Government and social partners sign Pact for Italy

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On 5 July 2002, the Italian government, employers' organisations and trade unions - with the notable exception of the Cgil union confederation - signed a major agreement on: incomes policy and social cohesion; 'welfare to work' (including labour market matters); and investment and employment in the South of Italy. This 'Pact for Italy' followed lengthy negotiations and disputes over the centre-right government's reform plans.

On 5 July 2002, the Italian government and the main employers' organisations and trade union confederations - with the exception of the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil) - signed a 'Pact for Italy' (Patto per l'Italia), covering the labour market, the tax system and the South of Italy (Mezzogiorno).

Background

In October 2001, the centre-right government led by Prime Minister Silvio Berlusconi presented a White Paper, drafted by a group of experts, setting out the main lines of its reform policies in the areas of the labour market and industrial relations (IT0110104F). After talks with the social partners on the White Paper's contents, in November and December 2001 the government issued proposals for the reform of the labour market, the tax system and the pension system (IT0201277F). These reforms were to be introduced by means of 'proxy laws', whereby parliament delegates to the government the power to legislate on a particular issue.

The three main trade union confederations - Cgil, the Italian Confederation of Workers' Unions (Confederazione Italiana Sindacati Lavoratori, Cisl) and the Union of Italian Workers (Unione Italiana del Lavoro, Uil) - reacted in different ways to these proposals. Cgil was highly critical (IT0202302F) and expressed its total opposition to the reforms, calling a major demonstration in Rome on 23 March 2002 against the government's economic policy and - following the murder of Marco Biagi, the government labour law consultant and one of the authors of the White Paper, by the Red Brigades (Brigate Rosse) on 19 March (IT0203108N) - against terrorism (IT0204101N). Cisl and Uil also criticised the government positions, but expressed their willingness to continue negotiations with the government. (IT0203104F).

Negotiations with the social partners over the government's proposals continued, but were interrupted many times. With the government unwilling to concede to trade union demands, Cisl and Uil joined Cgil in calling an eight-hour general strike on 16 April 2002 in protest at the government's proposed reforms (IT0204102N). Some 13 million workers are thought to have participated in the strike (IT0205101N), which focused particularly on the government's proposed amendments to Article 18 of law 300/70 (the Workers' Statute). This Article provides for reinstatement of workers dismissed without 'just cause ' or 'justifiable reason ' in companies with more than 15 employees, and the government planned, for an experimental period, to replace reinstatement with financial compensation for certain groups of workers.

Following the general strike, the government softened its position somewhat, appearing willing to accept trade union demands (IT0205204F) on the reform of the 'social shock absorbers' (ammortizzatori sociali, the system of measures which cushion the effects of redundancies and restructuring - IT9802319F), and to reconsider its proposed amendments to Article 18. The interrupted negotiations between the government and the social partners finally resumed at a meeting on 31 May 2002. At the end of this meeting, the government, the employers' associations, Cisl and Uil signed a 'statement of agreement', though Cgil decided not to sign (IT0206102N). It was agreed that negotiations would be held on four issues - labour market reform, tax reform, the South of Italy and irregular work.

The lack of unity among the union confederations arose from their divergent views on the government's proposals, and particularly the amendments to Article 18. While Cisl and Uil were prepared to continue negotiations, Cgil refused to negotiate any aspect of the labour market reform unless the proposed changes to Article 18 were deleted from the relevant 'proxy law' (IT0207101N). Meanwhile, the Confindustria employers' confederation held its annual assembly on 22-23 May 2002 (IT0206306F), at which it reiterated its positions, stressing the importance of reform of the labour market and the tax system, in order to increase competitiveness.

The negotiations involving the government and the main social partner organisations - apart from Cgil - culminated on 5 July with the conclusion of the Pact for Italy. On the trade union side, the signatories were Cisl, Uil, the independent Italian Confederation of Autonomous Workers' Unions (Confederazione Italiana Sindacati Autonomi Lavoratori, Cisal) and the right-wing General Union of Labour (Unione generale del lavoro, Ugl). All the central employers' bodies signed, including those which are traditionally close to the left-wing political parties, such as Lega delle Cooperative (representing some cooperatives), Confesercenti (commerce) and the National Confederation of Artisans (Confederazione Nazionale Artigianato, Cna).

