Monti in 2012, allowed companies to lay off staff when business was bad. Such a decision can still be reversed by the courts, but the new proposals would prevent judges from forcing firms to reinstate workers.

“There is now no reason for a worker to go to a judge when he is dismissed for economic reasons and that is a very important simplification for employers,” Taddei said.

However, Renzi disappointed some expectations on Monday by leaving the possibility of reinstatement in cases involving dismissal for discrimination and disciplinary reasons.

“If this were to be so, nothing would change at all,” said Renato Brunetta, lower house floor leader for Silvio Berlusconi’s Forza Italia party.

Senate vote

More details are expected in the coming days ahead of next week’s vote in the Senate, where Renzi depends on support from small centre-right and centrist parties and where a revolt by PD dissidents could cause serious problems for the government.

Left-wing critics fear any weakening of the unions will undermine worker rights and put more pressure on salaries already weakened during more than six years of economic crisis. It remains to be seen how many PD dissidents may defy Renzi on the vote.

“It’s still too unclear,” said Cecilia Guerra, a PD Senator opposed to the changes. “We still don’t know on what basis the rules are supposed to apply, whether it’s to everyone, or just new hires or whether the rules will be extended to firms with fewer than 15 workers.”

How far the proposals would dent Italy’s unemployment figures is disputed by unions, who say that changing job protection rules will do nothing to create work in a country going through its worst economic slump since World War Two.

But employers have generally backed the government, even though many see cutting taxes, eliminating red tape, and reforming the creaking and unpredictable justice system as more urgent priorities than Article 18.

Renzi says Article 18, which came on to the statute books in 1970, at the height of Italy’s postwar boom, is no longer appropriate in a labour market increasingly made up of workers on short-term contracts that are not covered by the rules.

Statistics agency ISTAT reported on Tuesday that headline unemployment in August dipped to 12.3%, but at the same time unemployment among young people, few of whom have full contracts, rose to 44.2% – the highest level since at least 1977 when the series began.

According to Labour Minister Giuliano Poletti, only 17-18% of new hires in the past 12 months received fixed contracts that would be protected by Article 18 rules, with more than 80 percent on short-term contracts without cover.

Renzi wants a simplified system with fewer short-term contracts and a new form of full-time contract that would gradually raise the degree of protection offered to workers as their seniority increased.

At the same time, he wants to extend unemployment welfare benefits to workers not currently covered, although he has yet to provide details on how he would fund the measures.

In a bid to offer more immediate cash to households, Renzi also proposed allowing workers to take part of a special pension fund contribution, normally redeemable on retirement, directly into their pay packets.

Subscribe to our newsletters