For over three years, Western governments have been battling one of the most severe economic crises of the last century. It commenced with the subprime mortgage crisis in the US, Northern Rock in the UK, Lehmans, and now new rumours of uncertainty coming from Europe.
In the midst of all of this, there have also been threats of hyperinflation, deflation and now sovereign debt default. Leaders around the world have been working continuously to come up with appropriate measures to “exit the crisis”. The question is – which one? It is a crisis in continual evolution.
The financial losses registered in 2007, 2008 and 2009 have resulted in a wave of complex business restructurings and reorganisations. These have forced many governments in the West to implement new innovative measures aimed at facilitating and softening the impact of the current prolonged economic downturn. The impact of the crisis on the relationship between employers and employees has also been an important issue as many seek to find the most appropriate measures to minimise the social impact of any necessary individual or collective dismissals.
In Italy, the labour laws do not allow employers to dismiss their employees purely on the basis of the alleged existence of an economic crisis. In fact, according to the Italian Civil Code and Law No 1991/223, in order to proceed with a fair collective dismissal – it is mandatory to provide evidence of a precise link between the consequences of the economic crisis on an entire business activity, that is – including any related overseas head office or subsidiaries, and the specific situation affecting the employees in the local Italian enterprise.
There is also an even higher degree of complexity when the process involves the management and reduction of staffing levels in large multinationals, with thousands of employees spread throughout various countries and continents. In these cases, the main decisions are often taken centrally at a corporate headquarters located in a specific country. However, central decision making for global enterprises has its own risks, especially when one is dealing with not only different languages and cultures – but also a range of diverse national and local laws.
In Italy, prior to implementing a reduction in the workforce – an organisation must provide evidence which justifies and proves, on an objective basis, that the loss of specific jobs, in a particular sector, will have an impact on the existence and survival of the company itself, hence making the reduction compulsory.
The loss of skills
In this new – should we say ‘post Wall Street’ era – successful management of overstaffing issues is paramount on both a micro and macro level. At the macro level, high unemployment drains public financial resources and hinders national economic growth, hence it is important for national governments to work with businesses to create a more flexible approach, that is alternatives to mass redundancies. At the micro level, when companies dismiss employees they are not just ‘saving money’ on the balance sheet – they are also losing intangible assets in the form of skills, knowledge and relationships which could hurt the quality of their products and/or service… and more importantly their competitiveness. And then there are the social effects which are felt outside of the corporate walls when mass dismissals are implemented – that is, the effects of high unemployment which touch local surrounding communities.
Here in Italy, despite the high impact of the ongoing economic crisis, we have witnessed a transformation – which sees management create opportunities instead of inducing unemployment. An economic analysis published earlier this year indicated that 2009 was the first time in Italian history that an economic crisis has produced less unemployment than initially projected by the experts.
The Italian government has already provided flexible instruments for businesses, experiencing difficulties, to resort to as an alternative to individual and collective dismissals. Among these options are working hour reductions, bonuses, fringe benefit reductions, outplacement measures, outsourcing measures, the transfer of employees, and employee secondments. There is also the possibility to “force” vacations, or to use an unpaid period of leave to study or to attend to personal duties.
Government’s helping hand
In addition, the Italian government provides, by law, salary support schemes such as Cassa Integrazione Guadagni Ordinaria (CIGO) and Cassa Integrazione Guadagni Straordinaria (CIGS).
CIGO can be accessed by businesses when temporary events, which are not related to the employer’s will, or specific temporary business events, affect the relevant market in ways which will require the suspension of economic activity. In particular, CIGO has the function of integrating wages lost by employees, especially those in the industrial sector, following a reduction in their working hours or the suspension of work. In this instance the relationship between the employer and the employee is maintained with the hope of an anticipated future upturn in work.
CIGS is also a form of intervention in support of workers’ salaries but, differently from CIGO, supports the employer in cases of economic crisis, restructuring processess, reorganisation processes, or when the downturn has a structural nature, in order to avoid the closure of a business.
For businesses these schemes have been an extremely popular alternative to collective dismissals, mostly because of the extension of which type of employer could ask for it (especially with CIGS). In May this year businesses asked for 34.7 million hours of support through an extended special CIGO system. In reference to the CIGS programme, in May 2010 the government authorised 49.6 million working hours to be sustained.
This is a decrease from the preceding month where 56.8 million hours were authorised. However, looking back 12 months this represents a 218 percent increase over what was authorised in May 2009. This indicates that the effects of the crisis are still with us.
In May, Italian unemployment was reported by EUROSTAT at 8.7 percent which is below the European Area average of 10 percent. True, recently there has been a gradual increase in unemployment levels in Italy – but far less drastic than one would imagine when considering the severity and length of the current crisis… and the overall economic situation in Italy.
Italy has the third highest public debt in the world (after the US and Japan). While these social and salary support programmes are necessary, they are not helping to ease the pressure on the public balance sheet. Recently the Italian government, like many of their European counterparts, have introduced a proposal for austerity measures to help shore up public finances. The package, at the time of writing, will still require the approval of Parliament, aims to cut spending by €24.9bn ($30.7bn) over the next two years.
The cuts take aim at reducing the costs of the public administration, the political system and the administrative system, as well as containing public employment costs – such as a proposed wage freeze for civil servants. In order to recuperate funds, the government is also stepping up its fight against tax and social security contribution evasion. These cuts and measures are designed to reduce Italy’s public debt level, and help Italy position itself for a post economic crisis world.
The Italian public and the markets are still digesting the proposed austerity measures. The financial markets seem to have welcomed them for now – while at the local level there has been resistance manifesting itself in the form of public and national employment strikes. This was particularly evident in June.
Italian macro and micro interests continue to perform ‘My Way’ – each one wanting to dance different steps on the road to recovery. The survival of both is so intricately entwined that continual resistance and fighting over which one will take the lead, will only prolong the process. However, with the right discipline – fiscally at both the government and at the individual level – and the right stimulus both the macro and micro aspects of the Italian economy can flourish together.