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Apr 12, 2012 | 12:45 GMT

5 mins read

Italian Unions and Economic Reforms

FILIPPO MONTEFORTE/AFP/Getty Images
Summary

The Italian government has presented labor law reforms that seek to increase labor market flexibility by making the dismissal of employees less costly for companies. Although the law will be approved with the support of the major parties, unions were able to modify the initial proposals, showing that the Italian unions are among the most powerful in Europe, unlike other countries such as Spain and Portugal where the unions failed to influence the legislative process. The pressure from such influential unions will slow Italian Prime Minister Mario Monti's reform momentum in the second half of 2012.

Under Italy's current law, a company could be forced to rehire a laid off worker and pay lost earnings if a judge rules the layoff was unjust. Monti's original plan was to abolish this system altogether and establish that employees could only receive compensation if they were fired. After the pressure from the unions, especially the powerful Italian General Confederation of Labor (CGIL), which includes the particularly combative Federation of Metal Workers, the proposal was tempered to permit the worker to be reinstated if the reasons for a layoff are found to be "manifestly nonexistent." This demonstrates the influence of unions on the political process — a critical factor at a time when market pressure seems to be returning to Italy. The draft bill will now be submitted to Parliament, where further amendments are likely to be put forward.

The Power of Italian Unions

Unions are key players in Italian politics, often expressing their views on economic and social issues beyond labor. In the past, the firm opposition of the unions managed to stop other labor reform projects, especially those promoted by former Italian Prime Minister Silvio Berlusconi.

The power of the unions rests on two pillars: strong membership and links to political parties. Italy is one of the few European countries where union membership has remained stable over the last 20 years, thanks in part to the administrative reforms undertaken in the 1990s that included changes to the voting system and a rapprochement between the three main trade union confederations. According to the Amsterdam Institute for Advanced Labor Studies, more than 12 million Italians are in unions. Half are active workers, while most of the rest are retired; in Italy, both retired people and students are allowed to be union members. Italy's biggest confederations of trade unions are the CGIL (5.5 million members), the Italian Confederation of Workers' Trade Unions (4.5 million members) and the Italian Labor Union (2.2 million members). About 30 percent of the Italian workforce belongs to a union — a high percentage by European standards and one that is only surpassed by the Scandinavian countries.

In addition to strong membership, Italian unions have close ties with left and center-left parties, such as the Democratic Party and the various socialist and communist parties, of which most union leaders are members. It is common for union leaders to become politicians; some are elected to Parliament and even appointed to ministerial positions.

This explains the strong influence that unions have in the Democratic Party — the main social-democratic force in Italy, the second-largest party in Parliament and a key supporter of Monti's technocratic government. In fact, the whole process of labor reform put the Democratic Party in a difficult situation. The party wanted to support the Monti government and its proposed reforms but was under strong pressure from the unions to oppose those reforms. As a result, the party gradually increased its criticism of the labor law until changes were made.

Other Unions in Europe

Italian labor unions have been more successful recently than their counterparts elsewhere in Western Europe. In the first quarter of 2012, labor unions in Spain and Portugal failed to influence their governments as the two countries reformed labor laws.

In January, the Portuguese government succeeded in dividing the unions and passing labor reforms without major setbacks. Portuguese Prime Minister Pedro Passos Coelho's government won the support of the General Union of Workers (UGT), Portugal's second-largest union, isolating the General Confederation of the Portuguese Workers (CGTP). Consequently, Portuguese unions managed to organize only small strikes against the government. On March 22, CGTP called for a general strike against the labor reform and the government's austerity measures, but the UGT refused to participate.

In Spain, unions were able to unite and protest labor reform on March 29. However, Prime Minister Mariano Rajoy's government passed the labor reform without having to introduce substantial changes in the text, since Spanish unions are particularly weak, accounting for only 16 percent of the active labor force.

While these recent events show that unions have lost power, they are only part of a long-term phenomenon: union membership across Europe has declined steadily in the past four decades (graphic).

Italian Unions and Future Policy

To a certain extent, Italy is an exception to the European trend of weakening unions, as union membership only fell from 50 percent of the active labor force in 1976 to 30 percent in 2011, less than half of Portugal's decrease in union membership and still a higher percentage than most other European countries. With their powerful political presence, Italian unions oppose substantial changes to social legislation and push for a bigger welfare state, necessarily clashing with any government that is trying to cut spending.

The unions' initial reaction to the Monti government was moderate, calling for minor strikes in response to the austerity measures implemented by Rome. However, the unions' victory in the labor reform process will give them the confidence to push Monti to soften his austerity policies and allow more state spending and the design of measures to create jobs. Therefore, unions are expected to be more vocal with their criticism of new taxes or spending cuts. Unions will also feel confident to call for new protests in the summer, especially if the seasonal employment sector contracts and Italian youths cannot find enough jobs.

The unions' pressure on the left and center-left parties can affect those parties' support of the Monti government and make the process of economic reform in Italy more difficult in the coming months. This domestic pressure is likely to push Monti toward the pro-growth approach that he recently has been discussing and away from the pro-austerity German approach to the crisis. This shift in policy could raise doubts in the markets about the Italian government's ability to implement reforms, further complicating the already challenging process of strengthening austerity measures to combat the eurozone financial crisis.

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