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There are many significant links between labour cost, social security and employee severance funds (Trattamento di Fine Rapporto – TFR). Decisions regarding each of them may affect the overall long-term development of economic and social policies in Italy through these links. For example, in the debate on economic policy there is the widely accepted notion that economic growth and employment can only be bolstered by shrinking the government role to a substantial extent. There is nothing new in this, and the fact that this view is gaining currency is in keeping with the ebbs and flows of the debate on the relationship between the state and the market, which at present is strongly affected by the laissez-faire stance.
In order to assess the rationale of the different arguments, however, it is necessary to avoid the irrational influence of fads and analyze the effectiveness of any general approach by looking into its nature and the specific proposed applications. In the matter at hand, the most appropriate way to reduce the government role would be the introduction of a new and radical pension reform designed to further put a curb on the state social security system and to develop a private funded pension system, which might be financed using also the flows to employee severance funds. Downsizing the state social security system and the contribution rates that finance it would lower the cost of labor and boost economic growth and employment. ...