Dualism in Italy and Contratto Unico Pietro Garibaldi, Collegio - PowerPoint PPT Presentation

Dualism in Italy and Contratto Unico Pietro Garibaldi, Collegio Carlo Alberto, Università di Torino Tito Boeri, Università Bocconi and Fondazione Rdb

Outline • Youth unemployment and poverty over the crisis • Dualism in italy: a structural problem among youth (and not only) • Exit Stategy: Il Contratto Unico and other key reforms

How larger is the relative poverty risk among unemployed and dual workers? Grado di rischio relativo % capofamiglia a rischio povertà/ % capofamiglia nella popolazione +12 times the 12 average 10 8 6 4 times the average 4 2 1 Fonte: Elaborazioni su dati Banca d’Italia

How more likely is being unemployed among the youth? Rapporto tasso disoccupazione giovanile (<25 anni) e totale Luglio 2009 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00

Unemployment risk among the youth increased during the recession… Rapporto tasso di disoccupazione giovanile (<25 anni) e totale (variazione in punti base, 2008 - 2009) 0,30 0,20 0,10 0,00 -0,10 -0,20 -0,30 -0,40 -0,50 -0,60 -0,70 -0,80

And in 2009 is larger than in 1993 Rapporto disoccupazione giovanile (<25 anni) e totale 3,5 3 2,5 2 1,5 1 0,5 0 1993 2009 (luglio)

It is not about demography: coohrts in entrance are small % giovani/popolazione totale 1,70% 1,50% 1,30% 1,10% 0,90% 0,70% 0,50% % 20y/pop % media 15-25y/pop

Not only hiring freeze. Youth lose their jobs • Between april 2008 and september 2009 781.000 job were lost (excluding immigrants). Mainly among workers below age of 40. • Fixed Term Contract: – 257.000 (-11%) • Contratti a progetto (e co.co.co): – 42.000 (w.r.t. 2008) • Independent Workers (partite IVA?): – 385.000 • Hiring (mandatory notification): -30% • Youth unemployment: from 18% in Q2 2007 to 27% in October 2009.

Youth unemployment has long term conseuqences • Ellwood (1982): poor start induces lower lifetime wages and lower employment opportunities – Mroz e Savage (2006): unemployment at 22 implies earning 30% lower at 25. . At age 30-32 below -2-3% – Kletzer and Fairlie (1999): lifetime wages lost over the lifetimes 8% for men and 13% for women – Gregg and Tominie (2001): wage losses 13-21%. Del 9-11% if unemployment does not return. • Arulampalam (2001): increase in risk of new job losses • Bell and Blanchflower (2009) von Wachter (2009): health effect 20 years after

Outline • Youth unemployment and poverty over the crisis • Dualism in italy: a structural problem among youth (and not only) • Exit Stategy: Il Contratto Unico and other key reforms

Labor market entry below age 39: 70 percent in the dual market Women Men Total 32.32 31.99 32.09 Regular Open Ended Fixed Term 1 42.66 39.73 41.08 Dual self employed 2 10.35 5.81 7.86 Professionals 3 14.72 22.46 18.9 100 100 100 Note: Entrate come prima iscrizione all’archivio INPS 1. include CLF apprendistato, Stagionale e Interinale 2. Collaboratori Coordinati e Continuativi 3. Lavoratori Autonomi e Amministratori di società Fonte: Berton e Pacelli (2007) e elaborazione su base dati Whip

Size of Dualism • It is not trivial to estimate the size dualism • Estimate range between 14 and 17 percent of • the workforce. • Beyond temporary workers (approximately 12 percent). – Involuntary part time – Workers independent in the books but dual de facto (co.co.pro; partite iva)

Once in the market, how easy is to graduate to the primary market? Matrice di transizione (anni 2004 e 2005) Condizione 2005 Co.co.co Condizione Libero Tempo . e Tempo prof.sta Disoccup 2004 INDete prestaz. Inattivi Totale DETerm ati e in rm. occasion proprio ale Tempo 94.27 1.12 0.11 0.76 2.46 1.30 100 INDeterm. Tempo 11.36 69.31 1.39 1.48 8.30 8.17 100 DETerm Co.co.co. e 5.12 4.36 77.72 2.69 6.16 3.98 100 prestaz. occasionale Il 40% di co.co.co. e co.co.pro. dichiara che non vi è alcun progetto dietro il contratto (II trim. 2009) Fonte: ISTAT, Indagini sulle forze di lavoro

