Defrosting Italy's Labor Market

Berlusconi, Trade Unions, and the Future of the Bread-Winner Model

By
Art. 36 - Costituzione Italiana
Defrosting Italy's Labor Market : Berlusconi, Trade Unions, and the Future of the Bread-Winner Model - Alexandru Coita

Abstract

The Italian labor market suffers from stark rigidities and high regulation. Government attempts to alleviate high unemployment through deregulation and moderate labor market reforms have met with staunch and aggressive opposition on the part of the trade unions. This paper seeks to explain how a squabble over technical issues has turned into an existential fight on the part of the trade unions, generating major social upheaval with ripple effects across the societal structure. The consequences of dislocating the breadwinner model will be considered along with the implications of a fluid labor market structure on Italian industrial relations.

Introduction

The Italian labor market is widely considered to be one of the most rigid in the European Union (EU). High structural unemployment and low labor participation only constitute the very tip of a problem that extends to the whole of the Italian society. Recently, the Berlusconi government has attempted to tackle the thorny issue of labor market reform by proposing a series of legislation which aims to ease rigid regulations and to allow employers more flexibility in hiring and firing labor while promoting social inclusion and wider labor participation. Reform proposals were met with strong opposition on the part of trade unions, which staged grandiose protests and organized a general strike that brought the country to a standstill.

At first sight, the somewhat timid reform initiatives of the Berlusconi government seem out of proportion with the massive outcry that they triggered. Explaining this apparent paradox is useful for understanding the deep roots of the labor market status quo as well as for identifying its connection with various societal actors.

This paper argues that the reforms drawn up by Marco Biagi and proposed by Welfare Minister Roberto Maroni go beyond merely relaxing the tight regulations governing the Italian labor market. Instead they are intended to effect a structural reshaping of the Italian society. The massive protests elicited by the government proposals have a dual explanation. First, the projected reforms tackle the roots of trade union participation in policy-making. Their full enactment would lead to an alienation of the main trade union powerbase and would effectively trigger a breakdown of Italian industrial relations. Second, the Biagi proposals signal the end of a central paradigm of the Italian society, which relates to the single male bread-winner supporting an extended family. Eliminating the lifetime employment guarantee for currently protected workers would thus have the dual consequence of eliminating current cleavages in the Italian labor market, while radically transforming industrial relations for the foreseeable future.

The structure of my argument flows from a critical assessment of the state of the Italian labor market. I will include an analysis of its most salient features and of the developments affecting the labor market since the 1990s. I will then look at the major aspects of the Biagi proposals, superimposing them onto the existing labor legislation. In the third part, I will attempt to explain the trade union reactions to the reform proposals by suggesting that workers' associations used protest as a way to counter powerful pressures aiming at their marginaliiation. Finally, I will seek to condense the observations gathered throughout the analytical survey and map the potential outcomes of the projected reforms for the unions as well as for Italian society as a whole.

The Maroni White Paper

Addressing the structural imbalances of the labor market became one of the priorities of Italian governments throughout the 1990s. Italy had to respond to the challenges of globalization and align itself to the new requirements of economic integration in a global context. Moreover, through its commitment to the EU, it agreed to regulation guidelines requiring a serious streamlining effort on the part of the government.

It soon became clear, however, that reform was going to encounter considerable obstacles and that, in order for it to be successful, it had to satisfy two main requirements. First, any substantial reform effort could only be undertaken by a government enjoying broad parliamentary support. Second, reform proposals had to be the topic of intense dialogue among social partners, aimed at reaching consensus around their implementation.

When Prime Minister Silvio Berlusconi regained executive power in the year 2000, time seemed ripe for a serious reform effort. After many years of political instability, Italy was ruled by a government enjoying broad parliamentary support. Political stability offered Berlusconi the chance to push through a coherent effort at reforming the labor market. Through his 2001 reform plans, Biagi offered the prospect of a realistic project that could restore the viability of the Italian labor market. Moreover, his left-leaning ideas served to balance the alleged Thatcherite propensities of the Berlusconi government, conferring an aura of bipartisan credibility to a project that sought to elicit a national consensus.

