The Italian Jobs Act: Expansionary Precariousness

Renzi pledged to enact reforms to tackle Italy’s growth and productivity crisis, but his “flexible” labor reforms—which will allow employers to fire workers on the payroll for three years without justification—will do nothing to reverse the backwardness of Italy’s economy.

The decline in Italian productivity is dire. Several indicators have shown a nega­tive dynamic, not only since 2008 but also since the late 1990s: labor productivity, the investments made by companies and the capital/labor ratio—which led to stagnation in total factor productivity (a possible measure of technological advancement)—fell from a modest 1 percent per annum in the late 1990s to close to zero in the early years of 2000 and has gone into negative territory since the crisis of 2008.8

What is it that happened at the turn of the 1990s and later to the present day to induce companies to stop investing in the quality of work and technology? Among the many things that happened, the two most important are wage moderation and flexibility of the labor market.

2.2.1 Deregulating Wage Bargaining

In 1993, an important agreement was signed by trade unions and the government that reformed collective bargaining—at the national and the subnational, or company, level. While the first had to ensure that wages were consistent with the reduction of inflation (inflation adjusted), the second would initiate a virtuous cycle, committing employees to increasing productivity and real wages at the same pace, while innovating in technology, the organization of work and new products. The government was to support this change with macro- and microeconomic policies, such as public investment policy, policies for innovation and industrial strategy and policies for the so-called “best work organization practices” within firms at the shop floor level.

We know how the story ended.

As for the virtuous path and participatory approach that should have raised produc­tivity and real wages along with technological and organizational innovation, there was no sign of this. Indeed, companies have stopped investing in the organization of work (“best practice” is unknown!) and technology.

2.2.2 Job Insecurity

Indeed, what happened in the 1990s—from the Treu Law of 1997, which kicked off the deregulation of Italy’s labor market, to the Biagi Law of 2003 (infamous for its supermarket contracts) and most recently the contradictory Fornero Law of 2012—was a progressive deregulation to promote the flexibility of the labor market.⁹ Reforms started with lower­ing hiring costs and facilitating hiring policy for the firm introducing a large variety of short-term labor contracts, and finished by also facilitating firing policies in the period of economic crisis, decreasing the cost and timing of individual and collective firing.

Year after year, with a two-tier reform approach, the effect was to create a dual labor mar­ket, with precarious jobs flanking steady jobs. This “drift” has prompted more companies to rely on precarious work, low pay and unproductive labor replacing steady jobs instead of innovating in the workplace and investing resources in research, training and human capital.

The state’s role was, on the one hand, to deregulate labor and, on the other, to avoid any responsibility for industrial policy by adapting our productive system toward sectors with higher technological content and economic and environmental sustainability. Not only that, it has also helped close down companies that would have been able or willing to innovate, thanks to competition from companies with poorly protected workforces facilitated by the flexibility of the labor market.

The drift of flexibility and wage moderation has thus led us into the trap of zero productivity growth, which is where we are now, in the years of the euro.

2.2.3 More of the Same: A Closer Look at the Jobs Act

In this context of neoliberal restrictive policies in the EU and stagnation of Italy’s econ­omy, theJobs Act,¹⁰ announced by the Renzi new course of the Italian center-left in January 2014 was based on four pillars: (1) reduction of the tax wedge; (2) industrial pol­icy to sustain Italy’s manufacturing and the “Made in Italy” system; (3) restructuring of the labor market through the introduction of contracts with progressive protection; and (4) simplification/deregulation of labor law.

What is left of the pillars after 150 days of Renzi government?

The first pillar is still marked by “work in progress.” The 80-euro bonus in the pay­check is nothing but a bonus: it is not a structural reform and, in addition, its financial coverage is uncertain. It should become structural with the next autumn budget law (Stability Law). Anyway, notwithstanding the summer declarations, social categories with basic needs are and will remain excluded, such as autonomous workers (who are the ones who suffer most precariousness), pensioners, the unemployed and people at risk of poverty or social exclusion. In addition, a cut of 10 percent in the Regional Tax on Productive Activities was also announced, but its financial coverage is also uncertain. Although not negligible, these steps are not going to have significant economic effects in the short term.

