Interview: Moderate job growth expected in Italy despite sharp slowdown of permanent contracts: expert

Italy's job market is expected to continue on a moderate growth path this year and the next, despite a sharp drop in new permanent contracts registered in the first quarter of 2016, according to an Italian economist.

"The latest decrease in the number of new open-ended jobs was quite expected, considering the tax break offered to employers hiring on permanent basis in 2015 has now been reduced," Nicola Borri, professor of economics with LUISS University in Rome, told Xinhua.

The provision, which gave firms a consistent fiscal benefit for each new worker hired on permanent contract, contributed the most to boost stable employment last year, according to the analyst.

It was scaled back in 2016, however, and this seemed to be affecting the firms' approach in hiring new staff. Indeed, the number of new permanent jobs in Italy decreased by 77 percent in the Q1 2016 over the same period in 2015, the Italian National Institute of Social Security (INPS) said earlier this month.

Some 428,584 open-ended contracts were stipulated from January to March, and 377,497 were terminated, INPS data showed. The result was a net rise of some 51,000 new permanent jobs, which marked a drastic decline compared to the 224,929 registered in Q1 2015 (over 2014).

Yet, the economist said recent trends in the job market should also be seen in a wider perspective.

"We must not forget Italy's recent history," Borri stressed, saying "The country has just emerged from a very long period of total lack of growth, and the job market has been stagnant for many years."

Considering this, some of the steps registered in 2015 were positive. The jobless rate fell, though moderately, and also among young Italians. The quality of employment improved for some categories of workers, who were entitled unemployment benefits for the first time thanks to the 2015 job market reform.

In April, the Italian government downgraded its forecast for economic growth from 1.6 percent to 1.2 percent in 2016. It also predicted a 1.4 percent growth in 2017, and 1.5 percent in 2018.

"The government's figures are plausible overall, maybe a little optimistic if compared to some major analysts' forecasts ... but the growth path they imagine is more or less the same," Borri said.

"The job market is expected to follow a similar path (of moderate improvement) this year and the next, with unemployment at around 11 percent, or falling at 10 percent in the most optimistic prediction," said the expert.

The 77 percent decrease of permanent contracts in Q1 2016 would just confirm what most Italian economists already knew: the tax break boosted stable work more than the job market reform.

The so-called "Jobs Act" implemented in 2015 increased the market's flexibility, and made hiring and firing easier for private firms.

"When it was introduced, many of us expected it would strongly boost permanent employment in the short term," Borri said. "Since mid-2015, however, we realized the tax break was playing a stronger influence on the companies' strategy towards the new staff to hire."

Regardless to the type of contract, some 1.18 million new jobs were registered in Italy's private sector in Q1 2016, latest INPS data also showed.

Overall, unemployment levels improved since Prime Minister Matteo Renzi's cabinet came to power in February 2014. The jobless rate had reached a 13.4 percent record high, and 43.9 percent among youth, in November 2014.

In March 2016, it fell to 11.4 percent and 36.7 percent, respectively. In both cases, it marked the lowest unemployment level since end-2012.

Nonetheless, the number of jobless people here remained above the European Union (EU) average, especially among young Italians, and the trend change of permanent jobs raised concerns.

A first reaction came from Labor Minister Giuliano Poletti, who last week said the cabinet would consider bringing forward a structural labor tax wedge cut to 2017 to make stable jobs less expensive for employers.

The tax wedge measures the difference between total labor costs to the employer and the corresponding net take-home pay of the employee.

"Permanent contracts in Italy should become some 10 percent less expensive than our various temporary contracts," Poletti said. Endit