I recently came across an interesting article with the title Dangermen – Labour reform in Italy which laid out the many challenges the new Italian prime minister Mario Monti has to face. One of the most pressing problems is the unacceptable high unemployment rate among young people (15-24 years old) which is above 30 percent in Italy with Portugal, Spain and Greece performing evenly badly or worst (see link for graph). He is pushing for reforms to make the labour market more flexible and to encourage companies to take on new employees. This won’t be easy. He is up against all sorts of interests that benefit from the status quo and therefore seek to preserve it.
I am generally not in favour of what has been coined ‘hire and fire’ policies, but one has to appreciate the risks that come with hiring new people. If an employer cannot adjust his cost base to changing circumstances (labour costs are a big chunk of it specially for small and medium size companies), he will simply ask his existing staff to put some overtime in instead of taking new employees on. This reasoning hits young people without experience hardest because they they will never get their feet in the door to gain these valuable working experiences which in turn lower their future employment prospects further.
Labour reforms once introduced will weaken the protection of existing employees. Employment generally will become less secure. Salaries may also drop because of more competition. These are significant downsides, don’t get me wrong. But we need to get young people off the streets and into work. If those reforms help to achieve this I would be happy to get along with them.