The agreement

The Pact for Italy lays down the guidelines for drawing up 'proxy laws' on the reform of the labour market and the tax system, and on measures for the Mezzogiorno regions. These 'proxy laws' are provided for in the 2002 budget law and will be presented to parliament in the coming months. The objectives that the signatories of the accord intend to achieve are said to be those agreed by the European Council at the summits in Lisbon in March 2000 (EU0004241F) and Barcelona in March 2002 (EU0203205F), according to which 'economic dynamism and social justice should go hand in hand'. A key point of the EU strategy agreed at Lisbon is increasing employment rates (to 70% by 2010), and Italy is the Member State with the lowest employment rate and with the highest regional and gender differences in this rate.

The agreement (whose application will be monitored by the signatories) covers three main issues: incomes policy and social cohesion; 'welfare to work' (including labour market matters); and investment and employment in the Mezzogiorno regions.

Incomes policy and social cohesion

The agreement recognises that the 1992 tripartite national agreement and the tripartite agreement of 23 July 1993 on incomes policy and the bargaining system played a key role in Italy’s ability to participate in EU Economic and Monetary Union (EMU). The social dialogue/concertation practices and the incomes policy resulting from these agreements allowed for the recovery of Italy’s public finances and the control of inflation, the accord emphasises. The government also explicitly recognises in the pact the importance of concertation among the social partners - something which it had previously questioned (IT0201277F) - and states that it considers this method fundamental to achieving the employment and modernisation objectives agreed at the Lisbon EU summit.

The agreement lays down guidelines for tax reform, with tax cuts to be concentrated on low-income families and tax incentives on small and medium-sized enterprises (SMEs). The accord provides for:

• income tax reductions. In 2003 at least EUR 5.5 billion will be allocated to reducing income tax on families earning up to EUR 25,000 per year (which includes the majority of dependent workers and retired people). The average tax reduction for each family will be about EUR 500 per year; and
• reduction and simplification of company taxation. EUR 500 million will be made available to start a reform of the regional tax on company income (Irap), while the rate of corporate income tax (Irpeg) will be reduced by two percentage points. SMEs will benefit from streamlined accounting procedures, in particular as regards calculating valued added tax (Iva). Local taxes on companies will be continually monitored and controlled. The aim of these various measures is to achieve a reduction of the overall tax burden on companies. Furthermore, the government will introduce new tax rules relating to 'thin capitalisation', a system whereby companies are financed more through loan capital than equity capital.

The further details of the tax reform will be discussed by the partners during the preparation of the new budget law.

'Welfare to work'

The pact's section on 'Welfare to work' (Stato Sociale per il lavoro) covers 'all the instruments aimed at encouraging and assisting citizens in entering or re-entering the labour market'- and this includes some of the more controversial labour law and employment issues. The main points are as follows.

