Labour market reforms in Italy: evaluating the effects of the Jobs Act

Abstract

This article analyses the “Jobs Act”—the last structural reform implemented in Italy—framing it within the labour market reform process starting in 1997. Taking advantage of different data sources (administrative and labour force data), the investigation provides the following results. First, monetary incentives seem to play a key role in explaining the dynamics of new (or transformed) contracts. Second, new open-ended contracts are mostly driven by transformation. Third, a relevant share of new open-ended positions is characterized by part-time contracts. Fourth, the increase in employment is concentrated among older workforce (over 50 years old). Finally, new permanent jobs increase in low-skilled and low-tech service sectors, while the opposite occurs in manufacturing (particularly in high-tech industries).

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Notes

  1. 1.

    The obligation of worker reinstatement is preserved only in case of layoffs based on racial, religious or gender discrimination. In Sect. 4 the legislative notion of “invalid dismissal” is explained.

  2. 2.

    It is worth noting that a standard argument against labour market flexibility comes from the Neoclassical theory through the so-called hold-up—among the others Caballero and Hammour (1998)—referring to the problem that occurs when a party can threaten to break the relationship, leaving the other with a loss. Considering on-the-job training as an investment on asset specific capital that implies sunk costs for the enterprise, it emerges that a high level of labour marker flexibility can be detrimental for firms concerned that future quasi-rents may be appropriated by others in case well-trained workers leave.

  3. 3.

    A number of empirical studies taking into consideration different time periods from the 1960s until today find no evidence of correlation between labour market flexibility and innovation; while, in many cases, the opposite emerges (Glyn et al. (2003); Howell et al. (2007); Lucidi and Kleinknecht (2010); Vergeer and Kleinknecht (2012) and Kleinknecht et al. (2014)).

  4. 4.

    “Structural reforms” have been implemented in all European Southern countries. Citing (OECD, 2015), Estonia, Greece, Ireland, Portugal and Spain have been classified as “highly responsive euro area countries”; while Italy is part of the “less responsive euro area countries” according to the reform responsiveness index The latter ranks from 0—no action taken in areas covered by Going for Growth recommendations—to 1 (action taken in all areas covered by Going for Growth recommendations). Among the Going for Growth recommendations for difficult macro-economic contexts (see chapter 2 of OECD 2016) we found “reforms easing frictions in the reallocation of resources”, were namely jobs mobility.

  5. 5.

    Regarding the employment impact of liberalization, Lucidi and Kleinknecht (2010) find that between 1999–2006 the Italian unemployment rate fell by 4.9% compared to 3% fall in the EU15; while in the same period the employment rate increases by 7.6% compared with 6.3% in the EU15.

  6. 6.

    In 1996 the employment rate in the EU was 60.1 and 50.1% in Italy while in 2013 it was respectively 65 and 55.5%. Between 1996 and 2013 average European productivity grew 1.4% per year while Italian productivity was 0.3%. Data source: authors’ elaboration on Eurostat data.

  7. 7.

    As highlighted by Calza Bini (2014), Cirillo and Guarascio (2015) and Cirillo et al. (2015) the last economic crisis impacted on industrial sectors employing male employees—such as the construction and automotive sectors. This phenomenon produced an apparent re-balancing in the participation of men and women in the labour market.

  8. 8.

    Authors’ elaboration on Eurostat-LFS data.

  9. 9.

    It is worth noting that the implementation of such reforms program has been shared by most Southern European countries. As Muffels (2013) points out Southern European labour markets share an insider-oriented segmented labour market characterised by high levels of employment protection for insiders and a large number of “atypical” workers with very low levels of security. Although Italy, Spain, Greece and Portugal followed different paths to flexibility, according to Moreira et al. (2015) these countries reinforced labour market segmentation by creating flexibility on the margins of the labour market. Indeed, labour market segmentation concerns not only employees—such the ones explicitly analyzed in this study—but also self-employed. Focusing on the latter, Ricci (2016) shows labour market dualism among self-employees with disparity of working conditions across industry, age cohort, etc. impacting on upward/downward income mobility.

  10. 10.

    Layoffs were considered invalid if the judge recognizes the lack of “giusta causa” (workers guilty of relevant contractual irregularities) or “giustificato motivo oggettivo” (a set of cases where the law recognizes the legitimacy of workers layoff).

  11. 11.

    The JA also modifies the law on unemployment benefits; however, they will not be discussed here.

  12. 12.

    The presence of dualism in the labour market has been studied under different approaches challenging the neoclassical description of a unified labour market according to which any kind of “dualism” can be temporally explained by the presence of external rigidities. Conversely, the Segmented Labour Market (SLM) approach taking for granted the existence of segmented labour markets studies its consequences in terms of income distribution, unemployment, and discrimination—considered as a result of that segmentation (Taubman and Wachter 1986). Indeed, labour market segmentation explained as “polarisation of the employment relationships” has been also explained as a consequence of dysfunctional capital accumulation in post-fordist societies under a Marxist perspective (Vidal 2013).

  13. 13.

    This evidence draws on previous work on workers polarization based on the ISCO classification (Hurley et al. 2013).

  14. 14.

    Building on Cirillo (2017), ISCO categories are aggregated as follows: managers, professionals and technicians in the “Managers” group; clerk workers and service workers in “Clerks”; craft workers and skilled agricultural workers in “Craft workers”; and manual workers and elementary occupations in “Manual”.

  15. 15.

