Sentences to ponder

…when Prime Minister Mario Monti remarked that having a job for life in today’s economy was no longer feasible for young people — indeed, it was “monotonous” — he set off a barrage of protests, laying bare one of the sacrosanct tenets of Italian society that the euro zone crisis has placed at risk.

Reaction was fast, furious, bipartisan and intergenerational. “I think the prime minister has to be careful with the words he uses because people are a little angry,” Claudia Vori, a 31-year-old Rome native who has had 18 different jobs since graduating from high school in 1999…

This point is not irrelevant:

Debate has been especially intense over Article 18 of the 1970 Workers Statute, which forbids companies with more that 15 employees from firing people without just cause. The unions say that line cannot be crossed.

The article is here.  How many years does it take to a) undo this, and b) have it kick in as a positive for growth?  This again also gets back to the question of why Germany does not wish to pay for everything.  By the way, is anyone writing a behavioral economics piece about how “crisis fatigue” increasingly is shaping eurozone policy?

Comments

Do you actually want them to 'undo this'? Remake Italians, Greeks and others to be Germans-lite? The Russians say 'what's good for a Russian is death for a German', and I suppose this works just as well in other directions. "One can teach a bear to ride a bicycle, but will it be beneficial or pleasant for the bear?"

Monti was an academic speaking about tenure reform.

Don't the Germans have pretty much the same law?

I was going to the say the same thing.

Are the laws truly that different between successful and non-successful European economies, or is it something more cultural in terms of work ethic and a natural national tendency toward laziness and criminality?

Different peoples need different laws. German laws applied to Italian populations may not be an optimal result.

Actually Italian laws are pretty weird.

On one side, they don't oblige the firm to pay any kind of compensation upon firing. Severance pay is due to the country pension funds, INPS. If you check for example the OCSE table about employment protection, Italy is among the least protected in Europe, in the ranking about protection of contracts unlimited in time. In almost all countries in Europe, firms have to pay 8 to 16 months of wage after firing an employee.
http://www.oecd.org/document/11/0,3746,en_2649_37457_42695243_1_1_1_37457,00.html

On the other side, Articolo 18 allows any employee to bring his firing in front of a Judge. This isn't just in cases of discriminations: that kind of law is available everywhere in Europe, but it's usually the fired guy that has to prove the discrimination. In Italy, it's the employer that has to prove the rightful cause. It has to prove that he couldn't keep him working, or that he was working "bad enough" to justify a firing.

Now add to the balance that a job-related sentence is due in 3 to 6 years in Italy and that, if the employee win, the employer needs to pay him also for those years. And then set him in the same position or, if the employee prefers, pay him 15 months of wage more to quit. Therefore in Italy there is an obvious problem of uncertainty. Firing an employee is a very risky action, could cost you zero or up to 90 months of wage, six times more then any other European country.

What Monti and the Unions are arguing now is to move to something less risky for both parts. Restricting Articolo 18 to discrimination cases and make firms pay for some sort of safety net, like in other European countries, after firing the employee, until he's able to find a new job. This kind of arrangement could probably make both Unions and Confindustria (Employers Union) angry, so it is a good solution, I guess.

Germany has similar laws and they in reality don't prevent a company from firing anyone, unless the firing is discriminatory.
If you have more than a minimum number of employees, you have to have a sufficient reason to lay off staff. Economic and business developments are sufficient reason. The labour courts of course uphold a company's right to make strategic and business decisions and to close certain offices, branches, lines of production et cetera.

The German Hartz reforms seem to have been a positive from basically the day they were put in place.

If by "positive" you mean reducing the facial amount of unemployment, then yes. On the other hands most of the employment gain was in "minijobs" paid a few EUR 100's per month. Poverty has actually been on the rise.

Is that all the econ profession can come up with ?

I'm sure tired of thinking about the whole Eurozone Crisis. I think I'll take a break and focus on something easier to solve like Israeli/Palestinian Peace.

