National social pact for development and employment signed

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On 22 December 1998, the Italian government and 32 employers' associations and trade union organisations signed a "social pact for development and employment". With the aim of creating employment, the pact will reduce labour costs and the tax burden, and reform the training system. The two-tier collective bargaining structure - national and company/local - defined by the national tripartite agreement of 23 July 1993 has been confirmed, while concertation will be extended to the local level. The reactions of both government and the social partners have been positive.

In the summer of 1998, the Treasury Minister, Azeglio Ciampi, declared that a "social pact" was necessary for Italy (IT9809235F). The experience of the national tripartite agreement signed on 23 July 1993 had demonstrated the importance of "concertation" (consultation and dialogue) in combating inflation. Now, however, the main issue to be discussed by government and social partners was employment creation, said Mr Ciampi. He added that assessment of the July 1993 agreement was also required (IT9803223F).

In autumn 1998, negotiations between the government and the social partners were hampered by tensions among the parties in the parliamentary majority, and in particular between the government parties and the Communist Reconstruction Party (Partito di Rifondazione Comunista, Prc), which supported the government from outside the coalition. It was Prc's opposition to the budget law that provoked the government crisis of October 1998. This crisis was resolved on 22 October 1998 with the formation of a new government headed by Massimo D'Alema and with a parliamentary majority partly different from the previous one.

The social pact

One of the first actions of the new government was to start discussions with the social partners in November 1998 on issues such as the role of concertation, the bargaining structure, and policies for employment. These discussions led to the signing on 22 December of a "social pact for development and employment" (Patto sociale per lo sviluppo e l'occupazione) by the government and 32 employers' associations and trade union organisations.

As regards industrial relations, the social pact in particular addresses concertation and the bargaining structure.

  • Concertation. The pact recognises the importance of involving the social partners in economic and social policy decisions. For this reason, the government undertakes to extend discussion with the social partners to cover not only traditional matters like social policy, for example, but also the transposition of EU Directives, and in particular those issued as a result of social dialogue at the EU level. Moreover, greater emphasis will be given to periodic assessments, especially each spring when the government usually drafts policy statements - for example, in spring 1999 the economic-financial planning document and the National Action Plan for employment, based on the EU Employment Guidelines, will be drawn up. Assessment should concern matters such as investments, employment, wages and Italy's international competitiveness. Finally, concertation should be extended to the territorial level (regions, provinces and communes), given that increasingly broad powers in matters concerning the labour market and social policy have been transferred to local bodies. Discussions between the local government bodies and the social partners should define the procedures and contents of local-level concertation.
  • Bargaining structure. The pact confirms the bargaining structure defined by the agreement of 23 July 1993, which envisaged a two-tier system divided between the national and company levels. As regards incomes policy, when the government fixes the planned inflation rate, which serves as the benchmark for defining pay rises at the national level, it will also refer to the European average inflation rate. The proposals of the employers' associations, which fear that excessive pay increases may compromise the competitiveness of Italian firms, have thus been accepted.

The main measures envisaged to favour employment creation are:

  • relaunching public investment under the provisions of the budget law for 1999;
  • reducing labour costs by providing further tax relief, in addition to the reductions already provided by the budget law for 1999. According to the provisions of the social pact, social security contributions for family allowances and maternity benefits will be paid out of tax revenue and no longer by firms. The fiscal burden on firms will also be reduced, especially in the case of those which undertake investments. As requested by the trade unions, the fiscal burden will also be reduced on workers earning incomes of between ITL 15 million and ITL 30 million per year;
  • compulsory vocational training until the age of 18 will be introduced (IT9812334F). On completion of compulsory schooling, children not intending to continue their studies at upper secondary school will either enter the labour market on apprenticeship contracts or will have to obtain qualifications at vocational schools. Also envisaged is the formal certification of skills. Training programmes for apprentices will also be expanded. Moreover, in order to improve the match between training and work, placements will be organised inside the training and the school system. A fund will be created to finance continuing vocational training programmes (IT9811186N). Finally, the social partners will be required to devise, through collective bargaining, the means whereby any working time reduction should be allocated, at least partly, to training (an example being the "hours banks" which exist in some sectors and firms); and
  • eliminating "underground" work. The government intends to start negotiations at EU level in order to overcome the current controversy on incentives provided to firms to encourage the emergence of economic activity formerly developed within the irregular sector (IT9706207F).

