the italian labour market and the 2015 jobs act · the italian labour market and the 2015 jobs act....

The Italian Labour Market and the 2015 Jobs Act

What is it What will change

Pietro Garibaldi Collegio Carlo Alberto Universitagrave di Torino

Conseil drsquoorientation pour lrsquoemploi Paris May 12 2015

Pietro Garibaldi- Conseil dorientation pour lemploi Jobs Act 1

Outline

1 Labour in a depressed economy 2 Il Jobs act the economics of reducing

duality 3 Il Jobs Act The contents 4 Jobs Acts What shall we expect 5 Other structural issues and conclusions


1 A depressed economy and a depressed labour market


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0

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2

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5

2001-2013 1981-2000

Gdp Growth Italy scores the Worst

medium run Oecd performance


GPD The Never ending great recession 13 quarters under


Low labour Productivity Growth


From the Great recessions to Long swings in in Unemploymenthellip


bull Marginal reforms (temporary contracts and other flexible contracts) helped the fall in unemployment up to the 2008 ndash The Honeymoon Effect of Temporary Contract (Boeri

Garibaldi Economic Journal 2007) bull When the 2008 crisis hit the honeymoon effects

dramatically broke up bull After the crisis total and youth unemployed soared

both reaching historical high levels

Marginal Reforms and Honyemoon Effects

Rationalize Swings in unemployment


hellipwhat is happening to unemployment


But long term unemployment is huge across age

Age Italy Europe

lt 1 year 1 year and over


15 to 19 614 386 806 194 15 to 24 522 478 727 273 20 to 24 495 505 692 308 25 to 54 471 529 573 427

55+ 446 554 445 555 Total 481 519 598 402

Pietro Garibaldi- Conseil dorientation pour lemploi Jobs Act

Incidence of unemployment by duration () Source OECD database Dataset Incidence of unemployment by duration

10

Youth Unemployment as in the worst South Eureopan Countries


Share of Temporary Employment In Line with EU


But Huge Share of self employed Self employed in the statistics but employees de facto


And high share of Youth Temporary

Age Employment Italy Europe OECD countrie

s 15 to 24 permanent 5014 6062 7535

temporary 4986 3938 2465 25 to 54 permanent 8824 8807 9011


temporary 605 741 929 65+ permanent 8564 8211 8069

temporary 1436 1789 1931 Total permanent 8664 8558 8807

temporary 1336 1442 1193

Incidence of permanent employment in 2013 Source OECD database Dataset Incidence of permanent employment


Very Low Transition Rate into Open ended contracts


Low Training in Dual Countries Share of Youth Obtaining Training (20-24 years)

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Fonte OCSE Education at a Glance 2012

16

Consequence of Dualism

bull Low Training in temporary contracts bull Low future pensions of youth employed in

precarious jobs bull Long term consequence of youth

unemployment (scarring effects) bull Low lifetime wages bull Low future employment opportunities bull Poor health ()


2 The Jobs Acts and the Economics of Reducing Dualism


18

The Economics Intuition

bull Offering a long term (open ended) contract that ndash Preserves flexibility at entry at the firm level ndash Offers a long term entry for the youth


The Lobby of Labour Economists

bull Economists across Europe proposed long term contract with SP increasing with tenure to reduce duality ndash France Cahuc and Kramarz Blanchard and Tirole ndash Spain Bentolila Garicano and other 30

economists ndash Italy Boeri-Garibaldi Un Nuovo Contratto per

Tutti Chiarelettere 2008 And labour scholar (Pietro Ichino) drafted policy proposal

bull What is the economics of these proposals


The Economics of Protection Increasing with Tenure

bull (Boeri Garibaldi Moen 2014 Inside Severance Payments)

bull Wages are deffered to provide incentives to invest in job specific training

bull Firms can commit on increasing wages but can not commit on employment

bull Firms Ex post have incentives to dismiss senior workers

bull If marginal cost of training increasing with tenure severance payments increasing with tenure are optimal


Optimal Severance Payments and tenure in Theory

Pietro Garibaldi- Collegio Carlo Alberto-Jobs Act 22

3 The Jobs Act 31 The content 32 Open Ended contracts with protection increasing with tenure


Overall Comments

bull The jobs act (and the new contract in particular) is very welcome

bull It is (arguably from 2016- see below) the most important labour reform of the last 20 years

bull It may potentialy change the italian labour markets in a decisive way

bull My comments are ndash The internal Coherence of the architecture ndash What shall we expect and monitor ndash Open issues


