Taking to the streets.

Photographer: Kenzo Tribouillard/AFP/Getty Images

Italy and France Still Can't Take On Joblessness

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Italy's unemployment rate dropped in July, Eurostat reported Tuesday. If the improvement turns out to be a trend, the credit probably will go to Prime Minister Matteo Renzi's efforts to make the labor market more flexible, and he will be compared favorably to Prime Minister Manuel Valls of France, whose policies haven't achieved a reduction in unemployment. For now, however, the labor reforms in both countries are too tentative to be effective.

In Italy, the jobless rate fell to 12 percent, from 12.5 percent in June, though analysts polled by Bloomberg expected an increase to 12.7 percent. Renzi must feel vindicated for pushing his so-called Jobs Act, which was approved by parliament late last year.

The most important novelty in Renzi's bill was the relaxation of Article 18 of the Workers' Statute, which allowed courts to reinstate fired workers. Now, thanks to Renzi's persistence, that is only possible in a limited number of cases -- such as when discrimination is determined to be the reason for the dismissal. 

The bill also introduced a new type of open-ended contract that makes job protection dependent on the length of an employee's service. It is intended to replace the current two-tier system that makes it very difficult to dismiss people with permanent contracts, leading employers to prefer fixed-term contracts that afford no protection. In 2012, for example, more than 80 percent of new contracts in Italy were fixed-term, 40 percent of those were for less than six months. 

The eased rules apply only to new hires, however, and don't cover public sector employees, who are almost impossible to remove.

These changes probably don't sound revolutionary, but for Italy, they are. Hundreds of thousands of people have demonstrated against the measures, especially the amended Article 18, which labor unions suspect will be used to punish activists. The battle in parliament was so tough that Renzi described it as a vote of confidence, and he's been likened to Margaret Thatcher with her union-busting policies. That kind of resistance can convince a politician that he's doing something courageous and worthwhile, but it's hard to see how the Jobs Act could quickly reduce unemployment. Italy still has 2,700 pages of convoluted labor legislation, a relatively low share of part-time employment (just 18.8 percent of total employment, compared with 24.1 percent in the U.K. and 38.5 percent in the Netherlands) and a bloated, inefficient public sector. 

Renzi's reforms don't go much further than those put in effect by Valls, which include more flexibility in working hours, reform of industrial tribunals used to settle labor disputes, and some tax incentives for businesses to hire more workers. France's labor law has 3,000 pages, and even lawyers can't claim to understand it. It probably would be easier to start from scratch than to reform the existing system, but President Francois Hollande and Valls don't have the public approval or credibility to attempt anything so drastic. All they can do is try to initiate lengthy negotiations with employers and labor unions about impediments such as the onerous restrictions imposed on companies with more than 50 employees.

No wonder France's unemployment increased to 10.4 percent in July from 10.3 in June. The jobless rate has hovered close to this historically high level for about three years.

Both France and Italy need much more systematic reforms of their labor markets. Germany's Hartz reforms of 2003-2005 are an example of the kind of comprehensive approach that is necessary. France and Italy have different barriers to employment than Germany did, but both countries could emulate the German government's holistic method: It wasn't interested in tweaks, but in overhauling the entire system.

The German reforms, now seen as the European model, helped drive the unemployment level from a 2006 peak of 12.1 percent to 4.7 percent today, and prevented significant job losses during the financial crisis. The recent Italian and French tweaks won't achieve anything similar. The better Italian figure for July probably is a statistical fluke that has more to do with a general improvement of the European economy -- 21 EU countries reported falling unemployment in July -- than with Renzi's policies. 

True labor market reforms in countries such as France and Italy, where layers of union-driven tradition have resisted all attempts at change, will occur only if pro-business forces win an overwhelming mandate from voters -- which is highly unlikely -- or if the European Union is empowered to set common rules for all its members. It doesn't make sense that Europeans, who have the right to work anywhere in the EU, are subject to vastly different employment regulations depending on where they work. Fixing this absurd situation probably would require far more political will than European leaders can muster these days.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net