Italy's Reforms: Monti Fires The Starting Gun

Italy's unelected government has entered one of the most delicate stages of its tenure. Mario Monti and Italian Welfare Minister Elsa Fornero (in the picture) have just presented their key proposals for reforming Italy's labour market.

The full text of the draft bill is available here (in Italian). If adopted, the proposed measures would introduce substantial - and desperately needed - reforms to Italy's labour market.

In particular:

• The so-called 'social shock-absorbers' (i.e. unemployment benefits) will be extended to all categories of workers, but will be available for shorter periods to avoid people excessively relying on help from the government instead of seeking another job;

• Apprenticeship will be encouraged as opposed to the current system where too much emphasis is put on academic degrees;

• A proposal to change the peculiar way 'unfair dismissals' are dealt with under Italian law (which we looked at here - basically, anything can count as 'unfair dismissal' which makes it very difficult for employers to hire and fire). But this reform actually seems to have been watered down at the hands of Italy's centre-left Democratic Party, which has close links with trade unions.
  

In addition, Monti also wants to make it more expensive to re-employ temporary workers, by forcing employers to either put temps on a permanent contract or let them go, after a certain period of time. This is a tricky one. Long-term employment should of course be encouraged and the incentives proposed for employers who hire people permanently could help. But would it also not reduce the flexibility of the labour market? And would it actually provide an incentive for firms not to hire permanent workers (instead employing different temporary staff)?

Within Italian context, these are substantial reforms that should not be under-estimated. But they remain somewhat patchy and could be further watered down by the Italian parliament. Being a technocrat doesn't make Monti immune to political pressure - but these reforms, whilst welcome, are only the starting point in the long race to drag Italy out of its current malaise.