Italy: Government proposes labour market and welfare reforms

The July protocol was approved by the three union confederations’ decision-making bodies and affiliated organisations, with one major exception – Fiom-Cgil, the metalworkers' federation affiliated to the left-leaning Cgil and one of Italy's most powerful union organisations. Fiom-Cgil rejected the deal, seeing more harm than benefits for workers from the reforms. This is the first time in Italian trade union history that an individual union federation has opposed an agreement signed by its confederation.

The referendum was followed by negotiations over the exact content of the implementing legislation, involving the government, trade unions and employers' organisations. The talks proved lengthy and difficult and caused severe tensions between the "reformist" and left wings of the governing coalition, which were seen as putting the stability of the government at risk. However, a deal was finally reached, allowing the government to adopt the draft legislation on 17 October.

The minister of labour, Cesare Damiano, stated that “the draft is the result of a long and democratic process” and called for the lower house of parliament and the senate to approve it without further changes. Parliament is expected to pass the legislation by the end of 2007.

The measures contained in the legislation will, according to government forecasts, cost around €10 billion over a 10-year period. The funding of the reform is a particularly delicate issue because the International Monetary Fund has criticised the draft legislation, arguing that it constitutes a step backwards and contains measures that will be dangerous for the stability of Italy's public finances. The government has set up a special fund to finance the new measures and has given assurances that most of the costs will be covered by a reorganisation of several state pension funds and an increase in the pension contributions for some workers.

The main points of the reform are as follows:

• The draft legislation will repeal pensions legislation (the "Maroni law") approved in 2004 by the centre-right government of the time, which would have raised the minimum retirement age from 57 to 60 from January 2008. Instead, the minimum retirement age will be set at 58 (for those with 35 years of employment) and gradually increase to 61 in January 2013. The new system will be evaluated in December 2012 and, if sufficient financial savings are found to have been made, the minister of labour will have the option to postpone the entry into force of retirement at 61.

• The draft authorises the government to adopt specific legislation to exclude from the new pension Regulations all workers who have been employed in dangerous or particularly taxing work. Their minimum retirement age will remain at 57 (for those with 35 years of employment).

• The reform provides for a reorganisation of the various existing state pension funds that offer different pension regimes to particular categories of workers. By the end of 2007, the government will outline a merger plan, which it hopes will generate savings of €3.5 billion. At the request of left-wing parties in the coalition, the government will also set up a special committee to prepare a new method for calculating the ratio of state pensions to previous pay, in line with the average provided by the pension schemes of the other main European countries. The goal is to have a minimum average "substitution rate" of 60%.

• The draft legislation increases the social security contributions paid by employers in respect of "semi-autonomous" workers, such as those hired to carry out special projects. Total contributions for this group of workers to their special state social security fund will gradually increase from 23% to 26% of pay by 2010, if the workers concerned are not members of any other pension fund.

Italy's system of social shock absorbers consists of a number of measures to cushion the effects of redundancies and restructuring, including special unemployment benefits and other forms of income support for workers who have lost their jobs or are laid off temporarily. The measures available to workers depend on factors such as the sector in which they work, the size of the company and their employment status.

The draft legislation increases the duration of unemployment benefits for redundant workers to eight months for those under the age of 50 and to 12 months for older workers. Further, the level of benefit will be increased to 60% of previous pay for the first six months, 50% for the seventh and eighth months and 40% thereafter. There will also be a new "environmental benefit" paid to workers laid off by companies that suspend their activity to carry out environmental protection or prevention work.

The draft will authorise the government to extend the current social shock absorbers, such as unemployment benefits, to all unemployed workers, thus abolishing the existing differences related to the type of contract or company size. It also provides for an improvement in public employment services, including training for unemployed people, in order to better match labour market supply and demand. Further, the legislation will seek to promote "innovative synergy" between the public employment services and private employment agencies.

Under the draft legislation, if a temporary employment contract or succession of contracts exceeds 36 months in total, the employee concerned will automatically be considered to have an open-ended contract. Further, renewal of temporary contracts will require registration with the local labour authorities and the involvement of a trade union representative. If this procedure is not followed, the new temporary contract will be considered to be an open-ended contract. These new rules will not affect seasonal workers or "special activities" to be jointly designated by unions and employers in national sectoral collective agreements or in specific accords.

The draft provides that employees who have worked on a temporary contract for at least six months for the same employer will have priority in any recruitment by that employer for the same type of work.

The on-call working contract introduced by the 2003 "Biagi law" on labour market reform will be abolished. This allows an employer to call workers in to work when needed, paying them an "availability bonus" in addition to payment for actual hours worked. The new contract has not been widely used and its repeal has not been opposed by employers' organisations.

With the aim of increasing companies' competitiveness, the draft legislation introduces new rules on the tax and contributions levied on the proportion of employees' pay agreed in "second-level" bargaining. Under the Italian collective bargaining system, national industry-wide agreements lay down basic minimum rates and provide for general pay increases that take account of inflation, while second-level agreements at company or local level provide for additional increases linked to company performance.

The new scheme will increase from 3% to 5% the reduction in employers’ social contributions that currently applies to the part of pay agreed at company/local level. This will be financed by a special fund to be set up by the government. Pay increases agreed in second-level bargaining will also be exempt from income tax. Further, performance-related payments will in future be taken into account, in the same way as normal pay, in calculating employees' state pension entitlement.

Finally, in order to reduce labour costs, the special contributions on overtime pay levied on employers with more than 15 employees will be abolished. According to legislation dating from 1995, employers must pay social security contributions: at a 5% higher rate in respect of pay for hours worked by their employees in excess of 40 a week, up to 44 hours; at a 10% higher rate for hours between 44 and 48 hours a week; and at a 15% higher rate for hours beyond 48 hours a week. Trade unions have criticised the repeal of this rule, arguing that overtime should always be more expensive for employers than normal working hours.

This article is based on material provided by Antonio Deruda, European Employment Review correspondent for Italy.