On October 3, 2001, Maroni unveiled a White Paper on the labor market. The draft proposal, whose main author was Biagi, constitutes a program of measures that the Berlusconi government intended to carry out during the next five years. The stated objectives of the White Paper were "to guarantee a substantial increase in the employment rate, to improve the quality of work and to obtain stronger social cohesion."8

The document is divided into two parts. The first contains an analysis of the labor market and the second a set of concrete reform proposals. The analysis' main focus is the performance and the characteristics of the Italian labor market. It assesses the impact of EU guidelines on existing labor policies, while placing considerable emphasis on the shock absorbers aimed at easing the impact of redundancies and restructuring on the active labor force, as well as on employment incentives and the training system.

The second part of the White Paper outlines a series of reform proposals aimed at strengthening the "efficient capacity of functioning of the market."9 In order to achieve this result, the document states, the labor market must be freed from the regulatory mechanisms which are seen as immobilizing it. The White Paper recommends a shift from a system of guaranteed lifelong employment to a framework guaranteeing lifelong employability. According to this concept, workers would eventually benefit from an "efficient and fair meeting between labor demand and supply.10

The document sets out three main areas of reform:

1. The modernization and the liberalization of public employment services;

2. The enhancement of state intervention in the process of transition from educational institutions to the labor force. Accordingly, continuing training would be supported by stronger public intervention. The role of apprenticeships would be reinforced as a training tool, while the work/training contract would be used to foster the entry of workers into employment.

3. The reform of social shock absorbers, aimed at allowing them to act as employment incentives. This goal would be attained by conditioning benefits on a worker's active search of employment.

Additionally, the White Paper pays particular attention to the participation of women in the labor market, the ultimate goal being the removal of all external factors which prevent women from actively engaging in it. The document mentions impediments relating to the difficulty of reconciling work and family life, as well as gender discrimination regarding economic and occupational treatment. More concretely, the White Paper proposes promoting flexible forms of employment for women, especially part-time contracts.

The document recognizes that reaching the goals of labor market inclusion necessarily requires changes in the regulation of employment relations. Recognizing the rigidity oft he existing system, the White Paper bluntly states that it "reflects a work organization which is now completely outdated." Consequently, the document suggests that workers shift from a dependent employment relationship to the status of a "collaborator who works within a cycle of working activities."11 Such a cycle would then be composed of periods of dependent work and periods of autonomous employment, alternating with periods of training and vocational retraining.

Within such a framework, all types of employment contracts would have to be adapted and rendered more flexible by removing regulatory hindrances. The document proposes instead the creation of two new forms of employment: lavoro intermittente and lavoro a progetto.

Finally, and perhaps most importantly, the government also intends to increase labor flexibility by modifying Article 18 of Law 300, the .Statuto dei Lavoratori [Workers' Statute]. The article requires employers to reinstate workers whose dismissal is ruled unjust by firms. Generally, Italian law states that an employer can dismiss an employee if it is able do demonstrate just cause - in the case of individual dismissals - or justifiable reason - in the case of redundancies or collective dismissals. The Statuto dei Lavoratori allows considerable leeway for interpretation and, as a result, an employer can never have the certainty that dismissals will not be overturned by a judge.

If the courts declare an individual dismissal as unlawful, the employment relationship is considered never to have been interrupted by the invalid dismissal and the employee is entitled to reinstatement. Even in cases where de facto reinstatement fails to take place, employers are obliged to pay employees the remuneration due to them from the time of the judge's reinstatement order until the time of actual reinstatement or until the end of the employment relationship.

Article 18 makes it almost impossible for an employer to make an economic decision in terms of dismissing an employee. In this respect, Italian law goes further than any other in Europe, virtually offering solid guarantees for lifetime employment to any worker covered by the Statuto dei Lavoratori. Critics of the provision argue, however, that Article 18 discourages firms from hiring, deters foreign firms from investing in Italy and acts as deadweight on business, especially in the country's poor southern regions.12

Overall, the White Paper envisions a sweeping transformation of the Italian labor market. Consistent with the principles of labor market deregulation, the Paper aims at setting the basic paradigm for future labor market reforms. It acknowledges the fact that current rigidities in the system favor high structural unemployment and further proposes a more active state role in creating incentives for long-term unemployed to seek reentry into the labor market. The White Paper argues that reincorporating the unemployed into the workforce necessitates a comprehensive training program designed to match the skills of jobseekers and the demands of current employers.