Finally, the social pact states that the government will continue with its reform of the public administration, in particular by simplifying the procedures that still greatly complicate the process of setting up a business, and also delay public investments, with inevitably damaging effects on the economic system.

Whereas agreement between the government and the social partners on issues like concertation and training was reached relatively rapidly, negotiations on the bargaining structure and reducing labour costs and fiscal pressure proved more difficult.

Discussion on bargaining structure saw sharp conflict not only between the employers' associations and the trade unions but also internally among the latter. While the employers' organisations were sceptical about the viability of a two-tier bargaining structure - also on account of the fact that the inflation rate which is used to determine national-level wage increases is very low - the clash within the unions centred on the importance to be assigned to each of the two levels of bargaining.

As far as reducing labour costs and fiscal pressure were concerned, the unions argued that the advantages should not be restricted to employers alone, and that they should be enjoyed by dependent workers as well. Further problems were the consequences that these measures might have on the public debt, and finding ways to finance benefits previously paid for by employers. Indeed, controlling the public debt has become a priority since the process of EU monetary unification began. Financial cover will be mainly guaranteed by measures against tax evasion, which had already achieved good results in 1998 and will be further intensified in 1999.

At the time of writing in January 1999, the employers' associations and the trade unions had begun consultation of their members on the social pact, with the aim of achieving the definitive signing of the agreement towards the end of the month. On the political side, in mid-January the social pact was approved by parliament. The government expects to implement its provisions shortly.

Reactions of government and social partners

Positive comments on the outcome of the negotiations between the government and the social partners have been forthcoming from all the parties concerned.

According to the government, the dialogue with the social partners was not restricted to assessment of the agreement of 23 July 1993 alone, since it also addressed the policies to be pursued in the following months. Action by the government will concentrate on economic growth, employment creation and modernisation of the state. The government has also emphasised the importance of obtaining the consensus of the social partners when economic policy decisions of major importance are taken.

On the employers' side, Confindustria has stated that the aim of the social pact is to reduce labour costs and fiscal pressure. These, it has long maintained, are among the principal means of creating employment.

For the employers' associations in the commerce, crafts and agriculture sectors, the agreement will give buoyancy to the economy. While stressing the positive results achieved, these organisations argue that when the pact is implemented, its benefits in terms of reduced labour costs should accrue to all firms regardless of size. It is particularly important not to penalise small firms, which have a different labour cost structure from large ones and might benefit to a lesser extent from the relief on contributions envisaged by the social pact.

Finally, the Cgil, Cisl and Uil trade union confederations have pointed out that the social pact defines economic policy measures that they have been advocating for some time. The unions have reacted positively to: the recognition accorded to the role of the social partners through concertation; the confirmation of a bargaining structure that has helped to reduce inflation and protect wages; and the central importance given to training. It is to be hoped, the unions say, that firms will now begin to invest again.

Commentary

The 1990s have seen growing concertation between the government and the social partners in Italy. While previous agreements have mainly concerned reform of the welfare state (in 1992, 1993, 1995 and 1997 - IT9711315F) and incomes policy (in 1993), concertation is now shifting to employment creation, which is currently an economic policy priority in Italy in view of the country's high unemployment rate.

The involvement of the social partners in economic and social policy decisions is becoming increasingly common in Italy, a country whose industrial relations have traditionally eschewed a model of this kind. A significant aspect of the social pact is precisely the importance given to concertation and the intent expressed to extend it to the local level.

The contents of the budget law for 1999 underline that the instruments to create employment are public investment, training, and reducing the tax burden. These combine with the measures envisaged by the "pact for employment" of September 1996 (IT9702201F), resulting in a mix of Keynesian policies and supply-side measures. It is in the latter area that the social pact intervenes most decisively. Indeed, besides training, the emphasis is placed on reducing labour costs and the fiscal burden, measures which should foster the revival of investment by firms.

The agreement has confirmed the bargaining structure defined by the accord of 23 July 1993. In this area, the innovations that many expected before talks began have not been introduced. On the other hand, as stated above, assessment of the 1993 agreement was one of the most controversial items on the agenda. Thus a policy of letting matters stand as they are has prevailed. It should also be borne in mind, however, that the committee of experts appointed to assess the July 1993 agreement had passed positive judgment on the existing bargaining structure, albeit proposing a number of modifications (IT9803223F). (Marco Trentini, Ires Lombardia)

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