Domino effect on job contracts.

Is Italy Rolling Back Progress? The Truth About Temporary Work Contracts

Nico Varela in Business & Economy August 2025 • 3 min read.

"A new study examines the impact of Italy's 2018 labor reform on job stability, revealing both successes and unexpected consequences for workers."

The allure of a stable job market is a universal desire, yet the path to achieving it is often fraught with complex policy decisions and unforeseen outcomes. For decades, many Mediterranean countries grappled with the rise of temporary contracts, leading to what some called 'dual labor markets'. In response, governments have occasionally intervened, attempting to roll back deregulation and impose stricter rules on temporary employment.

Italy, in 2018, introduced the 'Decreto Dignità' (Dignity Decree), a reform aimed at increasing the rigidity of temporary contracts. This initiative sought to reverse previous policies and reduce job instability. The reform sparked heated debates among policymakers, unions, and political factions, with conflicting opinions on its potential impact.

Now, a new study evaluating the real-world effects of the 'Decreto Dignità' is shedding light on the complex dynamics of labor market intervention. Using longitudinal labor force data and advanced time-series analysis, researchers have uncovered a mix of positive achievements and unintended side effects, offering valuable insights into the challenges of regulating temporary contracts.

What Was the Goal of Italy's 2018 Labor Market Reform?

Italy's labor market has faced significant challenges, including a high prevalence of temporary employment compared to other European countries. 'Decreto Dignità' aimed to address this by making it more difficult and costly for firms to utilize temporary contracts. The key changes included:

Reduced the maximum length of temporary contracts from 36 to 24 months.
Restricted the use of contracts longer than 12 months to only three specific circumstances: replacing a worker, temporary reasons outside regular business, or temporary and unforeseeable increases in business.
Limited the number of contract extensions within 24 months from five to four.
Increased social security contributions payable by employers for each temporary contract.

Key Changes Introduced by the Decree:

By increasing the stringency around temporary contracts, the Italian government hoped to encourage firms to offer more permanent positions, thereby reducing job insecurity and fostering a more stable workforce. However, some economists feared that the increased labor costs could lead to decreased demand and ultimately higher unemployment.

The Broader Implications for Labor Policy

The Italian experience offers valuable lessons for other countries grappling with similar labor market challenges. The study suggests that while interventions aimed at reducing temporary employment can yield positive results, policymakers must carefully consider potential unintended consequences and tailor policies to specific demographics and regional contexts. As the world of work continues to evolve, evidence-based research and adaptive policy-making will be crucial for fostering truly inclusive and sustainable labor markets.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2401.17971,

Title: Let'S Roll Back! The Challenging Task Of Regulating Temporary Contracts

Subject: econ.gn q-fin.ec

Authors: Davide Fiaschi, Cristina Tealdi

Published: 31-01-2024

Everything You Need To Know

What was the primary objective of the 'Decreto Dignità' implemented in Italy in 2018?

The main goal of the 'Decreto Dignità' was to increase the rigidity of temporary contracts in Italy. This was an attempt to reverse previous deregulation and combat the high prevalence of temporary employment, aiming to reduce job insecurity. The reforms included measures such as reducing the maximum length of temporary contracts, restricting the circumstances under which longer contracts could be used, and increasing employer contributions for temporary contracts. The intent was to encourage firms to offer more permanent positions, thereby fostering a more stable workforce and addressing the challenges associated with Italy's labor market dynamics.

What specific changes did the 'Decreto Dignità' introduce to regulate temporary work contracts?

The 'Decreto Dignità' introduced several key changes to regulate temporary work contracts in Italy. These included reducing the maximum length of temporary contracts from 36 to 24 months. Furthermore, contracts exceeding 12 months were restricted to only three specific circumstances: replacing a worker, temporary reasons outside regular business, or temporary and unforeseeable increases in business. The decree also limited the number of contract extensions within 24 months from five to four. Additionally, it increased the social security contributions payable by employers for each temporary contract. These changes aimed to make temporary contracts less attractive to employers, encouraging them to offer more permanent positions.

What were some potential negative consequences that economists anticipated from the 'Decreto Dignità'?

Some economists expressed concerns that the 'Decreto Dignità' could lead to decreased demand for labor and, consequently, higher unemployment. By increasing the costs associated with temporary contracts through higher social security contributions, the reform could make it less appealing for firms to hire, potentially impacting overall employment rates. The increased stringency around temporary contracts may have unintended effects, such as discouraging hiring altogether or pushing companies to seek alternative, potentially less regulated, forms of employment, which would undermine the initial objectives of the decree.

How does the Italian experience with the 'Decreto Dignità' offer insights for other countries dealing with similar labor market challenges?

The Italian experience with the 'Decreto Dignità' provides valuable lessons for other countries facing similar labor market issues. It highlights the complexities of intervening in the labor market to reduce temporary employment. While such interventions can yield positive results, policymakers must carefully consider potential unintended consequences. The study suggests that the effects of labor market reforms can vary based on specific demographics and regional contexts, underscoring the need for evidence-based research and adaptive policy-making. This approach is crucial for fostering truly inclusive and sustainable labor markets worldwide as the world of work continues to evolve.

Beyond the immediate goals, what broader implications does the 'Decreto Dignità' have on fostering a sustainable labor market in Italy?

The 'Decreto Dignità' aimed at creating a more stable workforce in Italy. By reducing the use of temporary contracts and promoting permanent employment, it sought to improve job security. However, the broader implications extend beyond the immediate impact. The success of such policies hinges on understanding that the labor market is complex. Factors include employer behavior, economic conditions, and the regional context, which must be considered. The decree’s long-term impact depends on how effectively it reduces job insecurity while promoting a more resilient and adaptable workforce. Evidence-based research and adaptive policy-making remain crucial for navigating the evolving landscape of work and for creating a truly inclusive and sustainable labor market.