ITALY: IMPLEMENTATION OF OVERDUE LABOR MARKET

UNCLAS ROME 004412

SIPDIS


E.O. 12958: N/A
TAGS: ELAB PREL IT
SUBJECT: ITALY: IMPLEMENTATION OF OVERDUE LABOR MARKET
REFORM IS UNDERWAY

REF: 2003 ROME 579


1. Summary: The Italian Ministry of Labor has approved
regulations to implement much-needed labor market reforms
designed to increase flexibility and reduce illegal
employmen. Through a system of public and private
contract options, part-time and contract worker will now be
eligible to receive fuller pension benefits, and employers
can better adapt to easonal demands for workers. In 2003,
there as a four percent increase in the number of art-time
and fixeact work; with implemerms, analysts expect t While
hardly a panace (###) blems, the new regulation (###) the elderly and
studare underemployed or wnomy-to become betth`t@mlate new
kinds of labor market. In Septemberhf Labor completed action
orequired regulations to im (###)



3. The goal of thelexibility in (###)
the labp and employers, to reduce
illegal employment and to better integrate labor supply and
demand. Officially, approximately 75 percent of Italians
are working as full-time employees with full pension
benefits, another ten percent are part-time or contract
workers, and 15 (estimates range from 15-30) percent work on
the black market. But labor statistics are misleading in
Italy because a worker is considered unemployed only if
he/she has actively looked for work in the past three
months. An estimated 37 percent of potential workers,
including women, students and the elderly, either are not
working at all or are not registered. In 2003, the national
agency that provides compulsory accident insurance (INAIL)
discovered labor irregularities in 60 percent of the 23,000
inspected companies. Those workers who were employed part-
time or on a contract basis received no, or reduced, pension
benefits.


4. The new regulations expand the types of labor contracts
available, provide for training, broaden pension benefits to
these part-time or contract workers and improve employment
services. The reforms affect: part-time contracts
(workers and employers will be able to negotiate hours based
on conditions); project contracts (two-thirds of the 1.2
million "collaboration" contracts in the private sector are
being transformed into project contracts); staff leasing
(employment agencies for the first time will be able to
provide indefinite-term workers); on-call employment
(employers will have new flexibility to hire seasonal
workers based on fluctuating demand); job-sharing (where two
workers can alternate to fill one position); inclusion
contracts (where companies provide vocational training and
reduced pay for hiring young or unemployed workers);
apprenticeships (the regions are enacting regulations to
determine required training); and employment services (this
allows employment agencies to provide companies with
temporary workers).


5. The Biagi law encourages the creation (###)
worker/employer associations that will provide employment
services and run private pension funds. It also establishes
a national data bank of jobs offered and available workers
and reduces limitations of employment services offered by
private agencies to improve the match between demand and
supply of labor.


6. Since enactment of the law, the new reforms have been
applied to the textile, chemical and communication sectors.
Despite a stagnant economy, employment increased 0.9 percent
in 2003; this included a four percent increase in the number
of part-time and project contracts. According to experts,
the majority of the one million new workers registered at
INAIL since January was previously employed in black
economy. Analysts are expecting a sharp rise in the number
of project contracts in 2004 and 2005. Employment agencies
are expected to hire 300,000 indefinite-term employees in
2005 for small- and medium-sized companies. Joanas Prising,
CEO of Manpower Italia, believes the legislation is a good
model for other European countries that want to improve
labor market flexibility and may be endorsed by the European
Commission as a model.


7. The reforms were accomplished after extended


negotiations between unions and employers' associations to
alter what has been a rigid and monolithic labor market.
Confindustria, the most representative association of
employers, actively supported the reform by negotiating with
unions. However, the majority of small- and medium-sized
companies (95 percent of the market) is not yet capable of
the reorganization required to take advantage of the new
flexibility. In fact, employers will need an increase in
labor productivity to offset the cost of payroll taxes that
fund new benefits for employees. To this end, the Government
is hammering out a plan aimed at encouraging innovation and
research in the private sector.


8. Trade unions remain reluctant to fully liberalize the
labor market. CGIL, the largest left-leaning labor
confederation, opposed the Biagi legislation in 2003 and
later sought to reduce its impact on collective bargaining
by limiting the use of new labor contracts. Acknowledging
that so far the reform to date has not hurt workers,
Agostino Megale, a high ranking CGIL officer, nonetheless
believes that it has generated uncertainty among workers.
The other two major confederations, CISL and UIL, were more
open to accepting the decentralization of collective
bargaining and an increase in part-time and contract
employment in exchange for increased employment and
benefits. CISL and UIL also proposed that unions continue
to act as the collective bargaining unit for flexible
workers and providers of services such as private pensions,
health insurance and unemployment benefits. Savino Pezzotta,
the Secretary General of CISL, observed that laws on labor
usually create rigidity and limitations, and only
negotiation between social partners could effectively
regulate the labor market. Bargaining units are usually
composed of representatives of the three main confederations
and independent unions at the national level and, in big
companies, at company level. Individuals may negotiate
further privileges directly with employers in exchange for
flexibility, improvement of performance, etc.


9. Comment: In conjunction with the modest pension reform
to date and steps to encourage vocational training in
schools, this labor market reform should better integrate
the supply and demand for labor. In the short term, the
reforms will increase employment opportunities for women,
students and the elderly. In the long term, increased
flexibility is designed to improve productivity and expand
legal employment of tax-paying workers. The real test of the
reforms, however, will be whether small businesses are able
to implement them.

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NOTE: (###) ZES-2 PARA 1, 3 AND 5 ALSO MISSING PARA 2
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2004ROME04412 - Classification: UNCLASSIFIED