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Italy: Employment, Instability And Economic Recovery

 4 min read / 

In 2012, the Fornero reform raised the retirement age of men and women in Italy, establishing the requirements for the “old age pension”:

  • At least 20 years of contributions and being at least 66 years of age for women and men, whether they are employed in public administration or by private companies
  • 62 years for women in the private sector – will become 66 years and three months in 2018
  • 63 years and six months for women self-employed that will gradually become 66 years and three months by 2018
  • “Retirement” was replaced by “early retirement”: women must have worked 41 years and three months and men 42 years and three months
  • Pension benefits that exceed three times the minimum pension were cut

Workers who had signed business agreements and the category that included the early retirement age compared to the above requirements were the main issues. Following the raising of the retirement age they were left without a salary, but also without a pension for a certain period. This concerned some tens of thousands of people, for which an exclusion was created for the transition phase.

Moreover, in the Monti government, the tax burden increased by nearly two percentage points, which made the executive very unpopular, although this increase was necessary to avoid the risk of default.

The Political Instability

In December 2012 the Monti government resigned, immediately after the Parliament approved a maxi-amendment to the Stability Law, which replaced the text of the law itself. The next day, President Giorgio Napolitano decreed the dissolution of the Parliament. The government remained in office for the term until the election of the new Parliament and the ‘birth’ of the new government. Since the coalition of Pier Luigi Bersani, who won the elections in February 2013, did not have the numbers for a majority in the Senate, in April that year Napolitano entrusted the task of forming a government to Enrico Letta, who gained the confidence of the House and of the Senate.

tax

Taxation levels (%) 2001-2014 (Source: Istat)

No Continuity

Enrico Letta tended his resignation following some disagreements with the secretary of the Democratic Party, Matteo Renzi, who criticised the executive in the field of economic reforms. The new government set out to implement a series of economic reforms, in particular, the so-called Jobs Act. It included:

  1. The introduction of a single contract for an indefinite period, increasing protection based on length of service (valid for new hires) and the reduction of contractual forms, such as project-based work
  2. The amendment of Article 18 for unfair dismissal, also providing growing financial compensation based on seniority
  3. The elimination of redundancy in cases where the company is permanently closed
  4. The reform of social safety nets

Another step addressed the income tax in April 2014. It called for reducing taxes for employees who earn up to €24,000 gross per year. The net monthly salary increased by €80, through tax credit, starting May 2014.

The Jobs Act aimed to reduce unemployment, but the data does not confirm the supposed positives of this reform: unemployment remains among the highest in Europe (excluding Greece) and it alternates between periods of spikes and drops. Youth unemployment remains very high, even at 44.2% in mid-2015.

Untitled

Unemployment Rate 2007-2014 (Source: Istat)

The unemployment rate strengthens the argument that some of the main problems linked to economic recovery in Italy are:

  1. A segmented labour market, which discourages foreign investments
  2. The small and medium size businesses that represent the largest share in the Italian industrial landscape, despite producing high-quality goods and playing a significant role in exports, are often not favoured by government reforms
  3. The facilities desired by the Renzi government may have reduced labour costs for businesses, but the greatest benefits derive from big business. Structural reforms are the sure way out of a vicious circle that has lasted for too long. They may relate to the institutions or increased competition in areas like services, or use public resources (to be recovered by reducing spending in less efficient areas and avoiding safety and health cuts). The country must implement targeted reforms aimed at building infrastructure or the improvement of the education system.

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