US embassy cable - 04ROME4412

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