• Public employment services. Public job placement services will be reorganised and the rights and duties of unemployed people will be defined. Private placement services will be promoted. The social partners may be involved in the management of placement services through new joint bodies. Before the end of 2002, a 'labour services network' will be set up with the aim of linking pubic and private bodies operating in this area.
• Education and training for employability. The agreement seeks to promote lifelong and permanent learning. The government has launched a reform of the education system, based on the need to establish a closer link between education and work, which will seek to guarantee permanent training to everybody. The duration of compulsory school education or training will be increased to 12 years and will involve a higher level of basic competences (in the areas of languages, technology, mathematics and social skills). Some 700,000 adult education and training places will be offered each year.
• Income support measures for unemployed people. The agreement increases the levels of unemployment benefit and introduces the concept of 'active protection' (tutele attive) which involves 'a strict link between the allocation of benefits and the rights and duties of unemployed people'. Unemployed people in receipt of unemployment benefits will be monitored periodically to verify that they are unemployed, and must obligatorily undergo training programmes. Within 60 days following the conclusion of the new pact, a 'bargaining table' will be organised - involving the government, the regional and provincial authorities and the social partners - in order to examine how to link income support measures with specific training programmes for unemployed people. The pact increases the amount and duration of unemployment benefit. Benefit will be payable for up to 12 months, rather than the current six months, though it may not be claimed for more than 24 months (30 months in the Mezzogiorno) in a five-year period . During the first six months of unemployment, the benefit will correspond to 60% of previous pay, falling to 40% during the following three months and 30% during the last three months of entitlement.
• Reorganisation of incentives. The various incentives for companies to employ specific categories of people will be reorganised. The aim will be to promote the recruitment of long-term unemployed people and women, and to increase employment in the Mezzogiorno.
• 'Temporary and experimental measures to promote regular employment and company growth'. The agreement sets out a number of measures to promote employment growth in companies with 10-15 workers - according to data from the Italian National Institute of Social Insurance (Istituto nazionale per la Previdenza Sociale, Inps), companies with 10-15 workers outnumber those with 16-19 workers by about 70,000 to 20,000. Article 18 of the Workers' Statute provides additional employment protection for workers employed in companies with more than 15 employees - in such companies employers are currently obliged to reinstate workers who have been dismissed, if their dismissal is found by the courts to be unfair (ie without 'just cause' or 'justifiable reason'). In order to avoid the existence of this 15-employee threshold discouraging small employers from recruiting new staff (ie, recruitment that would bring their workforce size to over 15 employees, and thus make them subject to the tighter employment protection rules), the pact provides that certain categories of employee will not be counted towards this threshold. It does not, however, modify the content of Article 18 itself. This technique of 'non-inclusion' (non computo) of certain types of worker when calculating workforce size for legal purposes already applies (on the basis of agreements subsequently enshrined in legislation) to workers on work/training contracts, apprenticeship contracts and employment reintegration contracts, and to temporary agency workers and workers employed under the 'socially useful jobs' employment-creation scheme. The main change introduced by the pact is that certain workers on open-ended contracts will in future not be counted towards the threshold, while previously this exemption applied only to workers on various kinds of temporary contract. The effect of the new provisions will be that the rules which provide for the reinstatement of unfairly dismissed workers will be suspended for three years, on an experimental basis, in all companies that, through new recruitments of workers on open-ended contracts, bring their workforce size to over 15 workers. At the end of the three-year experimental period, the decision on whether or not to prolong this measure will be subject to the joint opinion of the social partners. In order to prevent companies which currently have more than 15 employees from seeking to circumvent Article 18 by cutting their workforce to below 15 employees and then re-hiring staff under the new rules, the agreement provides that the new provisions will not cover any company that employed an average of at least 15 workers in the 12 months before the implementing decrees enter into force.
• Outsourcing. The government had proposed, in order to extend the practice of outsourcing, to abolish existing rules which prevent the transfer of a company's productive activities. The agreement instead updates the current rules in this area, stating that: outsourcing must be carried out respecting the relevant EU rules on transfers of undertaking: and the current legislative requirement that part of a company must have 'pre-existing functional autonomy' in order to be outsourced, will be amended so that this autonomy can be 'potential' and may be acquired during the transfer process. The social partners will negotiate a joint opinion on this subject.
• Income support measures for poor people. Income support schemes of this kind have been launched on an experimental basis over recent years, directly managed by the central state. They will now be reformed and the regions will be entrusted with running them.
• Social dialogue. The government states in the pact its intention to draw up a new Work Statute (Statuto dei Lavori) - a single consolidated source of labour law. For this purpose, a special commission made up of high-level academics will be established to prepare all the necessary materials. The government will start talks with the social partners on this issue by the end of 2002. As regards new rules on arbitration and conciliation related to individual labour disputes - an issue which was included in the government's previous 'proxy law' and was strongly opposed by the trade unions - the social partners are to negotiate and draw up a joint position on this issue. The partners are also to start talks during July 2002 on the issue of social security and protection policies, with the government guaranteeing that social expenditure will not be reduced in the next budget law.

