Do companies make too many fixed-term contracts? Just ban them! They will only be forced to make permanent contracts! No one would decline it like that, but this is the synthesis of a Pavlovian reflex that still haunts part of the political and trade union left. The effects of this culture on the real world can be observed in the very recent "reform" of vouchers: very marginal regularization effects, loss of income for people or disappearance of undeclared work services.
And to please this culture, someone thinks of "giving a signal", for example by cutting the maximum overall term of a contract to 36 months. The political purpose is understandable, if debatable. What will the concrete result be? In our opinion essentially none. Fortunately, the House Budget Committee yesterday renounced the amendments that prefigured a tightening on fixed-term contracts, which has been reclassified.
But let us try to explain how things are.
Today the fixed-term contract (following the Fornero and Padoan reforms) can be activated, without reason, from 1 day up to a maximum of 36 months. A contract can be extended, with the same company, up to 5 times, as long as the total does not exceed 36 months. It can be extended for a further year but only with union agreement.
It would seem that a reduction of 1/3 of the allowed duration could cause significant innovations. But is not so. Virtually no fixed-term contract ever reaches the fateful 36 months, and if it does it means that it is a worker who is seriously interested in the company, who at that point takes it on permanently. In fact, it should be remembered that the cost of a fixed-term worker costs the company as much as a worker
stable equivalent.
But, as always, let's see some data. We use those of the Ministry of Labor 2016, relating to the year 2015. But there is no reason to think that more recent data are different. A premise: the subsequent figures are net of contracts lasting one or two days, which are conventionally counted separately.
In 2015, 36,9% of the forward contracts activated had an initial duration of one month or less. 24,7% from 1 to 3 months; 20% from 3 to 6 months; 16,7% from 6 to 12 months; over 12 months only 1,7%. Does the possibility of extensions significantly change this situation? No: in 2015, only one contract out of four is extended. Even more significant is the data on the survival of fixed-term contracts: after 12 months they are 4,9%. In essence, practically no futures contract reaches the fateful threshold of 36 months. And very few also that of 24. Therefore, the intervention to bring the 36 months to 24 would produce almost no effects.
If we really wanted to make fixed-term contracts difficult (if this were really the truly shared political objective) we would have to intervene on the causal: today it is essentially free, but it could be linked to particular situations, such as substitutions due to maternity or illness. However, when companies need manpower in relation to non-programmable occasional phases, they find an adequate response precisely in fixed-term contracts. It should be noted that the vast majority of fixed-term contracts are activated by companies in the agricultural, tourism, catering and cleaning sectors. While the more "structured" ones (essentially industry in the strict sense) activate much less, but on the other hand implement the vast majority of transformations into permanent contracts (over 60%), thus signaling a phenomenon that is not enormous but significant: i.e. the use of the fixed-term contract as a "long trial period" in order to stabilize.
If we really wanted to make them less convenient, we could increase the cost. For example, by increasing contributions to cover periods of non-work, or by allowing fixed-term contracts only through administration. But it would be unreal to think of obliging companies to transform fixed-term contracts into open-ended contracts in this way: overtime and undeclared work would increase much more realistically, which, moreover, is already thriving precisely in the sectors that are the largest users of fixed-term contracts. The intervention on the labor supply side appears to be more effective, with tools that
reduce the cost of labour: in this specific case, permanent contracts. Even here, however, with some caution: the tax relief of 2015 led to a spectacular jump in permanent hiring, but the statistically significant step returned to being flat as soon as the incentive ended.
A similar experiment carried out in Sweden is worth considering. Here the cut was for young people newly hired or already at work, and was intended to be permanent. It reduced the corporate tax wedge by 50%. In terms of employment growth, the result was about 2% more new hires, but above all there was a drop in layoffs. But even more significant were the “side effects”: the companies that used it had better wage and employment results, and
there has been a distribution among everyone, young and old workers and businesses, of tax benefits.
It remains to understand what happens if the incentive ends…
At this point, first of all, there is an elementary consideration that too many forget: the growth of employment is the effect of the growth in the demand for goods and services. If the reduction of contribution costs and of the tax levy is not structural (and compatible with the balance of the state budget) it can certainly produce positive but not permanent results.
