Jan. 28 (Bloomberg) -- When Michele Alessi saw orders drop at his namesake kitchenware designer he paid his staff to sweep streets and prune trees rather than have them stay home tapping a state-backed layoff fund.
Alessi, 63, whose company makes humorous designer kitchen tools like a Philippe Starck-sketched juicer in the form of a giant spider, takes a dim view of the employer tax-funded layoff program because “it sends the wrong message,” he said in an interview in Milan on Jan. 22. “It’s like telling people, ‘don’t do anything, I don’t need you but you’ll get paid anyway.’ Paying workers not to work is a luxury this country can’t afford.”
Instead of using the fund to maintain his staff during a temporary slowdown last summer, an option other Italian firms took advantage of, Alessi decided to keep idle workers on the payroll and pay them to sweep the streets of the cash-strapped town of Omegna, where the company has been based since 1921.
Fighting record unemployment has become Prime Minister Enrico Letta’s top priority and the new leader of his Democratic Party, Matteo Renzi, has called for radical restructuring of the labor system, with a Jobs Act to cut labor costs, ease firing rules and increase protection for workers who lose their jobs while cutting abuses of the temporary layoff plans.
More than 1.6 million Italian workers were sent home on reduced pay through layoff funds in 2012 and as many were forecast last year as the country suffered through its longest recession since World War II. That’s three times more than before the crisis in 2008 and brings the total number of beneficiaries of income support to more than 4 million. Italy spent 6.1 billion euros ($8.4 billion) in 2012 for layoff funds, 2.3 billion euros of which from taxpayer money and the rest coming from payroll social contribution levies.
“The issue is not identifying the problems” in the labor market, Alessi said. The key is acting decisively to address high labor costs, “rigid” legislation and Italy’s stifling bureaucracy, he said. While the best businesses have succeeded despite the government, changes in legislation are needed as soon as possible, Alessi said, citing a post-war Italian president, Luigi Einaudi, who said the country’s “entrepreneurs excel because of their passion, despite all we do to hamper them.”
Over 87 percent of Alessi’s 350 employees at the design factory near Lake Orta in northern Italy came out to sweep streets, prune shrubbery, repaint the local school and help the disabled from June to November last year, while still receiving their full salary from the company. Michele Alessi, who serves as chief executive officer, and Alessi board members also joined in. Staff performed a total of about 10,000 hours paid work on the project.
Initially the workers “were surprised, because it is very strange, it never happened before in Italy,” Matteo Alessi, Michele’s son and international sales and development director for Europe, told Bloomberg Television today. “But the reaction was very, very positive. We had an 87 percent participation. My father often jokes that he never had an idea that had 87 percent of consensus in the company.”
“It’s good to work anyway, since we have the possibility of doing something for the community instead of sitting home doing nothing, why not,” said Moreno Mastrantuono, a factory worker, in a company video.
While Italy’s wage-guarantee layoff plan, known as Cassa Integrazione Guadagni, or CIG, was designed after World War II to help manage temporary downturns in demand, the system has been extended to situations like corporate restructuring, sometimes maintaining workers at home at about 80 percent pay for years -- as many as seven years for Alitalia SpA staff laid off in 2008.
At the same time, the government has cut transfers and spending limits for municipalities by at least 16 billion euros since 2007, according to the association of municipalities.
In 2012, then-Prime Minister Mario Monti tried to pass Italy’s most ambitious labor regulation overhaul in decades in a bid to make it easier to terminate contracts, hire workers and extend unemployment benefits to temporary workers. His attempt to create a more flexible labor market was diluted by opposition from trade unions and the old guard in the Democratic Party.
The proposal from Renzi, 39, for flexible contracts for young workers with protection rising as tenure increases “could have a positive impact,” said Fabrizio Daverio, a labor consultant at law firm Daverio & Florio. Renzi also wants universal unemployment benefits and has talked about targeting abuses in state layoff programs.
Italian and foreign businessmen such as McDonald’s Corp.’s local-unit CEO Roberto Masi have come out in favor of Renzi’s plan. “It’s a concrete proposal to get out of the employment crisis,” Masi said earlier this month. “It’s not complete, but at least it’s a proposal.” Italy ranked 65th out of 189 countries globally in the World Bank’s ease-of-doing-business survey released in October, lagging behind Rwanda and Botswana.
The difference between workers’ net take-home pay and the cost for employers is more than 47 percent in Italy, three times that of New Zealand and 12 points more the average of the Organization for Economic Co-operation and Development. Letta has penciled in a first measure to cut the so-called tax wedge, whose high level is one of the main obstacles to hiring.
CEO Alessi said the burden of taxes and mandatory contributions have kept him from being able to make competitive offers to managers from outside Italy, including one candidate based in Hong Kong last year.
“The situation requires big and important changes and I’m not sure there’s the strength to push these through,” Alessi said, adding that his “fear is that new labor measures will be just palliatives.”
With more than 200 designers and 2,000 products, including a corkscrews shaped like smiling girls and a kettle with a bird that sings with boiling water, Alessi sells to 87 countries and had revenue of 106 million euros last year.
Alessi may repeat a similar community service initiative this year, the CEO said, and the company is in talks with the government about details. Alessi was able to afford the program last year as full-year sales rose more than 10 percent, the CEO said during the interview in his daughter’s apartment, which featured an iconic mini toy Bialetti moka, a tribute to the executive’s grandfather Alfonso Bialetti, who invented the moka stovetop coffee maker.
The government should come up with incentives to encourage more ideas like the community-service program, Alessi said. Though his company footed the bill to help clean up the factory town, there was one unexpected cost for the CEO. “I had a blast” taking part in the public works at Omegna, Alessi said, “but I paid the price later,” he said, citing his sore back.
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