The Jobs Act

The 2015 labour market reform in Italy

Italian Ministry of Labour and Social Policies – Policy Advisor Unit

The recent economic crisis had a sizeable impact on the Italian economy, which was already characterised by sluggish productivity developments and consequent decreasing external competitiveness since early 2000’s. Between 2007 and 2013, Italian real GDP fell at an average annual growth rate of -1.4 % - compared to an average -0.1 % of Eurozone -, for a total loss of 8.5 percentage points. In the same period, total employment rate fell by 3 percentage points from 62.7 % to 59.7 % and unemployment rate almost doubled from 6.1 % to 12.1 %. Young people were particularly hit by lack of job opportunities: the youth unemployment rate reached an unprecedented 40.0 %.

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Background and rationale for structural reforms

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The impact of the crisis

  2007 2008 2009 2010 2011 2012 2013

Real GDP growth rate 1.5 -1.0 -5.5 1.7 0.6 -2.8 -1.7

Employment rate 62.7 62.9 61.6 61.0 61.0 60.9 59.7

Unemployment rate 6.1 6.7 7.7 8.4 8.4 10.7 12.1

Youth unemployment rate

20.4 21.2 25.3 27.9 29.2 35.3 40.0

Source: Eurostat

Immediately after taking office, in March 2014 the Renzi Government has started an ambitious reform plan with the aim of boosting economic recovery, enhance competitiveness, strengthen social cohesion and improve public sector efficiency.

While continuing to pursue the path of structural reform, the commitment of the Italian Government in 2015 is to support GDP and employment growth through a sound budget policy and create a more favourable environment for investment opportunities.

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Consolidating recovery

The Reform Plan started in 2014 involves a broad Government action: Constitutional and Electoral Reform Public Administration Reform School Reform Fiscal Reform Justice Reform Labour Market Reform

The Jobs Act represents a key element of the overall Reform strategy.5

A mutually reinforcing reform strategy to relaunch competitiveness and create investment opportunities.

The Jobs Act represents the most comprehensive labour market reform since the introduction of the “Statuto dei Lavoratori” in 1970. The main goals of the Jobs Act are to create a more inclusive, resilient and flexible labour market, to attract foreign investment and business and to reduce the scope of discretionary decisions of Labour Courts in the resolution of labour disputes. To pursue such objectives, the Government was delegated by Parliament to:

1. Strengthen and streamline social safety net2. Improve Employment Services and Active Labour Market Policies3. Remove red tape for firms and citizens 4. Review types of contract, reduce atypical employment relationship also by

introducing a new open-end contract with increasing level of protection5. Support maternity and work-life balance

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A broad ranging and comprehensive reform

The enabling law (Law 183/2014), giving mandate to the Government to fully implement the Jobs Act within summer 2015 entered into force on 16th December 2014. As of September 2015, the Italian Government has completed the implementing process of the Enabling Law. All the provisions have been published on the Official Journal and are therefore effective. Administrative procedure to set up the newly established Agency for Active Policies (Agenzia Nazionale per le Politiche Attive – ANPAL) and Agency for Inspection (Ispettorato Unico) will be completed within the end of 2015.

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Keeping promises

Introduced in March 2015, the new open-end contract with increasing level of protection aims at promoting more stable jobs, thus tackling labour market segmentation and enhance productivity.

A relaxed regulation on individual and collective dismissals makes the employment relationships more flexible and the costs associated to dismissals certain, thus reducing the amount and the duration of possible labour disputes. In particular, a standard monetary compensation is foreseen in case of unfair dismissal (general rule: 2 monthly wages per worked year with a cap of 18 to 24 monthly wages depending on challenged misconduct), whereas scope for reinstatement is limited to discriminatory dismissals. A quick settlement procedure has been introduced to reach an agreement in case of disputes bypassing Courts.

Robust incentives to permanent jobs were introduced by zeroing social contributions for three years (introduced for 2015 hiring, the Government is considering how to extend the measure for the next years) and by cutting regional taxes.

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A more flexible open end contract

In June 2015, the Ministers’ Cabinet introduced a simplified text revising types of contract, with the objective of reducing the previous complexity and fragmentation of the legal environment. Measures were undertaken to encourage companies and employers to make the best use of workforce and to mainstream most of the employment relationships into subordinate work, especially through open-end. The text is also intended to enhance flexibility of fixed-term and part-time contracts, promote dual training-based apprenticeship and to better define the contents and the nature of self-employed contribution to ordinary activity of enterprises. Measures to enhance functional flexibility within companies were also introduced, in particular concerning the possibility for employers to change task and duties of workers without unnecessary restrictions.