The Jobs Acts and Other Legislative Initiatives

bull Jobs Act Act 1 (L 10 dicembre 2014 n 183) laquoJobs Actraquo ndash Decrees enacted (24 dicembre 2014)

bull Open ended with increasing tenure for New Hires bull Changes in Unemployment Benefits

bull Jobs Act Act 2 (currently in Parliament) bull Non standard Labor contracts bull Active policies

bull Decreto Poletti (L conv 16 maggio 2014 n 78) ldquoflexiblerdquo fixed term contract

bull Budget Law (Stability Law) (L 23 dicembre 2014 n 190) tax subsidy for new hires on an open ended basis


bull Are policies fully consistent ndash A tale of 3 policies

bull 31 The Poletti Decree bull 32The Subsidy for New Hires bull 32 Open Ended contracts with protection increasing with tenure

3 Jobs Act and Internal Architecture

26 Pietro Garibaldi- Collegio Carlo Alberto-Jobs Act

Tax Subsidy on New Hires

bull Starting January 1deg 2015 bull Any NEW hire on an open ended basis will receive a

tax cut for three years bull Tax cut up to 8000 euro per year bull Budget Financing available for 2015 with uncertainty

over the future bull Tax subsidy entered into law BEFORE the jobs act and

in January March 2015 is already operating bull This policy is very important and likely to be operating

independently of the JOBS ACT


Protection Increasing with Tenure bull As of March 7 2015 a new open ended contract with

ldquoincreasing protectionrdquo is fully operating in Italy bull A new standard only for new hires bull Monetary compensation increasing with tenure bull Reinstatement (Article 18 Labour Code) does not apply

throughout employment relationship for economic dismissal bull Reinstatament operating only for discriminatory

dismissals and specific disciplinary dismissal ndash Boeri Garibaldi Un Nuovo Contratto per Tutti (and draft law)

proposed increasing protection and no reinstatement for both economic and disciplinary for three years


Jobs Act and Increasing Protection


Discriminatory Dismissals

bull The worker can appeal the dismissal into court by arguing that the dismissal was discriminatory

bull Sanctions reinstatement plus foregone wages from dismissal to court ruling

bull Worker- in case of reinstatement- can opt for monetary compensation of 15 months


Economic Dismissal (I) bull Objective ensure the payment of a pre-set compensation

increasing with tenure bull Conciliazione laquorapidaraquo (rupture conventionelle) the

employer has 60 days from the dismissal to offer a pre-set compensation through a cheque drawn on a bank and ready for payment

ndash 1 month per year of service ( minimum of 2 and e max 18 months)

bull If worker accepts the offer or cash in the cheque heshe forgo the right to appeal (even if appeal was already started) and the dismissal is effective at the dismissal date

bull Foreign experience Germany (Section 1a TPA 2004) France (laquorupture conventionnelleraquo)


Economic Dismissal (II) bull If dismissal ends up in court

ndash Firm can still proof that dismissal was economically FAIR (zero compensation due to the worker who is entitle to unemployment benefit)

ndash The worker can prove that the the dismissal was economically UNFAIR obtaining a larger compensation (2 months per year of tenure minimum of 4 and max 24 months) o r discriminatory

bull The idea is that the scheme works as long as both parties have incentive of using the (speedy compensation) rupture conventionelleraquo ndash Speedy compensation is tax free


Disciplinary Dismissals bull The jobs act specifies when reinstatement for

disciplinary dismissal is allowed (art3 comma 2) ndash laquoit must be proved in court that the disciplinary allegations

against the worker are falserdquo bull For all other disciplinary dismissals same sanctions as

the economic dismissals


Jobs act Reduces Uncertainty

Country Tu Tef Tu-Tef stdev Australia 129 28 101 47

Austria 163 00 163 71 CzechRepublic 180 15 165 76

Denmark 140 30 110 58 Finland 140 00 140 61 France 257 54 203 107

Germany 366 100 266 128 Hungary 242 60 182 101

Ireland 389 40 349 156 Italy (post Jobs Act) 236 00 236 55 Italy (pre Jobs Act) 341 00 341 148

Japan 92 00 92 46 Korea 168 00 168 73

Luxembourg 122 60 62 36 NewZealand 120 00 120 52

Poland 88 30 58 29 Portugal 603 120 483 224

SlovakRepublic 248 40 208 104 Spain 360 120 240 120

Sweden 320 00 320 139 Switzerland 60 00 60 26 Notes data are expressed in monthly wages Source EPLex OECD (2013)


