Social Pacts in Italy: Pact on the Termination of the Cost of Living Index Mechanism

PERIOD: July 31, 1992

SIGNATORY PARTIES: the secretaries general of the three confederations — CGIL,CISL, UIL;  18 employers associations representing all economic sectors; and Prime Minister Giuliano Amato.

GOALS OF THE PACT: Abolition of the cost of living indexation mechanism, in force since the post WWII period. The scala mobile mechanism was the subject of an interconfederal agreement, signed by all employers and unions and automatically included in all national labour contracts. 

MATTERS AGREED: abolition of the cost of living index. Workers would receive in exchange 20,000 lire  per month for 13 months covering the 1992-93 period. Freeze for the whole 1993 on company level wage increases. The negotiation over the reform of collective bargaining and of the salary structure scheduled to be resumed in September. The agreement on these issues was finalised in July 1993 (see July 1993 Social Pact).

BACKGROUND:

Since 1990, the major employers associations were complaining that the cost of living index was a major cause of inflation (and of the wage increases), and of the too high labour cost that was strangling the firms exposed to international competition. The three major workers’ organisations (CGIL, CISL, UIL) were opposed to any negotiation on this issue. In June 1990 Confindustria’s (employers’ organisation for private enterprises) president took the initiative to  terminate the scala mobile agreement. As a response, metal workers called a general strike. The government intervened to resolve the disputes and  passed a law that guaranteed the validity of the cost of living index mechanism until December 1991, with the purpose of giving the social partners the time to reach a new agreement.

In the mean time (1990-91), all the national labour contracts renewed in that bargaining season included wages increases without the cost of living index, thus anticipating the upcoming social pact.

In June 1991, the negotiation of a new social pact began with no results. At the end of December 1991, the law guaranteeing the cost of living index expired.

In July 1992, a new tripartite bargaining round started, with a new Prime Minister, Giuliano Amato.   On 31 July, the new social pact was signed.

INSTITUTIONS INVOLVED: The secretaries general of the three major workers’ organisations, CGIL, CISL and UIL (their membership accounted for 40% of active workers), and the government, i.e., the Prime Minister Giuliano Amato. 

ACTION TAKEN: abolition of the cost of living adjustment mechanism.  Changes in the wages items, one year freeze on company level wage bargaining.

IMPACTS ON: the termination of the cost of living adjustment system had a positive impact on labour cost, and on the inflation rate.

COMMENTS: The agreement states:

In a financial and economic situation that threatens to get worse, the government, in the interest of preventing instability, maintains that it is essential to undertake an immediate action to stop inflation and to reduce the budget deficit. The main objective of this is not only compliance with Maastricht convergence criteria, but also that of safeguarding our potential future development, in order not to fall into an uncontrollable spiral that would put at risk our future economic welfare.

It is necessary, therefore, to make  the government policy and the social partners conduct consistent [...] The government policy will be consistent  with the following budget parameters, approved in the  three-year economic/financial plan for 1993-1995:

The social partners acknowledge the government statements on its decisions concerning economic policy and share the objective of bringing down inflation.

The 1992 social pact was signed during one of the the most dramatic periods of Italian industrial relations, with numerous strikes and heavy reactions of the workers toward their leadership regarding the abolition of the cost of living index. 

Bibliography:  Roberto Mania, Alberto Orioli “L’accordo di San Tommaso: i segreti, la storia, i protagonisti dell’intesa sul costo del lavoro”, Tascabili Ediesse, 1993.

Massimo Mascini, Maurizio Ricci “Il lungo autunno freddo: radsiografia delle nuove relazioni industriali”, Franco Angeli, 1998.

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