Italy’s Labor Pains

Businessweek has just published my essay on Italy’s tortured labor market.

If you want to know which of Italy’s many problems is the most daunting, look no further than the first sentence of its constitution, written in 1947, which describes the country as “a democratic republic, founded on labor.” That foundation has begun to crumble. Italy’s economy can no longer afford the generous benefits it showered on its workers in the 1960s, when the country grew 5 percent to 6 percent a year. Measures put in place years ago to protect workers aren’t just slowing down the economy now, they’re perversely hurting the very workers they’re meant to protect.

How serious is the labor issue? Start with the country’s 2,700 pages of opaque and capricious labor laws. The laws are so unclear that many dismissals of workers end up in the country’s dysfunctional court system, where if a judge decides a worker was let go unfairly, he will likely rule that the employer has to reinstate him with back pay for the time he was gone. “When an investor asks about severance costs, all the other countries can provide an answer,” says Pietro Ichino, an Italian senator and professor of labor law at the University of Milan. “Italy can’t.” Duccio Astaldi, president of Condotte, one of Italy’s largest construction companies, says the difficulty of firing often prevents him from hiring when times are good. “It’s easier for me to get rid of my wife than to fire an employee,” he says.

Read the rest.