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A rational framework for employment relationships

A new unemployment benefit scheme (NASpI) extended in coverage and duration was adopted in March 2015 and enforced on 1st of May, based on employees’ social contributions accrued in the last four years. The maximum duration of the new support measure is 24 months and the allowance amounts up to a maximum of € 1,300. NASpI is now among the most inclusive unemployment benefit schemes in Europe. The March decree also introduced a means-tested unemployment assistance after expiration of NASpI (ASDI). In the decree on the revision of short-time working schemes, adopted in September 2015, funds were allocated to make all the provisions structural and permanent.Complementing actions in the active labour market policy and PES domain, conditionality on activation measure to receive income support allowances was strengthened, fully enforcing a mutual obligation between Employment Services and unemployed.

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An extended and effective unemployment benefit scheme

Cassa Integrazione Guadagni (a short-time working scheme to support labour hoarding during economic crises) has been reviewed in order to achieve a better balance between protection of workers and companies and the need for a quicker reallocation of resources from bad to best performing sectors and business. With the decree adopted in September a streamlined regulation has been introduced, replacing a previously fragmented code consisting of over 15 different pieces of legislation, layered since 1945. The duration of the allowance has been reduced to a maximum of 24 months in a five-year moving period, at the same time extending covered sectors and firms through insurance-based funds (fondi di solidarietà). Overall, the reforms extends short-time work schemes to additional 1.4 million workers, including apprentices, and 150.000 firms.

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A more efficient short-time work scheme - 1

A better balance between short-time work fund revenues and expenditures is also pursued through a revision of contribution rates and through the introduction of a co-payment mechanism to promote a responsible use of the schemes. The implementing decree, adopted in September, also promotes work-sharing arrangements allowing for an extended duration of the scheme under some circumstances (36 months).Provisions were introduced to make Solidarity funds in sectors not covered by CIG fully operational by 2016, with a view to phasing out “short-time work in derogation” (cassa integrazione in deroga). Such funds allow for within-sector solidarity, but must achieve financial balance in each year of operation. The obligation for suspended workers to participate into activation measures and/or community services was also introduced.

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A more efficient short-time work scheme - 2

The new active policies system devised in the implementing decree adopted in September 2015, is based on the strict cooperation of a network of relevant institutions and stakeholders, under the coordination of the newly established National Agency for Active Policies (ANPAL): Social Security Institute (INPS), Work Accident Prevention Institute (INAIL), Workers’ Skill and Vocational Training Development Institute (ISFOL), Regional offices and Public and licensed Private Employment Services, Chambers of Commerce, Bilateral Funds for Vocational Training (Fondi Interprofessionali), accredited vocational training bodies, upper secondary schools and Universities. Human and financial resources from the DG Employment Services and Active Policies of the Ministry of Labour and of ISFOL will be transferred to ANPAL, which is going to coordinate and supervise activation policies at national level.

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An improved system of active policies - 1

Grounded on a common profiling system for unemployed, the new active labour market policy system will benefit of the reinforced mutual obligation principle between unemployed and employment services. The current text of the ongoing Constitutional Reform envisages the centralization of competencies on activation measures, currently under the remits of Regions and Autonomous Provinces. The implementing decree adopted in September foresees that the Ministry of Labour and the Local Authorities cooperate to manage this transitory phase through formal agreements. The rules and procedures concerning employment incentives have been reviewed and a new employment incentive to facilitate reallocation of workers – “assegno di ricollocazione” - is introduced, based on the amount of unemployment benefit and level of employability. Moreover, incentives for dual training-based apprenticeship contracts were also strengthened to further boost youth employment and address disrupted school-to-work transitions.

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An improved system of active policies - 2

Assegno di Ricollocazione - introduced by Stability Law 2014 on an experimental basis - has been revised by the Jobs Act. It consists in a voucher to be spent by unemployed since the fifth month of unemployment. Vouchers can be used for activation measure/vocational training courses in public and private employment services thus strengthening the link between passive and active labour market policies. ANPAL has been entrusted to carry out monitoring and evaluation of the outcomes.Coherently with current Constitutional framework, it is managed by Regions, which have already received from the State the financial resources allocated by Stability Law 2014. Regions are currently issuing tenders for the accreditation of private and public employment services due to provide services to the recipients of the voucher.

