Monti’s labour reforms are a red herring

Italian prime minister Mario Monti is reported to be in crunch talks with unions today to see if he can get a deal that will make workers pay for the economic crisis.

Monti argues, with little evidence*, that with American style labour markets Italy can resuscitate its zombie economy that has barely growth for in a decade and is now heading into negative territory.

Unions and radical voices on the Left argue that the problem and solution most definitely lies elsewhere. And changes to the labour law to make it easier to fire workers will only aggravate the economic crisis.

Italy’s economy has suffered from years of a uncompetitive exchange rate imposed by the Euro Single Currrency and has taken a further turn for the worse since two punishing austerity budgets implemented in August 2011 by Silvio Berlusconi and in December, by his successor, Monti.

New figures published Monday underlined the scale of the economic disaster as  manufacturing orders fell by 4.4% in January, with a 7.1% in domestic demand. The euro region’s third-biggest economy will contract 1.3% this year, according to the most recent forecast by the European Commission, which only in November had forecast a 0.1% drop in GDP. The IMF is even more pessimistic, predicting a 2.2% contraction of the economy.

The economic meltdown is leading to a veritable jobs crisis. Youth unemployment has officially reached 30%, almost three percent more than a year ago, and the total jobless rate has increased to 8.6%.

And that doesn’t include massive hidden under-employment.

In the first two months of the year there’s been a 41% rise in hours used under the cassa integrazione scheme that pays part of the wages of staff sent home as factories reduce hours or shut down temporarily. Over the past three years employers have made use of over 3.6 billion hours, a ‘monstrous’ figure that shows the urgency for Monti’s government to take decisive action to tackle the crisis, according to the CGIL trade union confederation.

Vincenzo Scudiere, Confederal Secretary of the CGIL, criticises the way discussions with the government on labour reforms are being framed as key to ‘saving’ the economy, a claim that is repeated throughout the international press.

‘Labour reforms will not influence the demand for work. This requires strategic choices to improve prospects for economic development. The government needs to change course.

Paolo Ferrero, national secretary of Comunist Refoundation says:

‘The policies of the Monti government are demolishing the Italian economy. Behind  the collapse in production is the fall in domestic domand that is entirely down to austerity budgets implemented by [Sivio] Berlusconi first, and then Monti.

‘You don’t need to be a rocket scientist to understand that the unemployed don’t have any money and so don’t spend money and so businesses, not knowing to whom they can sell, stop producing.

‘Monti’s neo-liberal policies are not the solution but the cause of the worsening crisis. It’s time he was sent packing.’

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* ‘Kugler and Pica (2008), using data from Italy, find that a reform which increased
employment protection (firing costs) for small Italian forms had an offsetting effect on
accessions and separations, and thus left overall levels of employment unchanged.’ Page 103, Flexible with the Truth? Exploring the Relationship between Labour Market Flexibility and Labour Market Performance. A Report for the TUC. Howard Reed, Landman Economics, January 2010.