Investment and employment in the Mezzogiorno

Measures to promote the economic recovery of the Mezzogiorno are an important part of the new pact. The parties have agreed the following objectives:

• the economic growth rate in the Mezzogiorno should become 'significantly and steadily' higher than in the rest of Italy;
• the existing 'infrastructure gap' (in terms of transport, logistics, water and energy) will be substantially reduced; and
• investment will be provided, increasing the Mezzogiorno's competitiveness in terms of security, the provision of sites equipped for businesses to move into, and streamlined procedures.

The economic resources to help achieve these objectives will come from:

• the allocation of additional resources in the next budget law;
• an increase in the amount of public expenditure dedicated to the Mezzogiorno, which should average 45% over the 2002-8 period; and
• ensuring that at least 30% of the resources allocated to the public sector in areas such as railways, road and other infrastructure go to the Mezzogiorno.

The pact provides for the following measures to enhance investment and employment in the South:

• implementing 'territorial pacts' (IT9704203F) - ie agreements involving local authorities, social partners and other public and private actors, providing for the implementation of a programme of local interventions to promote development;
• policies promoting the location of production facilities in the South. This includes the negotiation of 'programme agreements' (contratti di programma) - ie agreements on investment involving the competent public administrations (including at local level), major companies, consortia of SMEs and representatives of industrial districts;
• upgrading the agriculture and agro-industry sector and encouraging new models of organisation;
• simplifying procedures to provide businesses with credit, with the involvement of the banks;
• improving infrastructures, including upgrading water supply systems and strengthening and modernising the railway and road systems. On this point, the government confirmed that the construction of a bridge over the Straits of Messina (between mainland Italy and Sicily) would start within 36 months;
• reorganising the vocational training system and in particular higher-technical education and training courses;
• strengthening collaboration between public research organisations and businesses in order to set up a permanent network bringing together science, innovation, industry, commerce and tourism; and
• fighting organised crime. This will include creating a system to monitor tenders procedures, strengthening the information technology equipment of police departments, and confiscating illicit goods and using them for socially useful purposes.

Reactions to the pact

The Pact for Italy has further divided the three main union confederations. Cgil refused to sign the agreement because it believes that:

• the deal will not be able to promote employment and economic development; and
• the agreed text does not cover the issues of young people, illegal work, reductions in prices and tariffs, development policies, industrial plans and strategic decisions.

According to Cgil, the pact takes a 'neo-corporatist approach, tends to exclude all the parties which did not sign it, and is based on weak representativeness'. Cgil wants the agreement to be put to workers for their approval, and has confirmed that it will continue to mobilise against the government's proposals, calling a general strike at the beginning of October.

Cisl's governing bodies have approved the pact and the actions of Cisl's general secretary, Savino Pezzotta, in negotiating it. Mr Pezzotta stated that many trade union demands have been included in the deal, not least the fact that it reaffirms social dialogue/concertation and the current approach to incomes policy. Mr Pezzotta does not believe that it is necessary to submit the pact to a ballot of workers, as suggested by Cgil. The general secretary of Uil, Luigi Angeletti, stressed the importance of the agreement in terms of concertation and recalled that the government had previously been very reluctant to recognise the merits of this approach.

Antonio D’Amato, the president of Confindustria, said that the pact marks a turning point in the direction of reform, combining equity and development.

Commentary

Content of the pact

In terms of its contents, the Pact for Italy is very similar to various 'pacts for employment' (TN9710201S) signed in a number of European countries over the past decade. One novelty in the new pact's employment provisions, in the Italian context, is the new measures for the participation of the social partners in the management of some aspects of the labour market (as occurs in some north-eastern European countries). The pact thus entrusts joint bodies with the management of job placement services and the 'social shock absorbers', and of procedures to help companies 'emerge' from the illegal economy, and 'irregular' undeclared workers to 'regularise' their position (IT0205105F).