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An improved system of active policies - 3

Measures are also being introduced to simplify the administration of employment relationships and to adapt legislation to a changing working environment. Among them: - a unified web-based communication system is being established, including

for active and passive policies measures, to be collected in a “worker booklet” to be stored in a database of the Ministry of Labour and Social Policies;

- rules and procedures concerning compulsory hiring of disabled people, health and safety and voluntary dismissals have been simplified and reviewed to better achieve the goal of an effective integration of disabled people in the labour market;

- workers’ remote control regulation will be adapted to changing technologies and working tools;

- sanctions regime concerning undeclared work was reviewed.16

A simpler administration of employment related procedures

Measures to support parental care and working mothers were adopted. Maternity leave is made more flexible and an extension of parental leave is devised up to the child age of 12. The child age limit for benefiting of subsidized parental leave is increased to six and further extended to eight for low income families. Paternity leaves are extended to all categories of workers, as well as the possibility for fathers to take care of children in case of permanent or temporary inability of mothers. Equalization of rights is also devised for adopting parents. Incentives for employers are foreseen if telework is used to meet parental needs of workers.All these measures were made structural, i.e. permanent, by the decree reforming short-time work schemes.

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Support maternity and facilitate work-life balance

With the aim of strengthening inspection and surveillance activity, focusing on serious transgressions and reducing sanctions on lighter misconducts, a National Inspection Agency has been established, gathering in a single body all the inspection activity related to under-declared work, health and safety, fiscal and social contribution obligations previously undertaken by Ministry of Labour Inspection Directorate and INPS and INAIL Inspection Service. The Agency will be in force within the end of 2015. It is expected to better fight undeclared work and to improve safety and health in the workplaces thanks to increased efficiency, and a more rational and broader intervention capacity.

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An improved and more effective inspection system

To tackle youth unemployment, Italy launched its Youth Guarantee program on 1st May 2014, which targets young NEETs aged under 30 in the broader context of the European Youth Employment Initiative. The program is constantly monitored by Ministry of Labour and a weekly report is published on a dedicated portal. As of 25th September 2015, the number of applicants to the initiative was 777,672. After eligibility check and net of abandons before treatment the number of applicants was 676,748. The number of take-ups – i.e. the users profiled by Employment Services after a first interview - was 462,762; and the number of youngsters who benefited of at least one qualifying measure (subsidized employment, apprenticeship, internship, civil service, vocational training, return to education) was 169,658.

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The Youth Guarantee Initiative in Italy

The Italian Government is fully committed to constantly monitor the development of the Italian labour market – and in particular the impact of the structural reforms – to better fine-tune interventions. To this end, the Enabling Law has broadened the mandate of the ad-hoc Monitoring Committee, already established by Law 92/2012 with the aim of monitor and evaluate labour market reforms in Italy. By undertaking a comprehensive monitoring and impact evaluation, the Committee will play a key role in the next months, including delivering opinions and possible suggestions to improve or amend the adopted provisions.

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Monitoring the outcomes - 1

A first and preliminary evidence based impact analysis of the Jobs Act provided encouraging results: as of July 2015, employment has grown by 235 thousands on a year-to-year basis (+1.1 % source: ISTAT), while youth unemployment remarkably decreased to 40.5 % from 43.1 % in June. Overall unemployment also decreased to a three-year minimum of 12.0 %.

One of the clear-cut results of the introduction of the new open-end contract – coupled with fiscal incentives - is the increasing share of permanent jobs among hiring. According to the “Sistema delle Comunicazioni Obbligatorie” data on hiring, collected by the Ministry of Labour and Social Policies and confirmed by INPS data from monthly employers' sheets, the number of hiring on a permanent basis in the first seven months of 2015 increased by more than 300,000 with respect to the same period of 2014 – corresponding to a 39.3 % increase on a yearly basis.

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Monitoring the outcomes - 2

The number of conversion of fixed term contracts into permanent contract grew in the same time span by around 60,000 (+39.7 %). Finally, the number of hiring of project worker noticeably decreased, especially after the enforcement of the decree on the revision of the type of contracts in June 2015 (-22.6 % on a yearly basis in the first seven months of 2015, but -50.9 % in July).

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Monitoring the outcomes - 3

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Monthly employment - m/(m-12) growth rate

Government action boosted employment recovery