September 26, 2005

Italy, Less Competitive Than Botswana, Shuns Economic Shakeup

Italian companies have been reluctant to expand partly because of a labor law, known as Article 18, that makes it virtually impossible for firms with more than 15 employees to cut the workforce because of an economic slowdown.

Under the law, any employee can seek an immediate recourse to an independent tribunal to decide if there was ``just cause'' for the dismissal. If the court rules in favor of the worker, he or she is reinstated and given backdated pay.

The government's attempt to scrap Article 18 in April 2002 triggered Italy's first general strike in eight years. The government abandoned the effort.

Berlusconi now promises to scrap a regional levy that is added on top of the established corporate tax rate of 33 percent. The tax, known as Irap, is charged against the value of a company's products. That leads some executives to condemn it as a disincentive to growth. Introduced in 1998, the tax is 4.25 percent and Italy's 20 regions can add an additional 1 percentage point.

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