Proposal for reform of the welfare state

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On 5 March 1997, the Italian Prime Minister, Romano Prodi, informed the political parties and social partners about the report drawn up by the "Commission for macroeconomic compatibility of social expenditure", a committee of experts established by the Government and chaired by Professor Paolo Onofri. The proposals for reform deal with all the key elements of public spending: healthcare, public assistance, and, of particular interest for the industrial relations system, pensions and labour market policies. This document drew critical reactions from the trade union confederations, while the evaluation from the Confindustria employers' confederation was fairly positive.

The context

The Italian public social expenditure system differs from those of other European countries, not so much because of the amount of expenditure in relation to GDP, but because of its composition. In fact, social expenditure as a whole accounts for about one-quarter of GDP, a percentage similar to the average recorded by the EU in 1994 (according to Il Sole 24 Ore, 5 March 1997). In Italy, however, 61.5% of such expenditure is constituted by pensions, against the average of 45.3% for the EU. By contrast, other items - such as expenditure for protection against the risks of unemployment, or aid to families and maternity leave - amount to much less than in other EU countries (18.4% against 31.9%). The reform strategy drawn up by the "Commission for macroeconomic compatibility of social expenditure" (the "Onofri Commission") basically foresees a social expenditure structure comparable to the European model; this would entail reducing the resources allocated to pensions and increasing expenditure to develop "social shock-absorbers" and active labour market policies in order to sustain employment mobility and to protect against the risk of poverty.

The Commission's key proposals

  1. Pensions system. The Commission basically confirms the validity of the social security system reform negotiated in 1995 by the trade unions with the Government led by Lamberto Dini. The Onofri Commission underlines, above all, the need to pursue the objectives defined by the previous reform in a shorter time than that originally stipulated.
  2. Expenditure for labour market"outsiders". The most important new proposal in this area is the introduction of a new benefit (referred to as "vital minimum") aimed at facilitating the reintegration of outsiders - such as young unemployed people, or those in the clandestine economy - into the labour market. This benefit would be subject to an assessment of family conditions of real need and should be temporary.
  3. The healthcare system. The Commission stresses the need to pursue full implementation of the reorganisation of the national healthcare system, decided in 1992, along the lines of a strong decentralisation of the system, by delegating authority for the definition of hospital activities to the Regions .
  4. Labour market policies. The main point of this chapter concerns revision of the present system of "social shock-absorbers". This proposal foresees the institution of a three-tier system of benefits:
    • benefits in the event of temporary lay-offs, where the employment relationship is preserved. These benefits should replace the present ordinary Wages Guarantee Fund and be based on an insurance-type financing scheme;
    • unemployment benefits for workers who lose their jobs. The current forms of unemployment compensation - the "special" Wages Guarantee Fund (Cassa Integrazione Straordinari) and compensation for "external mobility" - should all be included in this policy;
    • "vital minimum" benefits (see point 2 above), when a person no longer qualifies for the previous types of benefit.

The report also foresees that the abovementioned three types of benefit should be integrated with active labour market policies, by strengthening vocational training and especially further training. Furthermore, labour market policies should be backed up by an efficient employment services system. An employment services reform is proposed which would end the public monopoly in employment services, and specialise and diversify its activity by introducing information, orientation and counselling services.

The reactions of the social partners

The most innovative points of the document are its proposals on expenditure for labour market "outsiders" and on labour market policies. The debate has only just begun, but the initial reactions of the social partners have revolved around these themes. The trade union confederations expressed extremely critical evaluations on the Commission's proposals. Although taking slightly different stances in relation to the individual themes, the unions demonstrated that they do not share the basic ideas of the reform proposals, emphasising, above all, the cutbacks in social expenditure, which they judge to be unacceptable. By contrast, Confindustria, in the statements made by director Innocenzo Cipolletta (reported in Il Sole 24 Ore, 5 March 1997), expressed a generally positive opinion about the spirit of the reform proposals, though expressing some doubts on the implementation of the "vital minimum".

Commentary

The Onofri Commission's proposals could change radically the way in which the Italian labour market functions. The labour market has always been characterised by bureaucratic and inefficient public intervention, by scarce investment in training and by a clear-cut division between one group of workers who are well protected and another almost completely devoid of protection in the event of job loss.

The most innovative aspect of the proposals is the elimination of two peculiarities of the Italian system: the special Wages Guarantee Fund, which has assured the relatively few workers in large industries long periods of protection; and the unemployment compensation for all workers which is, by contrast, extremely modest and short-term. The objective should therefore be to introduce income support on a universal basis and divided into two phases - the former of an "insurance" type and the latter of a "welfare" type ( the "vital minimum"). Furthermore, according to the Commission, income support should be connected to vocational reskilling activities and aimed at reintegration into the workforce. Finally, for the first time in a government document (though drafted by external experts), the issue of employment services is dealt with not only at an institutional level, but also by taking into account the human resources needed to implement the new activities. (Simonetta Carpo, IRES Lombardia)

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