News Analysis: Most economists worry Italy's new "dignity decree" could make labor markets inflexible

Source: Xinhua| 2018-08-22 00:26:52|Editor: Liangyu
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By Eric J. Lyman

ROME, Aug. 21 (Xinhua) -- A major labor reform from Italy's new government aimed at strengthening the hand of workers could have the opposite effect, analysts said, warning that the reform could make it less likely for companies to hire new employees.

The so-called "Dignity Decree", which was finalized last month, is the first major piece of legislation to be finalized with the backing of the Five-Star Movement, the populist and anti-establishment party backing the government of Prime Minister Giuseppe Conte. Designed to cut down on the use of temporary contracts and increasing compensation for employees who can show they have been wrongfully fired from their jobs.

The decree is in line with a campaign promise from the Five-Star Movement, helping propel the party to nearly a third of the votes in a crowded field in this year's general election.

The measure takes aim at companies' frequent use of repeated temporary contracts to hire workers for extended periods without offering them full-time positions and all the associated benefits.

Under the existing law, a worker can work under a series of temporary -- they can range from one day to as long as six months -- for as long as three years total. The new decree shortens that period to one year in most cases. The number of legal extensions for a temporary contract has been reduced to four from five.

When a worker is ruled to have been unfairly dismissed, the new rules would see the minimum compensation raised to six months' salary, compared to four, and the maximum to 36 months' salary compared to 24.

Luigi Di Maio, deputy prime minister and minister of labor in the Conte government, said the new rules will help "restore dignity" for workers, something he said has been lost. "This is a victory for the working men and women," Di Maio, leader of the Five-Star Movement, said after the Senate gave its approval to the measure by a vote of 155 to 125.

The lower house of parliament must vote on the measure before the end of September in order for it to become law. But analysts told Xinhua that if it becomes law as is it would have an overall negative impact.

"This is a political measure that does show that the government is trying to address labor issues," Giuseppe De Arcangelis, a professor of international economics at Rome's La Sapienza University, said in an interview. "But as a practical measure, the hidden costs are very high. It would walk back a lot of the steps taken in recent years designed to make the economy more competitive."

Marco Leonardi, an economist with the Department for the Study of Labor and Welfare at the State University of Milan, agreed.

"This measure will actually make companies less likely to take on new workers," Leonardi told Xinhua. "It would limit how long a worker can stay on short-term contracts, but it also makes it more complicated and expensive to hire for a full-time contract."

De Arcangelis and Leonardi both said the measure was likely to have a negative impact on employment levels in Italy, already among the weakest in the European Union.

Not all economists agree. Pasquale Tridico, an economic advisor to Di Maio, said a less flexible labor market could be positive, requiring companies to make greater investments in each employee. "There is no evidence that more flexibility is always better," he said in a televised interview.