I thought the answer was "have the ECB promise to print as many euros as it takes to meet debt obligations".

Debt obligations of the Israelis or the Palestinians?

Great comment!!

Well, that is why I think this crisis will be the end of the welfare state. The debate on labor laws and benefits will spread throughout Europe and in the end even the 'successful' countries will have to change their laws. That is at least the only way I see this working at all. Otherwise we will continue to have this state of revolt in all countries that need to change their laws (if it is bad in Greece you can only imagine what would happen in say, Spain).

This shows in my opinion the true cost of socialism. When laws need to be changed, people revolt because they are so used (and dependent) on the state. Here in the US we are going through a major de-leveraging and you can see just how much easier (albeit still very painful) to get private individuals to do so when compared to government.

The only other way out of this is by major sovereign defaults and that is no party either.

Also, the US has no tradition of popular revolt. The American Revolution was prosecuted by subordinate governments against the British monarch. The Civil War was likewise a contest between sovereigns.

I bet things would be pretty interesting in Europe right now without the US/NATO.

Kipling, “The Gods of the Copy Book Headings”: “The brave new world begins, when all men are paid for existing and no man must pay for his sins.”

The problem is not the law, but the judge that is called upon to apply it.
Most judges in labor causes in Italy are clearly on the side of the "poor worker" who got fired. Never mind that he was stealing from the company, firing him wasn't legal because there was no right reason (most common excuse in such cases is that the damage for the worker for being fired is much bigger than the damage he gave to the employee from stealing, so there is no right to fire him because the act is disproportionate).
That is where the true problem is: that judges make a very restrictive interpretation of the law, so that firing is almost impossible because judges always deny the existence of a "right cause" for firing.
Anyways, many in Europe seem to follow the idea that rules are valid anywhere. I recall there is a long tradition in the law&economics school that says that, instead, rules are often the results of specific local factors. If it is so (and I believe it is so), Europe is going on a wrong route...

The problem is always the law.

Only the marginal worker goes to the judge, the one that believes to be right but it's not THAT sure. If that wasn't the case, there wouldn't have been a lawsuit. Either he would have accepted the firing or he wouldn't have been fired. And statistics are pretty convincing in this direction: an articolo 18 lawsuit is a 50-50 thing (around 55% of lawsuits go in favour of the employee). And there are really a few of them, around one thousand per year. Mostly is a deterrence thing, judges aren't even involved.

It's not how the suits are ruled, it's the fact that they will be ruled. It's the fact you can't fire someone if you can't prove in front of a judge you had a good reason to do so. There are judiciary problems making the issue worse (particularly about the length of a suit), but again they are related to the ridiculous Byzantinisms of Italian laws, not to single judges.

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A social note for non Italians, to explain Mario's sentence:

in Italy, since we had our former right-wing Prime Minister
- being under trial for different issues since the 80s,
- changing the laws to avoid persecution and
- using his media to cover it (maybe you have heard of him, Mr Berlusconi)
we had a weird social transformation.

Right wing people to vote for Berlusconi had to believe the judge is always at fault (not all the voters, many moved to local, center or extreme right parties). That's why, on the contrary of most other countries in which the conservative parties are corruption basher and generally less loose on crime, in Italy right wing people blame persecutors, judges and so on, and they generally approved laws aimed to make their work harder. For example right wing voters asked for a law to make more difficult for the police to bug phones and to forbid to normal people to record conversations (this was after a couple of girls sent Mr B recorded sexual advances to newspapers). Most voters were also happy when a law removed a lot of crimes related to accounting forgeries.

There are many of this strange inversions for the same reason. For example there are statistics showing right wing people are more forgiving toward under-age prostitution then left wing ones. I think there aren't many other nations in which this is true.

Another set of Italian peculiarities for Mario Monti to normalize :)

Yawn. It should be clear by now to everybody who calls himself an economist that even with the stricktest laws on firing inter job mobility if fairly high, as people pursue 'job hopping', as companies end, as even the stricktest countries have 'temp[orary' jobs and whatever.