Lower Salaries • Istat Q2 09: workers on a fixed term earn on average 350 euros less than those on a open ended contract. • Taking into considerations difference in age, gender, education, the difference is about 25%, in other words, workers on a fixed term contract earn, other things equal, a quarter less than who has an open ended contract

How more likely is professional training in the primary market? Formazione sul posto di lavoro (under 30) 100 80 60 40 20 0 Regno Unito Irlanda Spagna Germania Danimarca Lussemburgo Belgio Francia Italia Finlandia Grecia Portogallo Austria Paesi Bassi tempo indeterminato tempo determinato Fonte: Dati ECHP

And lower return on education for dual workers rendimenti dell'istruzione su reddito annuale da lavoro 160% incremento % cumulato del reddito 140% 120% annuale da lavoro 100% 80% 60% 40% 20% 0% 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 anni di istruzione Tempo Indeterminato Tempo Determinato Fonte: Elaborazioni su dati Banca d’Italia - Indagine sui Bilanci delle Famiglie Italiane (2006)

Outline • Youth unemployment and poverty over the crisis • Dualism in italy: a structural problem among youth (and not only) • Exit Stategy: Il Contratto Unico and other key reforms

Exit Strategy: tre key reforms • At time of entry in the Labour market : open ended contract with employment security increasing with tenure • Once in the labour market: minimum wage • At time of exit : unemployment benefit regardless of the contract

The Rationale of the Reforms • Establish Minimum standard to apply to any labour contract – New contracts allowed only if coherent with such minimum standard • Set a cursus honorum toward stability

Balancing two forces • Let firms enjoy flexibility at entry. On the labour demand side, firms benfit from a labour market where sperimentation is allowed • Set a well defined path to stability for workers, through a long run entrance with an open ended labour contract term

The “cursus honorum” • Differentiate entry through experimentation from genuinly fixed term jobs • Open ended contract with two phases: – Entry Phase (up to the third year) – Stability Phase (from third year onward) • Fixed term contract and de-facto dual workers (yet self employed in the books) only with high salaries 21

“Contratto unico”: open ended with increasing security • Entry phase : the worker has the right to severence payments proportional to tenure (indipendentely on firm size): dismissal without just clause requires up to six months in severance payments (5 days of severance every month). Entry phase lasts three years • Stability phase : existing legislation (for dismissal without just clause: reinstatement right in firms above 15 employees and six months severance in small firms) 22

Increasing Protection N ORMATIVA A TTUALE Giorni di indennità 3 6 9 12 15 18 21 24 27 30 33 36 Durata mesi 23

Fixed Term Contracts • Seasonal workers, substituting temporary vacancies • In general allowed for “well paid jobs”. We should not worry of job security for high income workers • Firms who hire on fixed term and later convert into contratto unico , will forgo entry phase • Higher unemployment benefit contribution for fixed term contract • Fixed term contracts only for genuily temporary jobs 24

Self Employed in the books…. but dual workers de facto • Self employed workers receiving labour income from only one employer are allowed only for high incomes • As for fixed term workers, higher income is a self insurance scheme agains dismissal risk • Social security contributions progressively in line with those applied to regular workers (today self employed have [27%] against 33% of regual workers)

Minimum Wage • Unique Hourly wage with automatic adjustment for : – workers between 16 and 18 years old – older than 18 and younger than 24 – cost of living at the macro-region level (Istat) • Minimum wage adjusted over time by a “Parliamentary commission on law salaries”

Jobless workers not much helped Unemployment Benefit Five-year average 80 70 60 50 40 30 20 10 0 Labor Force Survey in Q2 2009 shows that only 9,7% of the unemployed workers with work experience was covered by one of the existing form of unemployment benefit (indennità ordinaria o indennità di mobilità). Fonte: OECD Employment Outlook 2009

Unique unemployment benefits Reorder and extend coverage of unemployment benefits – Unique universal program . Minimum contribution period (e.g. 60 days) and duration of coverage linked to contribution – Level: 65% last wage during the first six months, 55% from the 6° to the 18° month, than flat subsidy (eg. 500 euros per month) – Keep existing program on temporary layoffs CIGO. During the crisis also CIGS (for restructuring firms) – Other programs only on a volontary basis (self financed from firms or workers at the industry level)

Why reform now both entry and exit? • Firms hire also in recession. In light of uncertainty, they will tend to hire only on a temporary basis • This is what happened in Japan and Sweden during the ’90. We can not lose an entire generation of workers • Dualism = less training