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Employment, why the Fornero reform has only wreaked havoc

Seven months after being launched, employment levels are headed in the opposite direction. And the worst-hit are the temps, the ones who should have been helped

Employment, why the Fornero reform has only wreaked havoc

Marco Cobianchi

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The employment reform of Italian Labor Minister Elsa Fornero doesn't work? Not true, it is working ... but in the opposite direction. The companies that would like to hire are not hiring and those that would not like to fire are firing. A miracle. The companies that would like to hire are not hiring because the reform has bureaucratized one of the most-used contracts especially in certain sectors?"jobs on call?"and they prefer to do without. Those that would rather not fire are firing because, by raising the stakes and making short-term contracts more expensive, they prefer to let people go.

The proof is in the numbers. Between July and September 2012 (the reform took effect on July 18th), jobs on call, which had continued to rise since 2008, came to a halt. In the nine regions for which statistics are available (Umbria, Piedmont, Liguria, Lombardy, Veneto, the Marches, Emilia-Romagna, Sardinia and Campania), the drop in the third quarter 2012 was 30% compared with the previous quarter and terminations increased by 40 percent. "Companies are gripped by terror," sums up Giampiero Falasca, head of the labor practice in the Italian office of the DLA Piper global legal firm, "the result of an additional 270 regulations with no rhyme nor reason that punish businesses and are the offspring of the theory according to which if you make things difficult for temporary employment, everyone will hire permanent employees. This theory has never worked."

In fact, the reform has produced a devastating spontaneous generation of "revolving door" effects. Between one temporary contract and another, there must be a period of at least two (and in some cases, three) months, but because the company can't wait, it signs a new contract with another person. The result? No stable employment for anyone.

There is a solution for granting flexible employment: vouchers. But not much is required to understand why they will never work. To pay someone using a voucher, companies must indicate the beginning and end date of the job, and only rarely are they able to do so. Plus, vouchers must be purchased, including online.

Companies need to connect to the INPS, the National Social Welfare Institution, website and provide the name of the future employee who, in turn, must register and, if the information matches 100%, within 25 days a PIN is sent to the employee's home, used to access the portal from which he or she can download the order to be paid. And this never coincides with the conclusion of the work period?"it is always later.

To do things the old-fashioned way requires going physically to the INPS office, reserving the vouchers, going to the bank, paying them, returning to the INPS office, picking them up and giving them to the employee. In this case, the company pays in advance, before the person has begun the job. Basically, things never happen when they should. Taking into consideration that 92% of the Italian economy is based on small and very small companies, it is easy to imagine what a deterrent such complicated rules can have on those who would actually like to hire. Is there any way around this? Yes, make use of temp agencies, but only if you are willing to pay 20-25% over the job's costs.

Speaking of job costs. Starting this year, temporary workers have also been penalized by a 1.4 percent increase in the contributions they must pay. Funds that will also be used, beginning in 2017, to fund ASPI, the universal unemployment insurance for those who lose their jobs.

Is it possible that the government that wanted to reduce the tax wedge has actually ended up increasing it? Very possible, in fact it has. And the result is that companies pass on to employees the increased cost by reducing net wages by exactly the same 1.4 percent. So now, temp workers earn even less than before.

Then there's the problem of firing, for which new requirements have been introduced. To fire someone, a company must send a letter to the Department of Labor (today known as the Local Labor Office) with a copy to the employee. Within 27 days, the Department of Labor must attempt to have the parties reach an agreement and, at the conclusion of this process, issue a document which explains whether or not one has been found.

Aside from the fact that during that 27-day period the employee is neither employed or fired, but rather a "fire-ee" (a new category invented by Fornero, like the "esodati"?"people who were let go because they had reached retirement age under the old rules, but under the new ones are no longer eligible for a pension), if the employee decides to contest the action in court, the document issued by the Department of Labor becomes a useful ally against the company's decision.

"It is essentially a pre-sentence," notes labor consultant Rinaldo Pietro Platti of Milan, whose clients include both small companies and multinationals, "that companies see as a sort of blackmail: if you don't accept the department's proposal, watch out." In fact, if the employee decides to fight in court, that pre-sentence ends up influencing the judge's decision. The whole process is so complicated that to sort the labor dispute cases, the Milan law court even has a "Fornero department".

In addition to temps, workers in companies with fewer than fifteen employees have also seen a worsening of their situation. Before the reform, if they were fired, they had the right to eight months of unemployment benefits and a bonus that allowed their new employer to pay 20 percent less in taxes. Today, employees in small companies still have their benefits, but not the bonus because the government has not refinanced it. Just as the money for incentives for employing young people and women have dried up: the 196 million euros in 2012 were gone in a matter of weeks, and the 36 million euros for 2013 were already used up by the end of January.

A jungle of restrictions have also been applied to project-based contracts. The biggest disincentive consists in the fact that people who are hired for a project can only work on that. They cannot do anything else and, what's more, the project must not be part of the company's core business.

The objective is admirable: avoid the way companies have abused this type of contract in the past. However, the effect is that of forcing companies to turn somersaults to hire someone without running up against some violation.

There is a logic behind all these restrictions: to have the apprenticeship contract become the primary route to entering the job market. It's just a shame that fewer of them are being drawn up than in the past. Unioncamere (the union of Italian chambers of commerce, which publishes how many people companies intend hiring) forecasts that between January and March 2013, 8,800 will be drawn up, equal to 3.9 percent of all new company entries. In the second quarter of 2012, without the Fornero reform, 10,300 were drawn up. And despite the fact that the government provided incentives totaling 235 million euros.

In the end, the only ones who gain from the reform are lawyers. But even they haven't completely understood the situation. The reform has done away with forty years of law and increased the rules and regulations. This is why the first sentences regarding labor disputes are contradictory. It is also why businessmen are terrified. And why they're not hiring.

 

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