For the Netherlands, consult these data: http://www.cbs.nl/NR/rdonlyres/0AF6DD41-635A-4D30-A96F-5A2C9E54D8CD/0/2011k2v4p63art.pdf Even the Centraal Bureau voor de Statistiek, usually over-cautious, started the press release of this article with a sentence: "job mobility in the Netherlands is much higher than generally assumed". And hey, wasn't job growth in Europe until about 2010 much higher than in the USA, where firing was much easier (yes, I checked and rechecked these data: job growth in the USA has been dismal, post 1998)?

Contrary to Anglo-Saxon mythology, managers do not know best. Giving them more leeway to hide their mistakes by firing people does not really seem to enhance the economic resilience of a modern economy - it just will raise unearned incomes. Why this weird Anglo-Saxon admiration of "managers"?.

"Contrary to Anglo-Saxon mythology, managers do not know best. Giving them more leeway to hide their mistakes by firing people does not really seem to enhance the economic resilience of a modern economy – it just will raise unearned incomes. Why this weird Anglo-Saxon admiration of “managers”?

Your logic is so backwards. By facilitating the hiring/firing we are only acknowledging that managers don't know best - especially when hiring! If you think that firing people is the best way to hiding your mistakes I can only assume that you never managed anyone. It is painful to hire new people and it makes your job as a manager a lot harder.

Slow job growth in the US has nothing to do with loose labor laws - quite the opposite. And on top of all of that, look at the productivity gap between Europe and the US. That has been increasing in the last few decades.

"Contrary to Anglo-Saxon mythology, managers do not know best. "
I have been an employer in the Netherlands, unlike Merijn Knibbe. He is right that managers are not always right, that is why they can be fired like any other employee.

Only if all other options were exhausted would I hire someone - once hired labor contracts make it almost impossible to get rid of someone. Temp agencies, like Randstad, are almost always the best option, because they allow the addition of labor that can be let go if it does not work out, while even a temp contract made it hard to fire unsuitable employees.

Unsurprisingly, the second largest temp agency in the world is from the Netherlands, Randstad (~$31B gross), they do good business there.

I spoke to an Italian coworker of mine about this (anecdotal evidence, I know), and apparently, due to the risk to the company in firing people, it is now very common usage to have more or less short term contracts, and simply let them expire, alternatively use very long duration "Temps". In 2004 a law came into effect that allowed for "Staff leasing", basically allowing companies to "lease" employees on an open-ended basis, negating the risks of taking on permanent employees in exchange for a premium paid to the temp agencies.

As Emanuele said, Italian laws are pretty weird.

http://www.eurofound.europa.eu/eiro/2004/10/feature/it0410303f.htm

Actually, the bulk of Italian economy is made of very small companies with less than 15 employees. So a great deal of Italian workers is already outside the protection of Articolo 18. Plus you have to add all the unofficial workers, the ones without a contract. And then you have to add all those workers, usually the young ones, with very and ultra flexible contratcts, the same ones who are likely paying retirement benefits without being entitled to a retirement rent, the same ones without holidays and illness benefits. There's of course a share of workers and retired workers who enjoy better job protections because of the strong defence of unions.
While I agree about the need of a system with more homogenous basic conditions for all workers, which is the principle Monti is working on, at the same time I don't think Germany is the homeland of uberflexibility and that this is a key difference between the performance of these two countries.
Small Italian companies can be flexible, competitive, export oriented and effective even when dealing with super German big companies.

Claudia was 13 years old when she graduated from high school?

Discussing this very issue there when I was responsible for certain U S operations in Italy, The best counter I could come up with was to suggest that as a matter of fairness and balance, no employee could leave such an employment arrangement except through a "buy-out."

I agree with Mr Monti, it would be boring to have the same job for life.
Heck, I can't even stand to live in one country for more than 2 years.

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