Italy Kicks the Can on Labor Reform

Italy continues to put off addressing its most fundamental economic problem: impossibly rigid labor regulation. In this letter to The Wall Street Journal, I explain why the fanfare behind the Italian parliament’s recent approval of the government’s labor reform package is nothing more than political hubris.

In “Italian Labor Minister Works on Cultural Shift With New Law” (June 26, 2012), Christopher Emsden writes that the reform championed by Italian Labor Minister Elsa Fornero has “dismantled” the centerpiece of Italy’s rigid labor law and signals a cultural change towards a meritocratic workforce. Not so.

Although firms may now fire workers in times of financial distress, businesses must prove their financial straits to a labor judge. Firing takes 696 days on average.

It is still illegal for firms to fire employees for incompetence. And the law still explicitly faults the firm for poor worker performance, not the employee.

Temporary contracts—the only option for much of Italy’s work-starved youth—become more expensive for employers.

In a dramatic opera over faux-reform, Fornero claims victory while unions and cowardly politicians complain. True cultural shift must come from Italy’s rentier political class before it can come from everyday Italians.

Matthew Melchiorre

Competitive Enterprise Institute

Washington, DC

For a more comprehensive analysis of the reform, see my article in the City A.M. I wrote another piece for the same publication fitting the labor problem into the conundrum of Italy’s economic stagnation.