The mantra of flexibility

In the Italy where I grew up (in the 70s and 80s), most jobs were for life. Most workers, not just government or state ones but also those employed in the private sector, were hired permanently. They could not be let go without just cause, in turn almost always involving demonstrable unprofessional or unethical behaviour on their part. Both private and public sectors had to contend with strong unions, as well as with a legal system that made it very difficult in practice, if not downright impossible, to dismiss employees, even those individuals ostensibly not performing up to standards.

Disclaimer: the following does not aim to be any kind of economic commentary, merely amateurish remarks of someone who has to find something to do on a plane while flying to the APS March meeting.

Even relocating plants, without layoffs but with the consequent displacement of workers, possibly by as little as few hundred kilometers, was strongly opposed by unions, and usually frowned upon by local communities affected by the move, and I think it is fair to say by the majority of public opinion.
In turn, worker mobility was virtually non-existent. Most people would retire from work at the same company that had hired them decades earlier. Proximity to home, benefits and stability were typically valued more than salary, when it came to choose an employment, especially if on order to make more money one would have to face a more competitive environment, frequent travel or relocation. It was common for the children to go and work for the same employers for which their parents had worked. And, salaries were low [0].

I am no economist, but I think that Italy was really no exception in Europe. Maybe, due to the strength of the communist party (unparalleled in the rest of the western world) and of its connected large union, in some respects the protection enjoyed by workers might have been higher than in other European countries, but I believe that by and large Italy was in line with the rest of Europe. Of course, already back in those days there were people decrying (perhaps more in private than in public) the inefficiency and unfairness of that labor market.

For one thing, the de facto impossibility of eliminating excess workforce during times of hardship, or phasing out lines of production no longer profitable, shutting down plants operating at a loss, all in order to keep a lot of people artificially employed, clearly seemed wasteful and idiotic use of taxpayers’ money.
Secondly, and more importantly, unemployment (typically above 10%) was high anyway, or seemed high, considering the country’s respectable industrial tradition and perceived potential. And this too was largely attributed to labor laws that were punitive for prospective employers.

Aside from the cost of labor itself, because bringing a new employee on board constituted a thirty- or forty-year commitment for the employer, most of them were reluctant to hire. Many pointed to the United States as a more efficient model, with a lower cost of labor (in part tied to a weaker safety net) and a more flexible job market (for instance, term employment, virtually illegal in those days in Italy, was and still is instead regarded as the norm in the United States) and where it was also generally easier to let workers go.
All of that made it less burdensome for the private sector to hire, and the net result seemed to be greater opportunities for people to make a living. Granted, they may have been employed temporarily, their jobs may have been unstable or at risk of elimination with little or no notice, they may have been switching jobs or career a few times, during their professional lifetime; in practice, however, at the end of the day they appeared as making more money, spending less time in unemployment lines, and generally enjoying higher standards of living than their Italian counterparts. So, why not adopt the same model ?

Already back in those days there were those who warned against “easy solutions”. Italians and Americans, after all, differ significantly in values, cultures and traditions [1]. The two markedly different approaches to labor, reflected deeper, radical differences in life philosophies and social fabric, and the notion that one could simply switch to the way of doing things of the other, in complete disregard for “boundary conditions”, seemed disingenuous, or terribly naive.

Of course, things are different now. It seems that those who advocated a “more flexible” labor market have pretty well got what they wanted. Employing people on fixed term contracts, with reduced benefits, is now possible in Italy and in the rest of Europe. Most of the protections that were once in place are gone. Worker mobility is rapidly becoming a reality, and eventually even Italians, who are still forcefully resisting this tidal wave, will have to resign themselves to the idea that traveling home to see their parents for the holidays may be quite a bit more involved than crossing the street, or taking the elevator.
A significant restructuring has taken place. A lot of jobs in both the private and public sectors, including large state-run companies which used to employ a substantial fraction of the work force, have been cut. Unions are much weaker than they used to be, not only in terms of membership but also overall influence on the media and public opinion.

But… has life as a whole changed for the better ? I would have to defer to economists for an authoritative, informed and quantitative answer. From what I read on the newspapers and hear from friends and family, one would not see that. Unemployment rate is still high — ironically, very close to that in the United States, which for all the flexibility of its labor market seems to have just about as much trouble getting itself out of the economic quagmire in which it has been versing for years now. And I think it is fair to say that the predicted mushrooming of small businesses capable of generating employment (offsetting the losses incurred into in the restructuring), which would have supposedly been rendered possible by the new, more agile labor regulations, has so far failed to materialize [2].

Wages are still ridiculously low, surely not on par with those not only in the United States, but throughout most of Europe. There used to be a time when banks would lend money toward the purchase of the first home to a thirtysomething whose take home pay was low, but whose employment was permanent. In the new, “flexible” environment, banks are now much more reluctant to do so [3]. In a country with a low birthrate and a rapidly aging population, where real estate is still (somewhat inexplicably) prohibitively expensive and renting remains a difficult proposition for most, this hardly provides an incentive to start a family. But the “new economy” was supposed to be all about making life easier for young people…

I am sure many who have been supporting the course of action taken over the past two decades would say that we are just halfway done, that many of the new policies that were adopted did not go far enough, that far too many remnants of the old system remain, and that their deleterious effect continues to be felt.
Many would argue that the adoption of a single European currency has made things harder than they should have been (of course, many of those who say this were strong supporters of the unified currency a decade ago), or that the previous system was not sustainable and would have run out of gas too, in light of unforeseeable world developments that have taken place over the past twenty years. And I am sure there is truth to all of that.
But part of me cannot help feeling that it was mostly ideological, and that many were blinded by what may have “sounded” right, but in the end turned out to be just right-wing.


[0] Before coming to America for graduate school, I was briefly employed by a relatively large, largely state-run company manufacturing electronic controls. My base monthly salary (1987) was close to one thousand dollars per month, which, in terms of buying power, was arguably less than the $800 that I made as a graduate student in Florida.

[1] I regard myself as a bit of both, having spent half of my life on either side of the ocean; one thing that has always been clear to me is that, the choice of making one of the two as my permanent home, would inexorably entail gains as well as losses, and in both cases I would miss something.

[2] Was it perhaps naive to believe that merely allowing employers to dispose of workers more easily would make such a huge difference ? I am no entrepreneur, but, what serious employer hires qualified workers as temps ? If it is so difficult to find competent, productive workers, would a visionary employer not try to retain those found, as opposed to going back to the market and hire whomever is available on a per need basis ? Could it be that one gets what one pays for, and that if contracts becomes less attractive, even the quality of the workers willing to take those jobs deteriorates ? I do not know the answer to any of that.

[3] Again, the culture is different. In the United States quite possibly the same people would be able to get a loan — of course, with all the problems that that entails when the economy turns sour and many of them massively default, after losing their jobs.

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