Updated June 25, 2012, 7:27 p.m. ET
The rules and burdens that explain Europe’s economic crisis.
Prime Minister Mario Monti has issued a new “growth decree” to revive Italy’s moribund economy. Among other initiatives, the 185-page plan proposes discount loans for corporate R&D, tax credits for businesses that hire employees with advanced degrees, and reduced headcount at select government ministries.
Will any of this solve Italy’s economic problems? Only in the sense that one could theoretically drain Lake Como with a ladle and straw. Allow us, then, to illustrate why Italy’s economy stagnates.
Imagine you’re an ambitious Italian entrepreneur, trying to make a go of a new business. You know you will have to pay at least two-thirds of your employees’ social security costs. You also know you’re going to run into problems once you hire your 16th employee, since that will trigger provisions making it either impossible or very expensive to dismiss a staffer.
But there’s so much more. Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include stress that is work-related or caused by age, gender and racial differences. You must also note all precautionary and individual measures to prevent risks, procedures to carry them out, the names of employees in charge of safety, as well as the physician whose presence is required for the assessment.
Now say you decide to scale up. Beware again: Once you hire your 16th employee, national unions can set up shop. As your company grows, so does the number of required employee representatives, each of whom is entitled to eight hours of paid leave monthly to fulfill union or works-council duties. Management must consult these worker reps on everything from gender equality to the introduction of new technology.
Hire No. 16 also means that your next recruit must qualify as disabled. By the time your firm hires its 51st worker, 7% of the payroll must be handicapped in some way, or else your company owes fees in-kind. During hard times, your company may apply for exemptions from these quotas—though as with everything in Italy, it’s a toss-up whether it’s worth it after the necessary paperwork.
Once you hire your 101st employee, you must submit a report every two years on the gender dynamics within the company. This must include a tabulation of the men and women employed in each production unit, their functions and level within the company, details of compensation and benefits, and dates and reasons for recruitments, promotions and transfers, as well as the estimated revenue impact.
The system does allow certain exemptions—provided your company stays small, or you hire the right gender or in certain areas. Industrial and security firms are exempt from paying into the national fund for temporary unemployment if they have 15 employees or fewer; retail and tourism companies don’t have to start contributing until they hire their 51st worker; and trade companies are exempt until they hire their 201st employee.
Here’s another loophole you might try to jump through: Businesses currently receive tax credits worth up to €15,200 per year per new permanent-contract hire—that being for new employees who are also women or under the age of 35 and live in the regions of Abruzzo, Molise, Campania, Basilicata, Puglia, Calabria, Sardinia and Sicily.
Businesses with no more than 250 employees may also still be enjoying their three-year profit-tax holiday, which was granted in 2010 for small and medium-sized firms that reinvest their profits in forging “networks” for “innovation” with other small businesses nearby.
All of these protections and assurances, along with the bureaucracies that oversee them, subtract 47.6% from the average Italian wage, according to the OECD. Two-thirds of that bite comes before payroll, meaning many Italian workers are unaware of their gross cost to employers.
But you as the employer are aware of them, which may explain the temptation to stay small and keep as much of your business as possible off the books. This gray- and black-market accounts for more than a quarter of the Italian economy. It also helps account for unemployment at a 12-year high of 10%, and GDP forecast to contract 1.3% this year.
Still, who knows: With any luck, you may discover a loophole in Mr. Monti’s new growth decree that will allow you to hire a few more employees without incurring too many costs—provided, one assumes, that all of the new hires are disabled, blue-eyed Sardinians under the age of 35.