March 20 (Bloomberg) -- Prime Minister Mario Monti is taking charge of the final round of talks to overhaul Italy’s labor market as he seeks to convince unions that easing firing rules will help bring down a decade-high unemployment rate.
Monti is holding an informal meeting with union leaders this morning before the formal talks, which began on Jan. 23, resume at 3:30 p.m. The premier has pledged to push ahead with a plan to expand jobless benefits, reduce temporary work contracts and allow more leeway in firing, even if he can’t get a negotiated deal.”
“Not surprisingly, the three unions, particularly CGIL, are mostly concerned about revisions” to the firing rules “but all three major political parties support the changes, so the social partners know the pressure is real to come to an agreement,” Erik Nielsen, chief global economist at UniCredit SpA in London, wrote yesterday in a note to clients.
This is the first attempt to ease firing rules since Silvio Berlusconi backed down a decade ago after protests across Italy and the murder of a leading labor economist. The overhaul marks Monti’s fourth legislative effort since coming to power in November. He passed a 20 billion-euro ($26 billion) austerity plan to balance the budget and revamp the pension system, followed by measures to boost competition and cut red tape.
Monti’s steps to shore up public finances and implement policies to spur Italy’s economic growth, which has lagged behind the euro-region average for more than a decade, has helped restore confidence in the country and bring down record borrowing costs. Italian 10-year bonds yield 4.84 percent, down from 7 percent when Monti took over.
Labor Minister Elsa Fornero, who has led the talks, has reached a broad agreement on offering young workers job contracts that offer more security, and the sides have made progress on outlining a more universal system of unemployment benefits. The thorniest issue remains easing firing rules in a country where unemployment tops 9.2 percent, the highest since 2001. She has called for talks to wrap up by March 23.
The negotiations have “matured” and an agreement is possible, Fornero said in a March 18 interview on state-owned Rai television. Still, “we can’t keep going ahead and having endless discussions,” she said.
The government and employers want to rework Article 18 of the labor code, which bans dismissals without just cause and forces employers to rehire and compensate workers deemed unfairly released. By making it harder to fire during economic downturns, employers say the law discourages hiring when times are good. The rule applies to companies with more than 15 workers, which can lead smaller firms to shun expansion.
“Companies prefer to remain small in order to be more flexible and often abstain from laying off even when they think it’s necessary, sometimes to the detriment of profitability,” UniCredit economists Chiara Corsa and Loredana Federico said in an e-mailed comment.
The rule is one of the reasons Italy was deemed to have the strictest legislation on collective layoffs in the Organization for Economic Cooperation and Development’s 2008 Employment Protection Index.
Monti said in a March 15 statement that he wanted to give employers more leeway to cut staff for disciplinary or economic reasons, while keeping the strictest protection for workers let go without just cause.
“We are pretty far from any hypothesis of a deal,” Susanna Camusso, head of the CGIL union said on March 17 in Milan, news agency Ansa reported. “Focusing the whole negotiation on Article 18 means they want to suggest that the only problem we have today is how to fire staff.”
The resumption of the talks comes one day after the 10th anniversary of the assassination of Marco Biagi, a government adviser on labor law, who was gunned down on Father’s Day outside his home in Bologna. The killing was claimed by the New Red Brigades, which took their name from the 1970s terrorist group, and followed their 1999 slaying of another labor expert, Massimo D’Antona. Biagi’s murder and protests by workers across the country led Berlusconi to abandon plans to change the rule.
“On Article 18 we wasted 10 years of competitiveness,” Angelino Alfano, head of Berlusconi’s People of Freedom party said in a March 17 interview with newspaper Il Mattino. “The reform should have been passed by Berlusconi at that time.”
Another pillar of the Italian talks involves broadening unemployment benefits, which currently favor the type of permanent workers protected by Article 18. Unions and employers favor the idea of expanding the safety net, though are critical of the government’s plans to finance the new system through contributions by employers and workers.
The overhaul “cannot be accepted as it unloads all the costs onto the small and medium-size companies, retailers and craftsmen, who represents the basis of Italy’s productive system,” Guido Crosetto, a lawmaker for People of Liberty Party said in a March 16 interview. “That doesn’t make sense, given the current economic outlook.”
The additional costs for small companies may average 271 euros per employee yearly, Marco Venturi, head of the country’s retailers lobby Confesercenti, who is taking part in the labor talks said on March 12.