The proposed policies would serve the long-term goal of the drafters: shifting the concept behind labor market regulations from guaranteeing employment to guaranteeing employability. Under the new premise, all active jobseekers can reasonably expect to find a job that matches their skills. While the focus here is clearly on creating new employment and reducing structural weaknesses, the main problem of the argument stems from the fact that, according to the proposed guidelines, the state would relinquish its role as guarantor of employment. Removing guarantees on lifetime employment creates uncertainties for those workers already employed, especially in the public sector.

Understanding the Trade Unions

The Berlusconi government intended to use the White Paper as a platform that would allow future legislative acts to be passed. If trade unions, employers' associations and the government had reached an agreement over the basic aims of the document, then the text could have allowed for the pursuit of much-needed reforms.

Reaching a national consensus around principles guiding a comprehensive streamlining of the Italian labor market was no easy task for the Berlusconi government. The Confindustria employers' confederation was not completely satisfied with the White Paper. It considered the document "timid and uncertain" compared with private sector expectations, especially in the area of worker dismissals.'3 The employers would have liked a set of more radical reforms, but they could not back away from supporting the White Paper, especially since it held the hope of easing restrictions and reducing the burden on employers.

While industry representatives expressed mild criticism of the document, the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro - CGIL), the largest trade union, criticized the White Paper in sharp terms. According to Giuseppe di Casadio, CGIL's confederal secretary, the document describes a system of industrial relations whereby the exercise of collective representation of workers is completely denied. The labor representative argued that the main objective of the paper "is to reinvent the whole of Italian labor law around the individual dimension of employment relationship."14

The other two main union confederations - the Italian Confederation of Workers' Unions (Confederazione Italiana Sindacati Lavoratori - CISL) and the Union of Italian Workers (Unione Italiana del Lavoro - UIL) - seemed to favor an open debate around the White Paper. Savino Pezzotta, the general secretary of the CISL, expressed the view that the document "describes a contractual model which leaves room for discussion and interventions in terms of employability."15

After the death of Biagi, the debate turned into outright acrimony. CGIL resisted government attempts to shift the focus of the discussion toward union support for terrorist organizations and sought to show that it would not relent to government pressure. The fierce opposition to the Maroni White Paper translated into a massive demonstration opposing both reform proposals and left-wing terrorism. The mass rally, organized by CGIL on March 23, 2003, gathered close to one million trade unionists who staged a grandiose protest in Rome's Circa Massimo. The protest was followed by a general strike on April 16, which mobilized sixteen million people and involved eighty to ninety percent of the workforce in the major industrial sectors, including metal-working, public services, banking and finance.16

Italy seemed to be headed toward another "hot summer." Social conflict became keen and seemed to backlash against the government's attempts at social consensus. The country was torn between Berlusconi's government and the trade unions, led by the CGIL. Industrial relations had taken a sharp turn for the worse and seemed to be headed for a breakdown.

The trade unions had rallied behind common opposition to the proVision in the White Paper that called for scrapping Article 18 of the Statuto dei Lavoratori, which is the only concrete provision that can act as a short-term threat to union interests. As such, mobilizing rank-and-file around opposition to the proposal constitutes a politically savvy action by union leaders. In and of themselves, the alterations proposed by Berlusconi's government seem to be a slim reason for the massive protests staged by the unions. The disproportionate reaction of the unions shows that industrial relations have reached an important turning point. Gradual decline of union power has entered a new phase. A move from social concertation 17 to social dialogue, in the context of a labor market system in flux, could lead to momentous changes that would sweep away unions from the social landscape. Leaders like Sergio Cofferati, CGIL's boss, have understood that the proposal to eliminate Article 18 serves as a portent of worse things to come and that, unless unions acted forcefully, they will no longer be able to oppose the tide of reforms.

