Joseph Stigits about Italy

I found this mail on

 “Dear Beppe,

I get alarming news from Italy: the law about the first job in France is withdrawn after a few weeks of student protests and yet with you in Italy the Law 30 is still is still being used after all these years and it is without opponents. Allow me then a brief reflection. No opportunity is more important than the opportunity to have a job. Policies aimed at increasing the flexibility of work have often seen the lowering of salary levels and a decrease in job security. But flexibility of work has been dominating the debate about the economy in recent years. However, these policies have not kept the promise to guarantee higher growth and lower unemployment rates. In fact, these policies often have perverse consequences for economic performance. For example they cause a lower demand for goods, because of lower levels of income and greater uncertainty and also because of an increase in family indebtedness.

A lower aggregate demand level, in turn, causes lower employment levels. Any programme aimed at growing social justice must start with a commitment aimed at the full use of existing resources and in particular of Italy’s most important resource: Italy’s people.

Even though in the last 75 years, economic science has told us how to manage the economy better, so that the resources are used to the full, it’s true that recession has been les frequent and less serious, many of the policies applied have not been up to the aspirations. Italy needs better policies aimed at supporting aggregate demand; but it also needs structural policies that go beyond that – without being entirely dependent on the flexibility of work. These policies include action on programmes to develop instruction and knowledge, and action aimed at facilitating mobility in the job market.
I share the idea for which the rigidity that is an obstacle to economic growth must be reduced. Nevertheless we believe that every reform that brings about an increase in insecurity for workers must be accompanied by an increase in social protection measures.
Without that, the flexibility is transformed into precariousness.

These measures are obviously costly. Legislation cannot provide for flexibility to be associated with lower salaries; paradoxically, the greater the probability of being sacked, the lower the salary. It should really be the reverse. Even liberal economic theory teaches that if you want to buy a high-risk bond (like the Argentine ones or Parmalat ones –with a high risk of being transformed into waste paper) you expect very high rates of interest in return.
Salaries paid to flexible workers should be higher and not lower because their likelihood of being sacked is higher. In Italy a “precarious” worker has 9 times the chance of being sacked than a regular worker. At the end of their contract they have 5 times less chance of finding another job than a regular worker. But up to 40% of precarious workers are graduates.
But if we want them to serve out chips or work in Call Centres, why do we spend so much money for their instruction?

Thank you for your attention.

Joseph E. Stiglitz