Few West European countries have been subject to the continuous wave of reforms in industrial relations and welfare state institutions experienced by Italy in the last 15 years or so. Italy stands out not only in terms of the number and scope of reforms, but also their transformative potential. After years of institutional stasis, Italy’s policy landscape was shaken in the 1990s by a series of negotiated reforms on collective bargaining, employment regulation and the pensions system that seemed to herald a new era. Some even referred to a ‘Copernican revolution’ (Salvati 1997). Reform on this scale in a veto-ridden political system such as Italy’s raises

several questions. The first concerns the conditions facilitating change. The critical role played by Economic and Monetary Union (EMU) as a catalyst for reform is widely acknowledged (Ferrera and Gualmini 2004). The macroeconomic challenges associated with Italy’s EMU accession were internalised through negotiations between employers, unions and the state and neutralised the vetoes that had hindered change in the past (Natali and

Rhodes 2004). But after 1998 the impetus weakened. Fully fledged, tripartite concertation was increasingly blamed for Italy’s lacklustre economic performance and was rejected outright by the second Berlusconi government. Our first task is to understand why social pacting faltered before its potential was fully exploited. The second question concerns institutional outcomes. Has Italy really

experienced a policy paradigm shift? The ‘transformative potential’ of the 1990s reforms remains unclear. It is widely agreed that concertation both facilitated change and increased the overall coordination of Italy’s socioeconomic system (Perez 2002; Herrmann 2005). But the outcomes of negotiated reform reflect a specific balance of power, and those outcomes will be contested anew once that power balance shifts (Molina and Rhodes 2002; Molina 2006). This has been especially true of the institutional legacies of 1990s reform. Our second task is to understand the nature of that contestation and its consequences. A third question concerns distributive outcomes. In Italy, the industrial

relations/welfare state nexus is a complex one. Many labour market entitlements, notably extensive job protection, provide de facto compensation for Italy’s under-developed and fragmented welfare system. Collective bargaining has undergone substantial change in the last decade and a half, as has the regulation of the labour market, with greater pay and employment flexibility as the key objectives. A number of adjustments – though too few in the opinion of most observers – have also been made to the welfare system to complement those innovations. But with what result? Our third task is to assess the equity and efficiency outcomes of the reforms. We organise our analysis as follows. The first section presents the pattern

of social pacting all’italiana, through the rise and demise of tripartite negotiations from the early 1990s to the present day. The second section presents an explanation for the changing dynamic of concertation, emphasising the importance of economic context in creating ‘win-win’ opportunities for collaboration between otherwise antagonistic actors. The third section examines the ongoing tensions between unions, employers and the state over the key institutional innovations put in place. The consequences of policy reform for pay and productivity, wage dispersion, and the relationship between the labour market and welfare systems are analysed, respectively, in the fourth, fifth and sixth sections. Section seven concludes.