NCPA - National Center for Policy Analysis

Reforming Italy's Labor Laws

October 28, 2014

The official unemployment rate in Italy is 12 percent. The European nation's labor market is in disarray, and its labor code of nearly 3,000 pages is in dire need of reform. Italy's Prime Minister, Matteo Renzi, is attempting to make such reforms, but the Wall Street Journal reports that many Italians are not pleased. Just this weekend, 1 million protestors came to Rome to object to Renzi's proposals.

But with its difficult labor laws, it is no wonder that Italy's economy is in trouble:

  • Cassa Integrazione Guadagni is a scheme that allows Italian businesses who need to shave their workforce to put a worker on "standby" rather than fire him outright. The government will pay the worker a large portion of his lost salary until he is rehired. Such a program keeps workers from moving to new jobs while businesses struggle to compete.
  • Firing a worker in Italy for poor performance is incredibly difficult, and employers have to convince a judge that there is no alternative option available to the employer short of firing the worker. These hearings can take months, and litigation is not cheap.
  • According to the World Economic Forum, Italy ranked 141st out of 144 countries in terms of its hiring and firing practices.
  • Italian unions are stubborn, and businesses -- in order to avoid having to negotiate with them -- stay small. Of all the countries in the European Union, Italy has the largest number of small businesses because companies are concerned about what growth would mean in terms of union negotiations.

All of these factors are burdensome and make Italian businesses slow to hire new workers, wreaking havoc on the Italian economy. The Prime Minister has proposed a relatively modest set of reforms, yet his country's workers remain adamantly opposed to them.

Source: "Italy's Economic Suicide Movement," Wall Street Journal, October 26, 2014.


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