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Italians discuss labor market reform and (thank God) they disagree

Dr. Merkel came out of her meeting (M. Sarkozy was there too) with our new PM Prof. Monti by claiming (Ansa Italy-english) that “Monti showed us the plans and it was very impressive to see the structural reforms”.

It is a sad testimony of the level of English knolwedge in Italian society (and especially this time in Italian newsrooms) that the statement was translated as: “riforme impressionanti” (Ansa Italy-italian). It turns out that in Italian “impressionanti” has often a meaning like ”disturbing, scarying”, a negative slant. “Impressive” in Italian the way Merkel meant it would have rather been translated as “grande, di grande effetto”, with a positive slant.

So now half the Italian population is worried that something very scary might come out from reforms. The other half is obviously in favor of impressive reforms, no matter what is the translation.

In general reforms are always scary for some part of the population. Reforms “change” life as we have experienced it so far and as such they impact negatively or positively groups in society. We are still desperately looking for a reform that would make everybody happy and none sadder (we economists have even a name for this, i.e. a “Pareto improvement”) but, in the meantime, we acknowledge that a good reform is one that creates enough wealth to compensate losers so that everybody might theoretically gain from it (we call it, again, a “Marshall improvement”). Obviously when we do a reform that is Marshall improving we rarely end up compensating the losers with the additional created wealth and someone ends up losing.

Labor market reform, meant to make the rigid Italian labor market more flexible, is nowadays a hot topic in the Italian debate since the largest Italian party, the Democratic Party of the left, is divided within in its ranks as to whether go forward or stay put. The “way forward” is pushed also at the European level. The “stay put” is preferred by trade-unions.

So it looks like (as usual with reforms) a debate between  conservatives and reformers, even within the left. But, let us now look at the conservatives position. I do like it, in the sense that I do understand the necessity for it to be aired in the public domain, for two reasons:

a) in a period in which it is hard to find (in Italy? only in Italy? in Europe? only in Europe?) somebody arguing for and representing the immediate (short-term) interests of a section of the working class, anyone willing to do it is fulfilling a needed role for society.  We cannot silence those voices only because flexibility appears to be the fashionable word in the current debate. I say immediate (short-term) interests because one might well understand the argument by the free-market thinkers that in the long-term a more liberalized labor market might be a good thing (but Nobel Prize Robert Solow would disagree, I hope to show you in a next blog, even on this), but what about the short-run (see below point b)? Also, I said “a section of the working class” because clearly there are other groups, as the one of young unemployed, that can be damaged by the delaying of a labor market reform. But this does not go against the sanctity of some politicians doing the tough but noble job of defending the interests of those that would be damaged by more flexibility in labor markets.

b) Now, as a macroeconomist let me also add another thing. Are we really so sure that, at the right moment of the worse economic crisis of the Western world since 1930, it is the right moment to liberalize labor markets? Just at the moment in which aggregate demand by consumers is lagging we want to build this inevitable pressure that comes from precariousness and thus push Italian (European?) families to save more and consume less so as to insure against this added source of instability in workers’ life? To obtain gains that even according to the strong supporters of reform will only come in the long-term, do we really want to create more social instabilty now, at the risk of making our social tissue crumble and, with it, the chances of a successful reform? Aren’t reforms best introduced when the economic cycle is up, so that we can compensate properly the losers, when these losers are not in a moment of already great stress because of a crisis?  Dont’ we know that most economic studies on happiness point to greater job uncertainty as one of the major factors of stress that a human being could have, even if he/she is working? Aren’t there other more important ways to create more and better jobs, like those that allow firms to hire more (for example: expansionary fiscal policy) or universities to graduate better and more students?

This is why I like the ones that enter this debate with an open mind, especially if they open their mind and heart to those who are possible privileged, yes like unionized workers, but still belong to the lower income strata of society. Policy-makers and reformists, I suggest you fix other issues first.


  1. Qui proprio non ti seguo. Innanzitutto, la riforma del lavoro che si vuole introdurre riguarda solo i nuovi contratti. Quindi i cosidetti “diritti acquisiti” non vengono toccati. Quelli che oggi hanno un lavoro possono stare tranquilli. Non hanno motivo di farsi prendere da ansia da licenziamento.

    Si propone un contratto unico per tutti i lavoratori. Si eliminano i contratti a tempo determinato che oggi sono la principale causa del precariato giovanile. Non solo, il nuovo contratto si applica anche a quelle aziende che hanno meno di 15 lavoratori dove oggi c’è un regime di puro “laissez faire”. In questo segmento che è uno dei più importanti della nostra economia si introducono maggiori garanzie per i lavoratori rispetto a quelle attuali.

    Nel nuovo regime che darà maggiori libertà alle imprese nel caso di licenziamenti detattati da motivi economici e organizzativi si introducono nuovi meccanismi di ricollocamento, mandando a casa la vecchia cassa integrazione che come è noto è particolarmente onerosa per lo Stato.