    The figures regarding trend of Italian R&D expenditure over time are shown in Fig. 10 the Appendix.

  16. 16.

    It is worth noting that the notion of “structural reforms” applied in this article refers to the one adopted from the Neoclassical approach. However, for Classical economists “structural reforms” were not aimed at reducing the State intervention in the economy. See on this, Zacchia (2016).

  17. 17.

    It is worth noting that the reduction in employment security such as lowering the cost to employers of dismissing regular workers had already been implemented in Portugal in 2012 under the New Labour Code, in Greece in 2013 through a reduction in protection against unfair dismissal and in Spain in 2010 with the expansion of the use of the “Contrato de Fomento del Empleo”. For a detailed description of the reforms introduced in South of Europe during 2010-2013, see Moreira et al. (2015).

  18. 18.

    The Decree-Law 34/2014 (also known as Decreto Poletti from the name of the Minister of Labour Giuliano Poletti of Renzi government) is a normative act of the Italian Republic converted into law 78/2014 in May.

  19. 19.

    Vouchers were originally designed for “accessory jobs”—such as housework, gardening, or school tuition—lacking any social security right and implying only a minimal social security contribution. However, the Riforma Fornero enlarged their use to all industries (including the public sector).

  20. 20.

    More precisely, the introduction of the monetary incentives occurred three months before the implementation of the JA.

  21. 21.

    The announcement of the reduction in the incentive was diffused at the end of November 2015. As shown in the next Section, this element significantly affected the dynamics of contracts along the period of analysis.

  22. 22.

    The de-contribution will end in four years and the amount of longitudinal data needed to perform a proper policy evaluation are, at the moment, unavailable.

  23. 23.

    Vouchers represent the more unstable form of employment foreseen by the Italian legislation.

  24. 24.

    The incidence of part-time on new permanent contracts is highly above the incidence of total part-time employment as shown in Table 2. This difference could be explained by the fact that this detail takes into account only activations, therefore is gross of dismissal.

  25. 25.

    However, it is worth noting that the growth rate of temporary contracts is still higher than the one of permanent contracts. The latter could be explained by the liberalization in the use of temporary contracts implied by the JA. Such effect prevails when the monetary incentive has been halved.

  26. 26.

    Within this category, more than 30% is due to contracts lasting no more than a week (Data source: authors elaboration on Italian Ministry of Labour data).

  27. 27.

    The decrease in the unemployment rate can be hardly attributed to the JA. In fact, on the one hand there is no evidence of higher youth employment, on the other hand during the same period, the European Youth Guarantee program was introduced in Italy increasing the youth activity rate. Although data are not as detailed as a rigorous analysis requires, on average jobs posted within the Youth Guarantee program corresponds to temporary positions and accounts for one tenth of the labour supply (GaranziaGiovani 2015). Assuming that at least part of these vacancies have been filled over time, this translates into a positive, even if weak, contribution to youth employment. Yet, one third of these vacancies are defined as “technical non professional” occupations, leading to low qualified jobs.

  28. 28.

    According to INPS data, in the first eight months of 2016, the number of vouchers sold reached 96 million, and increase of 36% with respect to the same period in 2015.

  29. 29.

    Industries are grouped in high-tech and low-tech sectors, where the former include Science Based and Specialized Suppliers of the revised Pavitt taxonomy proposed by Bogliacino and Pianta (2016) and the latter Scale Intensive and Suppliers Dominated sectors. High-tech industries are: chemicals, office machinery, manufacture of radio, television and communication equipment and apparatus, manufacture of medical, precision and optical instruments, watches and clocks, communications, computer and related activities, research and development, mechanical engineering, manufacture of electrical machinery and apparatus n.e.c., manufacture of other transport equipment, real estate activities, renting of machinery and equipment, other business activities, motor vehicles, financial intermediation, insurance and pension funding, activities auxiliary to financial intermediation. While low-tech industries include: Pulp, paper and paper products, printing and publishing, mineral oil refining, coke and nuclear fuel, rubber and plastics, non-metallic mineral products, food, drink and tobacco, textiles, clothing, leather and footwear, wood and products of wood and cork, fabricated metal products, furniture, miscellaneous manufacturing, recycling, sale, maintenance and repair of motor vehicles and motorcycles; retail sale of automotive fuel, wholesale trade and commission trade, retail trade, repair of personal and household goods, hotels and catering, transport and auxiliary transport activities and basic metals.

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Acknowledgements

This paper is produced as part of ISIGrowth project on Innovation-fuelled, Sustainable, Inclusive Growth that has received funding from the European UnionGs Horizon 2020 research and innovation programme under Grant Agreement No. 649186—ISIGrowth. The authors wish to thank Giovanni Dosi, Mario Pianta, Maria Enrica Virgillito and Matteo Sostero for their comments and suggestions. All the usual disclaimers apply.

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Correspondence to Valeria Cirillo.

Appendix

Appendix

See Figs. 10, 11.

Fig. 10
figure10

Share of R&D on GDP (OECD). Data source: STAN OECD

Fig. 11
figure11

Workers with vouchers by age group. Data source: INPS

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Cirillo, V., Fana, M. & Guarascio, D. Labour market reforms in Italy: evaluating the effects of the Jobs Act. Econ Polit 34, 211–232 (2017). https://doi.org/10.1007/s40888-017-0058-2

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Keywords

  • Labour market reforms
  • Employment
  • Italian economy
  • Job creation

JEL Classification

  • J5
  • J21
  • J23
  • J3