On more controversial issues, the agreement has moderated the government's original plan to exclude from Article 18's coverage all workers who were recruited on fixed-term contracts which were then transformed into open-ended contracts. This would have had devastating effects, because encouraging recruitment on fixed-term contracts in this way would have very soon rendered void the protection offered by Article 18. To have prevented this measure - supported both by the government and Confindustria - was a positive result for the trade unions. The changes introduced by the pact, on an experimental basis, concern a less important aspect of workers' protection against dismissal - the company-size threshold above which some aspects of this protection apply. Elsewhere in Europe, such thresholds are varied from time to time, eg as in Germany in 1999 (DE9901291N). Moreover, the approach of not including certain categories of workers in calculating workforce size for the purpose of the application of employment legislation was used in Italy during the 1990s, when trade unions did not oppose it or make it a matter of principle. Furthermore, the solution adopted in the pact does not deprive of this type of protection those workers who already benefit from it.

A very positive aspect of the agreement is the tax reform in favor of low-income families which represents, according to many observers, one of the most significant tax cuts ever decided in Italy. The measures adopted for the Mezzogiorno are also widely regarded as very significant. Even Cgil, which did not sign the agreement, commented in a very positive way on the decisions in this area, which will provide for a coordinated effort aimed at overcoming the development gap between the North and the South of Italy.

However, according to some observers, the government's economic policy is at some risk due to the poor perspectives for economic growth in Italy. GDP growth forecasts have been repeatedly revised downwards, and the slowness of the economic recovery in Europe may jeopardise the government's programmes and the possibility of having the necessary resources to achieve the objectives set out in the Pact for Italy. Indeed, Italy’s current economic situation is such that the government may encounter problems in meeting the requirements of the EMU 'stability pact'.

Relations between unions

Relations between the trade union confederations are very strained. The former peaceful exchange of views has been replaced by a polemical and highly 'propagandist' debate, which has led to the three confederations distorting the contents of the new pact in their comments, in both a positive and negative way. The historical divisions between the unions are at the basis of the controversy, relating to matters such as the link between trade union action and political initiatives, and different trade union cultures (IT9912137F). Cgil has criticised the pact and defined it as 'neo-corporatist', while Cisl and Uil have claimed that that the reasons behind the opposition of the Cgil general secretary, Sergio Cofferati, are more political than trade union-based.

Given the strained nature of relations between Cgil, Cisl and Uil, it will be a long time before they again take a united approach in negotiations with the government. Despite this, the unions are still acting together in terms of day-to-day action at local and sectoral level. Indeed, during July 2002 the three confederations jointly signed some important national collective agreements and called several general strikes at regional level.

Unity will probably recover slowly, even if further divisions are possible over the detailed negotiations on specific issues provided for in the Pact for Italy. Furthermore, the opening of the coming bargaining round in many sectors might lead to further clashes, with possible differences arising over the respective roles of national/sectoral and company/local collective bargaining in pay policy (IT0107193F). Cgil is seeking to increase the importance of sectoral collective agreements in pay setting, giving sectoral bargaining the role not only of guaranteeing purchasing power against inflation, but also of sharing out productivity gains. Cisl, by contrast, favours a decentralisation of wage bargaining, in order to link it better to both productivity and company profitability.

Political consequences

The July 2002 pact and the divisions between the trade unions have had a major impact on the political debate and in particular on the opposition centre-left parties.

The members of the Left Democrats (Democratici di Sinistra, Ds), the largest of the left-wing parties, reacted in different ways. A minority supports Sergio Cofferati and wants him to enter Ds politics at the end of his term as Cgil general secretary in September 2002. The majority, however, fears that the trade union disunity which they see as being caused by Cgil's positions could have negative consequences for the centre-left grouping in parliament, with one of its components, the moderate Margherita party, having expressed support for the Cisl and Uil position.

The centre-left parties also have worries about Cgil's decision to collect signatures to enable it to organise a referendum on revoking the experimental changes to Article 18, once these are approved by parliament (IT0207101N). This might deepen divisions between and among the centre-left parties and trade unions, making the re-establishment of unity, especially as regards negotiations with the government, almost impossible.

Future development will also depend on the approach taken by Guglielmo Epifani, who will succeed Sergio Cofferati as Cgil general secretary in September 2002. (Domenico Paparella and Vilma Rinolfi, Cesos)