Realignment contracts, Italy
The 1990 law on realignment contracts provided for trade unions and employer organisations in the south of Italy to agree on a minimum wage at provincial level (no less than 25% of the national minimum wage and adjusted within three years to 100% of the national minimum wage). It aimed at reducing the burden of tax and social contributions for employers and workers during that period, while not penalising past non-compliance in terms of tax, workplace safety and social welfare contributions.
The south of Italy is witnessing the development of an informal economy, resulting from the crisis brought about by standardised production processes, the failure of economic development policies in the south and finally from renewed international competition. The lack of sustainable economic development in southern Italy persists, despite major intervention policies by the national government over a period of 40 years from 1950 to 1992. Sustainable economic development of Italy’s south also continues to fail, despite a shift in market demand towards quality differentiation of durable goods that has sparked a revival of the traditional, artisan production which was swept away by standardised production processes. This can be seen, for instance, in the garment and leather goods industries producing shoes, handbags and belts, in which Italy’s south traditionally produced high-quality products.
Flexible production processes and a shift in production from the north of the country to the south in the 1980s and 1990s fostered the return of this traditional manufacturing industry. Flexible production mechanisms of high-quality products do not generate economies of scale which are typically based on standardised production processes. Any change in a product line requires an initial cost that cannot be spread over large production volumes. This is why companies must save on other costs. In southern Italy, many companies try to be competitive by hiring informal workers and thereby evading tax payments. In addition, due to a lack of adequate premises, production activities are often carried out in violation of building, environmental, and health and safety regulations.
The informal economy – in which undeclared work plays a major role – results from a complex interaction of economic, social and cultural factors. Multiple interventions are needed to counteract such irregularities. In Italy, many such measures to reduce the amount of undeclared work have been adopted, especially in the southern part of the country, which involved trade unions and employer organisations, entrepreneurs and undeclared workers, as well as local, regional and national government bodies. One of the first measures adopted with the aim of combating undeclared work involved the realignment contracts, which lasted from 1990 until 2001.
Law No. 210/1990 and its subsequent modifications in 1996, 1997, 1998 and 1999 mainly targets workers and employers. The law specifically provides for trade unions and employer organisations in the south of Italy to agree on a minimum wage at provincial level, which should be no less than 25% of the national minimum wage and which must be adjusted within three years to 100% of the national minimum wage. Law No. 210/1990 aims to reduce the burden of tax and social contributions for employers and workers during that period of time, while condoning past non-compliance in terms of tax evasion, safety in the workplace and social welfare contributions. The idea behind this policy is that labour costs are the only cause driving companies to evade the tax and social welfare obligations resulting from national employment contracts. The three-year period and the allowances were considered sufficient to enforce this regulation.
The principal objectives of the legislation implementing the realignment contracts were to:
- move workers from undeclared work to a regular job especially in economic sectors where undeclared work is common;
- increase the visibility of companies and cut down unfair competition;
- regularise fiscal and social situations in terms of social insurance taxes and trade union duties of employers and workers.
Evaluation and outcome
The contract alignment policy proved unpopular in other regions of southern Italy due to some specific characteristics of these informal economies, in particular, a low qualified labour force and irregularities which proved difficult to tackle, such as company premises that did not comply with building regulations.
In provinces where the realignment contract has had more success in terms of numbers of complying companies and workers – such as in the Lecce province of the Puglia region – 40% of companies benefited from the measure. Nonetheless, it has taken a good 10 years in total to achieve an 80% alignment with national labour contracts.
An analysis of the realignment contracts (Bàculo, 2003) performed in the provinces of Lecce and Avellino in the Campania region shows that different results were obtained due to initial differences in labour market conditions and levels of unionisation.
In 2001, realignment contracts were abandoned following a decision by the European Commission which opposed national policy interventions favouring individual areas in a country.
Obstacles and problems
In the Lecce province, 60% of companies did not use the option of realignment contracts and, in this way, they maintained an unfair competitive advantage. Some 40% of businesses which benefited from the possibility of realignment contracts, with national and international competition on the rise, asked the government to extend the ‘grace’ period from three to 10 years. However, this request brought to a halt all innovative aspects of the realignment contracts aimed at improving and increasing the competitive edge of enterprises.
The poor results of the realignment contracts show that the informal economy is often driven not only by labour costs but also by a complex combination of internal and external factors associated with the labour market situation. The internal factors in the different areas include: the availability to businesses of credit, a qualified workforce, the quality of public and private educational institutions, the level of unemployment, the level of unionisation and the perception of state support.
In 1999, some 25,492 workers and 665 companies were involved in the programme, according to the Italian Federation of Workers in the Textiles and Clothing Sector (Federazione Italiana del Lavoratori Tessili e Abbigliamento, FILTA), which is affiliated to the Italian Confederation of Workers’ Trade Unions (Confederazione Italiana Sindacati Lavoratori, Cisl). There is no data available on the estimated costs and benefits of the realignment contracts.
Where labour costs are the sole cause of undeclared work, realignment contracts may be adopted.
In order to successfully tackle undeclared work, regularisation policies have to be tailored to the specific context of implementation, in an attempt to take account of, and valorise, any territorial specificity. In the Italian south, for example, a well-designed regularisation policy should try to increase competitiveness through innovation, while at the same time improving the labour market context and providing more services to enterprises.
The main organisations responsible for the measure are the General Confederation of Italian Workers (Confederazione Generale Italiana del Lavoro, Cgil) and the following two governmental authorities – the National Social Security Institute (Istituto Nationale Previdenza Sociale, INPS) and the Italian Workers’ Compensation Authority (Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro, Inail).
Altieri, G., ‘Sommerso e contratti di gradualità’, Rassegna sindacale, No. 43, 1998.
Bàculo, L., ‘Valutazione di una politica per l’emersione: I contratti di riallineamento’, Rassegna italiana di valutazione, No. 26, 2003.
Baldini, L. and Tiraboschi, M., ‘I contratti di gradualità: dale prime esperienze applicative alla legge 28 novembre 1996, n. 608’, Diritto delle relazioni industriali, No. 1–2, 1997.
Bellavista, A., ‘I contratti di riallineamento retributivo e l’emersione del lavoro sommerso’, Rivista Giuridica del Lavoro, No. 1, 1998.
Liliana Bàculo and Sara Gaudino