Open Issue and Risks (I) double moral hazard and disciplinary

dismissals bull Asymmetry between economics and

disciplinary compensation bull Employee will always claim that dismissal is

economic (no reinstatement) while worker will always claim dismissal is disciplinary

bull Fairly difficult to establish borders between dismissal for third parties Room for double moral hazard (Boeri Garibaldi Moen 2014)

bull Will litigation be reduced We also find odd giving zero compensation in case of fair dismissal


Risk II What will happen to other

nonstandard labour contract bull Other form of non standard labour contract are

still there (self employed in the statistic but de facto employee)

bull Draft of further decrees exist but are not into law yet

bull Fixed term contracts were liberalized in May 2014 (up to 5 renewals in a three years lag)


Risk III Is the Cursus Honorum too long bull Fully flexible Fixed term contract can crowd out new

contract bull Cursus honorum can still be very long 3 years of

fixed terms contract plus new contract with low protection in the first two years

bull Will Dualism will go down


Collective Dismsissal bull Same sanctions for individual dismissals apply to

collective dismissals No reinstatement for unfair collective dismissal Proved breach of procedure 1 month per year of tenure

from 2 to max 12 Proved breach of selection of employees 2 months for

year of tenure from 4 to 24 months bull Transition phase somewhat messy (old worker can

be reinstated new workers canrsquot) bull Push toward laquolast in first outraquo


3 The Jobs Acts What Shall We expect


39

What Shall we expect out of the New Contract

bull The new contract reduces firing costs ndash The economic effects of reducing firing costs are well

understood bull Increase in both hiring and firing bull Increase in allocation of capital into productive jobs bull Not necessarily lower unemployment

bull But watch out the tax subsidy operating alongside will likely increase labour demand and reduce unemployment

bull What will happen when the tax subsidy will phase out


Much Ado About Nothing

bull If the new contract will not necessarily reduce unemployment what is it so relevant

bull The main objective of the new contract should be ndash Reducing dualism ndash Reducing legal fights and red tape costs on labour

adjustment ndash Increase efficiency and allocation in labour market


What Shall we Monitor and expect in the Next Months

bull The jobs act will be successful if we will observe ndash Increase in share of Hires on a open ended basis over

total hires ndash Increasing speed of conversion temporaryopen ended ndash Reduction in legal fights over labour adjustments

bull Different timing between tax subsidy (January 1st) and new contract (March 7th) gives room for identification


The first (meaningless) Evidence

bull Huge confusion and government propaganda over the first data

bull Two piece of information bull Labour Force Survey (monthlyquarterly compiled by

ISTAT) ndash Unemployment in February increased relatively to January

bull Osservatorio Precarietagrave (INPS) ndash Proportion of contract on a permanent basis substantially

higher bull Different timing between tax subsidy (January 1st) and

new contract (March 7th) gives room for identification



Istat Total Employment is Falling


Inps Share of new open ended hires (2015 versus past january february)


Summary of First Evidence

bull January and February 2015 only tax subsidy in place

bull March 2015 new contract in place bull Total employment is not rising bull Share of open ended contracts is rising bull Possible econometric evidence

ndash Difference in difference Around the 15 employees before and after March 2015 (small firms as a sort of control group)


(IV) Open Challenges


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70

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GR LU ES IT PT UK NL SE FR IE AT DE BE DK FI

unemployed with work experience covered by unemployment insurance

Fonte EU-SILC 2004-2007

helliphelliphow many workers are effectively covered by unemployment benefits (Jobs Act part 2 other presentation)


Wage and Seniority Hourly Wage (PPP) by Age

Labor Force Survey EUROSTAT 2002

8

10

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lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY


Tax subsidy is welcome in as much as it reduces huge labour taxes hellip


helliphuge tax evasion


Unemployment and shadow employment two faces of the same coin


School to Work Transition

Pre-primary primary and lower secondary education (levels 0-2)

Upper secondary and post-secondary non-tertiary education (levels 3 and 4)

First and second stage of tertiary education (levels 5 and 6)

European Union (27 countries)

99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30


Conclusions bull No Growth No jobs independently of the jobs act bull The Italian strategy was three fold i) tax subsidy on

new hirese ii) flexibile temporary contract iii) a new labour contract with protection increasing with tenure

bull Jobs act is very welcome ndash Lack of full coherence between ii) and iii) ndash What will happen when tax subsidy will end (fiscally may

not be sustainable ndash Other forms of non standard labour contract

bull Do not think that the jobs act is the laquoultimate labour reformraquo


The Italian Labour Market and the 2015 Jobs ActWhat is it What will change

Outline

Diapositive numeacutero 3


GPD The Never ending great recession13 quarters under



Marginal Reforms and Honyemoon Effects Rationalize Swings in unemployment





But Huge Share of self employedSelf employed in the statistics but employees de facto



