Prime Minister Mario Monti Must Reform Italy's Article 18 Labor Laws

With only about 57% of Italians employed, Italy's employment rate is one of the lowest in the euro zone. In its attempt to boost economic growth, create jobs, and encourage businesses competition, the Italian government has undertaken deep reforms in the labor market.

A key measure of these reforms—the repeal of Article 18 of the labor code — is facing opposition among trade unions and politicians alike, who are against the liberalization of the employment market. However, this new reform only aims to introduce limited flexibility without necessarily decreasing workers’ job security. In my opinion, Article 18 must be reformed.

Most detractors believe that reform would weaken protection against layoffs for those workers who have both been recently hired and those who have long-term employment contracts. In fact, Article 18 rules that companies employing more than 15 workers can dismiss an employee only for economic reasons or proven misconduct. If a court rules that an employee has been unfairly fired, then under Article 18 the firm is required to reinstate the employee.

At first glance, Article 18, which was drafted 40 years ago, seems acceptable; however, the article negatively affected the economy over time by creating rigidity in the employment market, thus discouraging companies from hiring, investing, and expanding.

Article 18 also caused a two-tiered job market: one for already-established employees who are protected by contracts and who cannot be "easily" fired, and the other for unstable, temporary, low-paid young people.

With the new reform, companies would not be obligated by the court to rehire laid-off workers as part of restructuring plan. Judges would have the power to order the employers to pay damages, or force a company to rehire an employee in a situation of proven discrimination, (political, sexual, racial or religious), or illegal disciplinary actions. 

Moreover, the reform aims to limits temporary, part-time jobs and encourage permanent employment. Employers would be restricted from employing temporary workers for longer than three years without offering a contract. Despite the claims of the opposition, the reform will allow for more job security than the current system, which is exactly what trade unions want.

Italy's economic growth has been lagging behind the euro zone average for over a decade now. In 2012, the economy is expected to contract by 1.3%, and with a public debt of 1.9 trillion euros, (120% of the GDP), the need to under take drastic institutional reform is urgent. As for trade unions, instead of always opposing the government, they must be more open-minded, accept the changes, and let go of strategies that do not function in today’s economic and social reality.