Since the peak years of the 1970s, the influence of trade unions on the political process has entered a slow, but steady decline. This progressive-loss of trade union power has moved to a new phase with the collapse of the Italian party system in the early 1990s. Under the external constraint for change imposed by the efforts to enter the European Monetary Union (EMU), Italian political actors moved toward social concertation. Harmonizing the actions of social actors within the context of internal reform was intended to galvanize a consensus that would allow Italy to solve the structural problems of its economy.

The initiative of social concertation further served to reveal trade union dependency on political parties. It was the government that initiated social concertation, and trade unions were left with little choice but to agree to goals that were seen as in the national interest.18 Overall, the 1990s led to a crisis of identity within the worker movement. The situation was compounded by the lack of unity among the three main trade unions. CGIL, historically the most powerful trade union, is closely identified with the Italian Communist Party (PCI) -and, as such, is the most radical of the main workers' organizations. The union is guided by the notion of class struggle and Marxist ideals. Following the demise of the Cold War, CGIL found it hard to assert its identity and entered a structural crisis.

CISL, mostly composed of public sector workers, enjoys high membership in the South. It was closely identified with the DC, Italy's main government party until the Tangentopoli scandal.19 The 1990s and the end of DC rule in Italy served to alter CISL's identity and to deprive it of support from the political sphere.

UIL, the smallest of the three main trade unions, was the only trade union which did not undergo a process of identity crisis through the 1990s. Its small membership and the fact that its identity was never clear made it even more vulnerable during the times of political instability that came in the 1990s.

The coming to power of the Berlusconi government on a market-oriented reform agenda did not bode well for the trade unions. Confronted with the specter of a new Thatcherite revolution, unions were forced to take a highly-confrontational stance toward government policies, hoping that they could make up for the lost political clout by increasing rank-and-file allegiance. Having lost the hope of gaining any political support for their actions, Italian trade unions chose a policy of confrontation.

The unions' choice was made easier by Berlusconi's emphasis on a new relationship with social actors, which he called social dialogue. This approach was a clear step back from social concertation It institutionalized the upper hand of the political parties and clearly showed that unions were only junior members in any consultations, and that the government had the means to operate unilaterally if it so desired.

For trade unions, the idea of social dialogue served to add insult to injury. It became clear for all trade union representatives that the Berlusconi government was seeking to marginalize workers from the policymaking process and to exclude unions from any decision that would affect their interests. If they accepted' the new paradigm of dialogue, the unions risked losing their, institutional role in Italian industrial relations, leaving policy in the hands of a conspiracy jointly led by Berlusconi and employers.

The cornered trade unions saw the Maroni White Paper as a clear provocation by the Berlusconi government. Union leaders considered the reform package to be guided by nee-liberal ideals which ran contrary to the core interests of the trade unions. Furthermore, under the proposed system of social dialogue, changes to legislation were possible even without an agreement with the trade unions.

Conclusion - What Future for Italian Industrial Relations?

Understanding the context of the White Paper from the viewpoint of the workers' movements serves to clarify the fierce reaction by Italian trade unions. The agreement reached by the government and the CISL and UIL on alterations of the labor law indicates that the 2002 mass protests may have well been the overture to the trade unions’ swan song. Even though the agreed changes will be limited in time and less radical than initial government plans, the fact that two trade unions have signed on to them shows that Berlusconi has been able to successfully isolate CGIL and to further reduce its pool of allies.20

The CGIL now stands alone against the powerful forces aimed at reshaping industrial relations in Italy. The only effective power base it has left is its membership. If the Berlusconi government is successful in abolishing restrictions on the labor market, CGIL's rank-and-file may simply implode as a result of the ensuing changes.

The power of trade unions to gamer strong support from their membership rests on their leaders' ability to ensure security for their members. In the case of Italy, trade unions had managed to push through a system of labor market regulations that served as an absolute guarantee to their members. Employees were protected under the Statu.to dei Lavoratori, enjoyed high wages and virtually life-long jobs. Unions served to uphold their interests and to ensure that the status quo would be defended and preserved.

