By Gavin Jones

ROME (Reuters) - Overhauling Italy's rigid labor 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 labor 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" labor market made up of over-protected older workers and millions of mostly young people on temporary jobs with no labor 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. Labor 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 labor 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 labor 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 labor 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 labor 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 labor 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 capitalize on the reform.

"There has been very little recourse to the new rules," said Giorgio Santini, head of labor 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. Continued...