After a six-hour-long cabinet meeting, Italy’s prime minister Mario Monti has unveiled his much-awaited labour market reform. While many elements of the government proposal are perfectible, Mr Monti’s plan deserves support.
Rome’s technocratic administration has dared to do what successive generations of Italian politicians have shied away from. The government is planning to ease hire-and-fire regulations for permanent workers, who enjoy an excessive level of protection. Mr Monti has also refused to give in to the country’s trade unions, pressing ahead with his plan despite the opposition of some of them.
Both decisions are commendable. Under the present system, employers intending to dismiss individual workers on permanent contracts risk lengthy court cases. To gain flexibility, businesses offer temporary contracts to new recruits, who are trapped in a whirlwind of instability. Mr Monti’s decision to extend the use of severance pay and to shorten employment disputes could make companies more relaxed about taking on permanent staff.
The government was also right in not seeking an agreement with organised labour at all costs. The biggest beneficiaries of this reform should be workers on temporary contracts, who are more rarely unionised. Had Mr Monti bowed to the power of the unions, his reform would have risked overlooking the interests of these labour market “outsiders” to preserve those of “insiders”.
Of course, the reform is far from perfect. While Mr Monti has started to clamp down on the abuse of temporary contracts and to encourage companies to take on more apprentices instead, it is unclear whether they will respond. And anyway, workers of Italy’s inefficient public sector have so far been spared by the reform.
While parliament could in theory fill these gaps when this proposed law is debated, the risk is that legislators may water down the measures even more. Italy’s political parties should restrain from doing so. In particular, it is important that the centre-left Democratic party resists playing to the unions’ gallery over a reform that the country has long needed.
Rome’s technocratic administration is proving more effective than many of its political predecessors. But with bond yields rising again above 5 per cent, there is a real risk that even small setbacks will undermine the markets’ fragile confidence. Parliament should not be complacent when it discusses Mr Monti’s reform.
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