The dual constraints imposed by the unfavorable political situation and the economic requirements of membership in the European structures combine to create an existential crisis for the Italian trade unions. One the one hand, they are increasingly excluded from the policy process and their institutional role is reduced to consultations. In a sense, trade union policy making power depends on government goodwill. Furthermore, economic constraints imposed by European convergence requirements chart a path of reforms inevitably leading toward deregulation and increased flexibility.

What these developments mean for the trade unions is that, not only they have no leverage on policy making, but also that policy makers themselves are likely to favor a course which runs contrary to trade union vested interests. Increasing cohesion among membership and galvanizing it against government policies is the only possible course for Italian workers' movements. The union reactions to the labor market reform proposals clearly illustrate this trend.

The threat posed by political developments does not entirely stem from political marginalization and detrimental economic policies. Even under such conditions, unions could still conceivably retain their social significance through ensuring membership cohesiveness. It is at this stage that the White Paper holds the deepest significance for labor organizations. The proposed course of reform charts a path headed towards more labor flexibility and fewer employment guarantees. This serves to undermine rank-and-file allegiance, since union membership is posited on the leaders' ability to maintain employment guarantees. Conversely, in a flexible (and, by consequence, fluid) labor market, current trade unions would be unable to fulfill expectations from their membership. Moreover, they would lose the constant pool of members represented by the bread-winners.

A combination of political marginalization and economic policies would then serve as the general framework within which a fluidization of the labor market could well be the end of Italian trade unions as they exist today. It is within this context that the protest to Maroni reforms must be understood.

The crisis of trade unions in Italy is only one aspect of the crisis of Italian society. Changes in the rules governing Italy's labor market would challenge taboos and serve to effect structural changes in the Italian society as a whole. In the long run, the male bread-winner model would become a thing of the past and the whole of societal relations would realign according to new dynamics. Under these circumstances, the government bears the burden of ensuring that the shift to a more flexible labor market does not cause unnecessary damage among workers. New educational programs and a focus on vocational training are necessary additions that would serve to cushion the transition and help to pull the Italian labor market into the 21st century.

Notes

Labor Market Cleavages

In March 2002, a law professor from Emilia-Romagna was murdered in front of his house in Bologna. The motive of the crime was not pecuniary, but instead related to the activity of a terrorist organization, which had gained widespread notoriety during the 1970s, known as the Brig ate Rosse [Red Brigades]. Militants of the extreme-left organization had allegedly assassinated Biagi because of his central role in drafting a sweeping labor market reform project.

The Red Brigades represent an extreme, marginal faction within Italian society that is guided by a neo-Leninist doctrine. Yet Biagi's tragic death· was a portent for massive protest and deep unrest. In order to understand why Biagi's reform proposals - otherwise widely perceived as moderate and realistic - caused such a high degree of dissent, it is useful to first analyze the structural imbalances of the Italian labor market.

Italy is one of the wealthiest countries in Europe. It boasts one of the highest Gross Domestic Product (GDP) per capita ratios in the developed world, yet its economy is adversely affected by low employment rates and, particularly worrisome, a high rate of structural unemployment. According to 1992 data, only 60 percent of people aged between the ages of 15 and 64 were in the labor force - of which only 53.6 percent were employed.1 In spite of sustained economic growth throughout the 1990s, Italy has only managed to marginally curb the unemployment problem. Persistently high unemployment reveals the structural nature of Italy's labor market problems and belies the hopes of recent governments that continued growth would eventually steer Italy onto a full-employment path.

The structural problems of the Italian labor market are explained by a set of dualisms which draw deep cleavages throughout the society. The most widely accepted definition of the dualist nature of the Italian economy reflects a territorial division between the North and the South. Unemployment in the North lies at a low 5.7 percent, while in the Mezzogiorno it reaches rates as high as 25 percent.2 The Southern Italian peninsula has never fully benefited from a diffusion of self ­sustained growth and subsequent modernization, displaying, as a result, chronic conditions of low participation in the labor market. The unemployment rates in the Italian Mezzogiorno are among the highest in Western Europe, along with some Spanish regions.3 Besides the low degree of overall development with respect to the North, the South is also plagued by lower worker productivity, which is not fully offset by lower wages. A second dualism of the Italian labor market relates to gender distribution. In the context of a society still bearing conservative features fostered by the long Christian Democratic Party (DC) rule, female participation in the workforce remains comparatively low, even though recent indicators seem to point toward a slight reversal of the historic trend. When women do enter the labor force, it is often by means of family-owned businesses, usually run by their male partners. As a result, women remain relegated to a status of dependency.

