Friday, March 23, 2012

Look ahead and reason back: Italy

Normally, we think of labor as a variable cost, that you can avoid if demand declines. If it is easy to fire workers, it also becomes profitable to hire them when demand increases.

But not in Italy, where it is seen as more of a long term investment.

...firms with more than 15 workers cannot get rid of employees even in a downturn without risking legal proceedings that can last years. If a judge then decides the company has acted unfairly, it can be forced to rehire the worker and pay him his lost earnings.

Mario Monti, economist and former head of the Competition Authority in the EU (while I was at the FTC), is heroically trying to enact what seem like very modest reforms. There is a question of whether such modest reforms will help very much, given the other problems like pervasive corruption, maddening bureaucracy and organised crime.

1 comment:

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