ANALYSIS-Six months on, Monti's labour reform has changed little

* Unions, employers say reform has not increased flexibility

* Fears of surge in firings have proved unfounded

* But no sign of more permanent contracts, apprenticeships

* Employers say more red tape makes hiring harder

ROME, Jan 2 (Reuters) - Overhauling Italy's rigid labour

rules was supposed to be Mario Monti's flagship reform.

It required drawn out, often heated bargaining with unions,

employers and political parties. Yet six months after their

approval the measures seem to be having little effect on hiring,

firing or the labour market in general.

The technocrat premier's aim was to encourage hiring of

permanent rather than temporary workers and to make it easier

for firms to shed staff during economic downturns. Businesses

and workers' bodies say it is doing neither.

Monti, who resigned as prime minister last month, hoped to

boost a chronically low employment rate and end a "dual" labour

market made up of over-protected older workers and millions of

mostly young people on temporary jobs with no labour rights.

However, he quickly ran into strong opposition, led by the

CGIL union which found support from the centre-left Democratic

party (PD) that he relied on for his majority and which is now,

polls suggest, likely to win February elections.

The unions, which largely represent older, more protected

workers, held a series of strikes and protests to defend

existing job protection. Labour minister Elsa Fornero, who drew

up the reform proposal, became a hate figure for millions of

workers.

After being watered down during a lengthy passage through

parliament, the final version of the plan, approved in June last

year, slightly eased firing restrictions in large and medium

sized firms and made temporary hiring more costly.

Unions warned it could lead to a firing spree, while

businesses said it would discourage new hires. Six months on,

unionists now admit their fears were exaggerated, but employers

say their concerns are being confirmed.

"There is no evidence that companies are firing more under

the new rules. It just isn't happening," said Pierangelo Albini,

responsible for labour issues at employers' lobby Confindustria.

No official data is available on the number of workers who

have been dismissed under the new norms but even the unions,

which are monitoring the situation closely, estimate the figure

is negligible.

They were quick to denounce isolated cases concerning

telecoms companies Huawei and Vodafone,

which attracted attention in Italian media, yet each one

involved no more than a couple of workers.

"The reform doesn't actually change much in terms of firing

procedures," said Michele Tamburini, a labour lawyer with a U.S.

law firm in Milan. "Potentially, it could make firing easier but

it all depends how it is interpreted by judges and hardly anyone

wants to test it."

Tamburini said he and his colleagues at other firms had seen

no rise in new business in the form of contested dismissals, as

some commentators had expected.

PROBLEMS REMAIN

Monti, who says he will seek a second term at the Feb 24-25

election, initially defended the reform as a good compromise but

now acknowledges its limits and blames the left-wing CGIL union

for blocking more radical changes.

In a new policy platform presented before Christmas he urged

a "drastic simplification" of labour market rules to "overcome

the dualism between protected and unprotected workers". These

were exactly the goals his reform was meant to achieve.

"Monti's intentions on the labour reform were right but the

politics of it were all wrong," said Riccardo Barbieri of Mizuho

International. "The PD couldn't let him make firing easier in a

pre-election period and in the middle of a recession."

Despite criticism of some of his reforms, investors would

love to see the former European commissioner stay on after the

election, ideally at the head of a more cohesive majority that

allows him to push through his new agenda.

Tens of thousands of workers have lost their jobs since the

labour reform was passed as companies close or downsize, but

they are still shedding staff under the old terms rather than

risking difficulties by trying to capitalise on the reform.

"There has been very little recourse to the new rules," said

Giorgio Santini, head of labour issues for the CISL trade union,

Italy's second largest.

One reason may be that firing procedures are more

complicated than ever because the changes have increased the

discretionary power of the courts.

The reform made it possible for private firms with more than

15 employees to fire individual workers for business reasons,

such as a fall in demand, without necessarily having to

re-instate them if a judge ruled the dismissal was unjustified.

In smaller firms, where job protection was much weaker,

nothing changed under the reform. The public sector, where

protection is strongest of all, was also unaffected.

Companies were always able to shed staff if they were

restructuring or closing a product line but it was much harder

to fire people for poor performance or other reasons.

Paradoxically it was easier to shed 10 or 20 workers than one or

two.

The courts can now order firms to offer wrongly dismissed

workers financial compensation rather than giving them their job

back. However, if the unfair dismissal is for discriminatory or

disciplinary reasons, re-instatement is still obligatory.

Judges now have to decide not only whether a dismissal is

justified but also whether it is being attempted for business

reasons, disciplinary reasons or due to discrimination.

Unions have been ready to fight any cases where they

suspected firms were presenting bogus business reasons to shed

workers considered difficult or disruptive. Yet even the leftist

CGIL union said few had emerged.

"There have been maybe a couple of hundred cases that firms

have tried to justify under the new rules, and in many we have

seen evidence of discrimination and we've contested them," said

the CGIL's head of labour policy Claudio Treves.

Other unions put the figure considerably lower.

APPRENTICESHIP FLOP

Santini of the CISL union said a positive aspect of the new

rules was that they oblige firms to co-ordinate more

pre-emptively with unions before trying to fire, meaning that

shedding staff had not actually become easier at all.

He said that with the unions acting as mediators there are

signs that dismissed workers are more willing to come to terms

for financial compensation rather than taking their cases

through the courts, though he added that this had often happened

even before the reform.

Yet if firing has not become easier, hiring has become more

difficult, according to both the CISL and Confindustria.

Monti tried to boost the role of apprenticeships, taking

Germany as a model, to replace temporary or "precarious"

contracts that are seen as the unacceptable face of the dual

labour market. These contracts were not scrapped, as some

experts urged, but the rules for using them were tightened.

However, both the CISL's Santini and Confindustria's Albini

said apprenticeships have failed to take off because of too much

bureaucracy and a rule - required by Italy's Constitution -

that regional governments must be partly responsible for

organising the apprenticeship courses, something they are

failing to do.

"What is happening is confirming some of our worries," said

Albini. "It's no easier to fire but it is more expensive and

complicated to hire on a temporary basis, which is important

flexibility especially at a time of crisis."

When the labour reform was being watered down in parliament

last spring two of Italy's leading economists, Alberto Alesina

of Harvard in the United States and Francesco Giavazzi of

Milan's Bocconi University, warned Monti of the dangers of a

weak compromise.

"Making do with marginal adjustments would be worse than not

doing anything because it would create the illusion that a

problem has been solved when it isn't true," they said in a

joint newspaper column. Their fears now seem well grounded.

European Central Bank President Mario Draghi said in

November it remained "fundamental" that Italy reform its labour

market to make it less rigid. Yet it is unlikely that unions or

leftist parties will consider returning to the issue soon.

(Reporting by Gavin Jones)