Participation in the labor market is further differentiated according to age groups. According to 2000 data, 81.1 percent of employment is concentrated within the median age classes (twenty-five to fifty-four years of age).4 Although this feature can be partly attributed to an ageing population and a consequently lower share of young job seekers, such reasoning would only serve to hide the high share of unemployed youth. The Italian labor market has a pronounced difficulty in fully integrating young workers into the labor force. Faced with high barriers to entry, the younger sections of the population are faced with few attractive options. This situation forces them to choose between low-paying temporary jobs and dependency on immediate family. According to Marco Spinedi, an economist at the Nomisma research group, the young unemployed find it easier to rely on the support from the extended family, which typically contains at least one person with a secure, well-paying job.5 Overall, the trend toward high unemployment among the youth raises serious questions regarding the future of the Italian workforce since increasing numbers of young workers are faced with ever-gloomier prospects of entering the active workforce. This, in turn, creates diminished incentives to pursue further education and encourages youth to pursue a back­door approach to the labor market, either through temporary contracts or through work on the black market.

In terms of labor market regulation, a further dualism can undoubtedly be seen between, on the one hand, workers covered by social security and holding a permanent job, and, on the other, workers not covered by social security. The former category is protected by a two-prong system of shock absorbers cushioning against unemployment governed by the Cassa integrazione guadagni (offering regular short-term earnings compensation) and by Cassa integrazione guadagni straordinaria (which helps to counter long-term restructuring programs).6 Social cushioning institutions indirectly benefit the latter category. Precarious jobs become acceptable when the worker benefits from social protection through family support or the welfare system.

The dualist nature of the Italian labor market runs deep into the basic structure of the society, creating an image of disunity. Collating the various dualist imbalances reveals a labor market deeply split between the "prime-age" male workers, who enjoy a lucrative job and stable employment guarantees, and those either unemployed or holding precarious jobs, who are forced to rely on the bread­winner as a safety net at the family level. Analysts have interpreted this pattern as a consequence of a process of "social allocation of the jobs available, in the context of a system which has a built-in bias toward the breadwinner."7

The male breadwinner model holds great value for analyzing the incentives of different groups within the society. On the one hand, the insiders have a great stake in the current status quo, which offers them well-paid stable employment, thus allowing them to acquire a privileged, sought-after status while looking after their dependents. On the other hand, however, the motivations of those virtually locked out of the labor market are less than easy to ascertain. Through a contemporary Western societal paradigm posited on equal opportunity and individual independence, these actors would seek to break the structural rigidities of the labor market system and acquire greater independence through higher employability. They would then have a stake in reforming the labor market system so as to enhance their chances of becoming employed.

This conclusion seems less than obvious, however, given the conservative features of the Italian society. Because a greater flexibility of the labor market would be tantamount to the possible loss of employment for the bread-winner, dependent groups could arguably have a stake in maintaining a status quo, seen as the lesser of the two evils.

While analyzing sociological patterns is beyond the scope .of this essay, a brief look at the structure of the labor market reveals that the problems leading to Italy's dire employment situation go beyond economics. The rigid structure of the labor market confers an apparent stability posited on the family nucleus. In fact, the term "rigid" itself belies a precarious balance between a powerful, well­ organized, conservative group that is reluctant to change, and a number of outside actors that are disadvantaged by the status quo but lack leadership and direction.

Alexandru Coita is currently completing a master's degree in European Studies and International Relations at SAIS at The Johns Hopkins University, Bologna Center. He graduated with a B.A. in Diplomacy and World Affairs from Occidental College.