Transcript: Italy's Labor Minister On Reforms

Italian Labor Minister Elsa Fornero, a pensions expert and economics professor in Turin, is in charge of pensions, labor, welfare and equal opportunity policies in the euro area's third-largest economy. Her landmark labor overhaul, which is due for a parliamentary vote in Rome on Wednesday, responds in part to a request from European authorities that Italy make it easier for companies to fire individual workers.

Ms. Fornero spoke with The Wall Street Journal's Christopher Emsden and Alessandra Galloni in her office in Rome. Below is an edited transcript of the interview.

WSJ: Several parliamentary leaders say that they will vote for the labor reform out of commitment to the current technical government, but that they want to modify it after passage. Is this cause for concern?

Ms. Fornero: Sometimes political parties act as if they want us to forget that we are operating under extremely tight fiscal constraints. Parliament members need to use common sense and not try to upend the measure immediately after approval. Delaying measures would undermine the law's credibility. We can accept some minor delays to offset the fact the economy is currently in a major contraction, but we hope that contraction will end soon.

WSJ: In your six months of negotiations, including visits to factories, who has offered you the most support?

Ms. Fornero: My main allies have been Prime Minister Mario Monti, and broadly speaking younger people, small companies and artisans, who are keen on the idea that we are trying to build professional growth through apprenticeship contracts. We aren't trying to create a labor market based on low costs. Companies that try to prosper due to low costs have a very short-term approach.

WSJ: But Confindustria, Italy's main business lobby, has criticized the measures?

Ms. Fornero: Let me note here that Confindustria never asked for a stronger overhaul of Article 18. Confindustria now criticizes the reform, complaining that it offers a refund of extra payroll tax contributions only to companies that hire at least 50% of the apprentices they subsequently take on with fixed-term contracts. That amazes me. In consultations with them before defining that measure, Confindustria told me they regularly hired 80% of apprentices on permanent contracts.

WSJ: What about the role of labor unions, especially CGIL, the largest union, whose leader Susanna Camusso has been outspoken in her criticism of your reform and even accused you of having a "passion for firing" people?

Ms. Fornero: The transformation of Italy requires challenging labor unions, which objectively are rather conservative. CGIL has its views and its well-known stance and plays to form. We are trying not to rig the game but to rig the system. We are trying to be referees. Others are playing to win.

WSJ: Article 18 of the Workers Charter offers the legal basis for a lifetime job. Opinion polls show that even Italian youth consider this to be of extreme importance, even though it has indirectly led to a proliferation of short-term contracts that have shifted the brunt of job losses during the recession to younger workers. How do you feel about dismantling a totem?

Ms. Fornero: The traditional focus on Article 18 is obviously ideological. I don't want to blow any horns, least of all my own, but I think to some extent our success here was based on disarticulating the elements of the article. It remains illegal to fire for discriminatory reasons. But economic motives can now be cited.

WSJ: You did make a concession, however.

Ms. Fornero: We allowed for the possibility that a fired worker have recourse in the courts. However, the motives cited by the employer in that case have to be proven blatantly false. It is the same as in France and Germany. For those who think that inserting that clause was a major retreat on the part of the government, I say we shouldn't be writing laws on the basis that we don't trust judges to judge. We can, and have, reduced the number of cases and disputes requiring a judge. We have sped up the mandatory time of a hearing in such cases, capped the indemnity amount even if the worker wins her or his appeal, and are promoting reconciliation.

Anyway, regarding the controversial parts of Article 18, one lesson I've learned in six months of heated debate over the labor reform is that, to those deeply in the political process, once a thing is done it is no longer important.

WSJ: Do you have any particular fears about what might happen with this reform?

Ms. Fornero: This reform is a wager on behavior changing in many ways. My big fear is we don't overcome this challenge. Everyone, not just workers, have to understand and change. That includes youth, who need to know a job isn't something you obtain by right but something you conquer, struggle for and for which you may even have to make sacrifices.

WSJ: What about making sure that the law is implemented?

Ms. Fornero: The first thing I'll do once the law is approved is constitute a scientific review method to monitor both the pace of implementation and the actual impacts. I hope to leave to whomever comes after me a well-organized monitoring system so they can truly execute the new changes.

WSJ: You often mention the role of behavioral change. That sounds like a bit of a gamble, no?

Ms. Fornero: This is a complex reform. It touches Italian society at the deepest level. Italy isn't a rule-bound land but one where people right the system, tweak here and there, and engage in tailor-made adjustments.

So, with that in mind, our new rules should be much more favorable to labor. We reduce the time that people receive benefits, but it is an improvement for workers in the lower [salary] brackets. Meanwhile, ASPI [the jobless insurance scheme] will be conditioned on the beneficiary not rejecting a job offer. Such conditionality has, in Italy, always been ignored.

WSJ: Your labor law is a big change, particularly because it comes after your recent pension reform, passed in December.

Ms. Fornero: The pension reform was done very fast, and the proceeds went to reduce Italy's budget strains during an extreme fiscal emergency. I just brought a 17-year-old law into life. The 1995 pension reform was a good one, but many good ones get kicked into the future and dissolve.

WSJ: The pension law ties pension payments to how much a worker has contributed throughout their lifetime, rather than on the last, and highest, salary of their working life.

Ms. Fornero: The idea that how much you contribute is correlated to the benefits you receive is fundamental. But people here are appalled by it, because they want special exemptions. So far, they've been right in their conviction that they could get around the law.