The second pillar seems to have been abandoned, unless we assume that industrial policy is synonymous with privatization and liberalization. Italy does not need the latter, but for sure it needs a public industrial policy for strategic sectors—mature, traditional and innovative ones—in order to realize changes in processes and products, in the organiza­tion and quality of work, in green technologies, information and communication tech­nology and knowledge. These are all central factors that would help in combating Italy’s productivity stagnation that both hampers firm competitiveness and slows down the increase in workers’ wages.

The third pillar has been weakened, and its application was postponed first to 2015 and after 2015 never realized. It would have been desirable that the introduction of a contract with progressive protection marked a break with the past, moving toward the elimination of the “supermarket” of contractual forms in order to encourage companies to invest in the workforce, cognitive capital and organizational innovation. On the contrary, the hypothesis is that of introducing at a first stage the new labor contract based on progressive protection alongside the multitude of other contractual forms nowadays present in Italy’s labor market and in experimental form. No inter­vention is expected in the area of trade union representativeness, minimum wages or universal social protection systems. Instead, the wish is to reform again—after the change in 2012 (the Fornero reform)—the legislation on individual and collective fir­ing to decrease rights and protections for workers, and to change the “chart of labor rights,” which could become unenforceable for every contract in the first three years plus another three-year contract as an apprenticeship, so that for six years out of 15 (the average duration of a seniority contract for an Italian worker) the working status will be precarious.¹¹

Until now the main effort of the government has been addressed toward the fourth pillar: the simplification of labor laws.

The first risk for this further deregulation is to increase the legal controversy at the national and, more specifically, the European level, because the new law revising the motivations for temporary hiring could differ from European legislation on subordinate labor contracts, interpreted as mainly permanent and not temporary. In addition, the law weakens the worker in their contractual relation with the firm, allowing even more intimidating behavior.

The second area of objections to the new law is found in economics. We stress three main objections. First, the idea that more flexibility will increase employment and decrease unemployment is not supported by consistent empirical evidence. See for example how the OECD (Employment Outlook, various years) has contested this thesis.¹² But even Olivier Blanchard (2006a.) had in the past questioned this idea: “differences in employment protection seem, however, largely unrelated to differences in unemployment rates across countries” (2006a, 30), and in a next passage he wrote, “Many researchers, including myself, have tried to trace the differences to differences in shocks or institutions [...]. I am not sure that our explanations are much more than ex-post rationalizations” (ibid., 44).¹³ The idea is a false belief. Flexibility, instead of increasing employment, seems to support a substitution effect of standard with nonstandard work. Secondly, the con­tractual flexibility in temporary contracts tends to favor the repetitiveness of these con­tracts more than their transformation into standard contracts, without significant effects on the duration of employment status. In addition the pay tends to decrease, as has happened in Spain.¹⁴ This is the second false belief.

All in all, we can sadly say that it seems that those who govern us do not learn anything.

The only recipe they can think of is labor flexibility. The more recent Italian govern­ment, with the duo Matteo Renzi (prime minister) and Giuliano Poletti (labor minister for welfare), tells the tall tale of “expansive precariousness” and sells us their recipe like ticket scalpers: they believe that with just a little more flexibility and the simplification of the rules, companies will again begin to hire, will regain competitiveness and will maybe increase productivity because workers will have more certainty in finding a permanent job, even if the permanent is made by many consecutive temporary contracts, or so says Poletti.¹⁵

The risk is rather that after the decline, these gentlemen will lead us straight into the abyss. We are at the threshold of a decade of “zero” productivity growth; another step and we’ll have to inaugurate the phase of “below zero” in productivity. The productivity “ice age” we’ll have to call it.

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