    Questa riforma potrebbe essere se portata a termine il più importante lascito del governo Monti al paese. E potrebbe essere uno dei quei rari casi di riforma dove nessuno ci perde.

    Per quanto riguarda Fassina mi auguro che il PD lo licenzi subito senza dover aspettare l’introduzione del nuovo contratto di lavoro !

    • Grazie Lo.
      I miei due punti erano leggermente diversi.
      Il primo riguardava il senso di forte disagio a fronte di un dibattito che sembra escludere le tesi fassiniane come “vetero-comuniste” e dunque non meritevole di dibattito a priori. Anche visto quanto dirò poi, c’è poco da essere certi su questo delicatissimo tema.
      Il secondo riguardava il timing della riforma, proprio nel bel mezzo della peggiore recessione del secolo. Se tu potessi scegliere il timing di una riforma di questo tipo con guadagni eventuali a così lungo termine la introdurresti oggi o quando sei fuori dalla crisi?
      Ma ora entro nel merito, non disconoscendo il … merito di alcuni tuoi punti, ma fortemente dissentendo che questa sia una riforma “Paretiana” che fa stare meglio tutti e nessuno peggio. 4 casi che ti propongo:
      1) Sono un giovane con alte probabilità di trovare un lavoro. Con la riforma sarò più precario e stressato che in assenza di essa?
      2) Sono un occupato che medita di cambiare lavoro. Lo farò con meno probabilità dopo la riforma?
      3) Sono un occupato con l’attuale legge ma con una certa probabilità perderò il lavoro. Perché non essere più stressato con la riforma visto che diventerò come il giovane del caso 1)?
      4) Concordo con te sull’importanza della soglia sotto 15 e l’eliminazione dei contratti a tempo determinato. Dunque la precarietà fa male? E quanta è la precarietà che fa male?
      Ma fammi essere ora più preciso con la teoria. Ti cito intanto Robert Solow, che leggo, con piacere, solo dopo avere scritto il mio pezzo sul punto del timing:
      “A weakness in job creation could have several sources; one of them might be those legal restrictions on firing workers. But I suggest that product market deregulation (of opening hours, land use, banking practices) and increased competition might help to reduce unemployment by improving employment prospects. Finally, I suggest that American fiscal and monetary policy has been more successful than Europe has been in supporting aggregate demand, and above all more aggressive in taking advantage of opportunities to expand whenever inflationary pressure has been weak, whatever the cause of that weakness. This could be important for two reasons. The first reason is the direct effect of excessively tight fiscal and monetary policy on an economy with limited wage and price flexibility. The second reason why demand-side policy could be very important has to do with its interaction with the supply side. Any gain in labour-market flexibility or in product-market deregulation will be both more effective and more easily accepted if it occurs at a time when aggregate demand is strong and market prospects are favourable. There is likely to be considerable payoff to coordination of supply-side and demand side policies within the large European countries and among members of the European Union. More flexibility in labour markets is a good idea, but it is not the only good idea.” (mio corsivo)
      Ora, io non concordo proprio che questa è la riforma delle riforme. Credo che molto più rilevante sia combattere la mancanza di moderazione salariale rispetto all’andamento della produttività del lavoro, che così tanto ci sta danneggiando con la competitività del nostro export. Ti cito Olivier Blanchard: “looking more closely at some of the “unemployment miracles,” in particular the dramatic decline in unemployment in the Netherlands, I concluded that the large wage moderation did not come so much from changes in institutions as from the behavior of unions, which had become convinced that wage moderation was key to a decrease in unemployment.”
      Aggiungo che sulla produttività la protezione del lavoro può fare bene (lavoro meglio) e che ben altri sono i fattori che contribuiscono alla bassa produttività italiana (in particolare settore pubblico inefficiente).
      Ma c’è di più. Non esiste evidenza di un legame tra livello di flessibilità e disoccupazione: “High social protection is not inconsistent with low unemployment. However, it must be provided efficiently.”
      E dunque siamo sicuri che sia fornita in maniera inefficiente questa protezione sociale?
      E chiude Blanchard: If governments want to reform their labor market institutions, how should they do it? Lavoro successivo con Tirole ha mostrato che il contratto ottimale di first best prevede assicurazione per i disoccupati e tasse statali sui licenziamenti. Qualcosa di ben più complesso di quanto previsto dai nostri riformatori. Vista questa incertezza, non mi pare che questi siano i tempi per sperimentare con la vita delle persone. Come dicono Blanchard e Tirole: “The evidence … that layoffs come with large non-pecuniary losses, together with the limits to unemployment insurance from moral hazard in search, suggest that the minimal utility loss associated with being laid-off can be substantial”.


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