Low Training in Dual CountriesShare of Youth Obtaining Training (20-24 years)







3 The Jobs Act31 The content32 Open Ended contracts with protection increasing with tenure

Overall Comments




Protection Increasing with Tenure



Economic Dismissal (I)

Economic Dismissal (II)

Disciplinary Dismissals


Open Issue and Risks (I) double moral hazard and disciplinary dismissals

Risk IIWhat will happen to other nonstandard labour contract

Risk IIIIs the Cursus Honorum too long

Collective Dismsissal







IstatTotal Employment is Falling

Inps Share of new open ended hires(2015 versus past january february)




Wage and SeniorityHourly Wage (PPP) by AgeLabor Force Survey EUROSTAT 2002





Conclusions

Outline

1 Labour in a depressed economy 2 Il Jobs act the economics of reducing

duality 3 Il Jobs Act The contents 4 Jobs Acts What shall we expect 5 Other structural issues and conclusions




-1

0

1

2

3

4

5

2001-2013 1981-2000




















Age Italy Europe



15 to 19 614 386 806 194 15 to 24 522 478 727 273 20 to 24 495 505 692 308 25 to 54 471 529 573 427

55+ 446 554 445 555 Total 481 519 598 402



10









s 15 to 24 permanent 5014 6062 7535





temporary 1336 1442 1193






000

1000

2000

3000

4000

5000

6000

7000Ita

liaGr

ecia

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16








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































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EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions



-1

0

1

2

3

4

5

2001-2013 1981-2000




















Age Italy Europe



15 to 19 614 386 806 194 15 to 24 522 478 727 273 20 to 24 495 505 692 308 25 to 54 471 529 573 427

55+ 446 554 445 555 Total 481 519 598 402



10









s 15 to 24 permanent 5014 6062 7535





temporary 1336 1442 1193






000

1000

2000

3000

4000

5000

6000

7000Ita

liaGr

ecia

Belg

ioPo

rtog

allo

Spag

naFr

anci

aSv

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EIrl

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Finl

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aAu

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Stat

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Dani

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caSv

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raAu

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16








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

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40

50

60

70

80

90

100








8

10

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lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions

















Age Italy Europe



15 to 19 614 386 806 194 15 to 24 522 478 727 273 20 to 24 495 505 692 308 25 to 54 471 529 573 427

55+ 446 554 445 555 Total 481 519 598 402



10









s 15 to 24 permanent 5014 6062 7535





temporary 1336 1442 1193






000

1000

2000

3000

4000

5000

6000

7000Ita

liaGr

ecia

Belg

ioPo

rtog

allo

Spag

naFr

anci

aSv

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EIrl

anda

Finl

andi

aAu

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Regn

o U

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Nor

vegi

aN

uova

Zel

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Stat

i Uni

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Dani

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caSv

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raAu

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liaPa

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16








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions









s 15 to 24 permanent 5014 6062 7535





temporary 1336 1442 1193






000

1000

2000

3000

4000

5000

6000

7000Ita

liaGr

ecia

Belg

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Spag

naFr

anci

aSv

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EIrl

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Finl

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aAu

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o U

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Nor

vegi

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Zel

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Stat

i Uni

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nada

Dani

mar

caSv

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raAu

stra

liaPa

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16








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions




000

1000

2000

3000

4000

5000

6000

7000Ita

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EIrl

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Finl

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Nor

vegi

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i Uni

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Dani

mar

caSv

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raAu

stra

liaPa

esi B

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16








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions








18





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions





















Overall Comments


























































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions





















































Germany 366 100 266 128 Hungary 242 60 182 101


Japan 92 00 92 46 Korea 168 00 168 73


Poland 88 30 58 29 Portugal 603 120 483 224






























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions



























39





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions





































0

10

20

30

40

50

60

70

80

90

100








8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions



8

10

12

14

16

18

lt30 30-39 40-49 50-59 60lt

EURO

Age interval

UK

GERMANY

SWEDEN

ITALY













99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions












99 73 51

Spain 102 88 70

France 98 66 46

Italy 136 104 98

United Kingdom

64 32 30









Outline






















Overall Comments































Conclusions








Outline






















Overall Comments































Conclusions

the italian labour market and the 2015 jobs act · the italian labour market and the 2015 jobs act....

Documents