ROME (Reuters) - When data this month showed Italy’s jobless rate hit a three-year low in October, Prime Minister Matteo Renzi said it proved the success of his flagship reform of the labor market.

Italy's Prime Minister Matteo Renzi attends a wreath laying ceremony for Cuba's independence hero Jose Marti at Revolution Square in Havana October 28, 2015. REUTERS/Enrique de la Osa

But a closer look at the figures suggests the Jobs Act isn’t working so well.

Data from national statistics bureau ISTAT shows that since the reform was phased in between January and March, the permanent jobs it aimed to promote have stagnated, while temporary ones it was supposed to deter have continued to grow.

Moreover a modest rise in overall employment has not been due to more jobs for the young, but to pension reforms by previous governments which raised the retirement age.

Renzi staked his credibility on a reform that he promised would create jobs and finally give young people the chance of stable rather than temporary employment. He continues to be an enthusiastic cheerleader for the changes.

“The numbers are stronger than any opinions. Unemployment a year ago was 13 percent, and now it’s 11.5 percent,” the prime minister wrote on his website on Dec. 4, referring to the most recent jobs data.

The legislation eased firing restrictions for large companies, while offering generous fiscal incentives for firms that hired permanent workers on new, less protected terms.

Renzi said if firms could fire people more easily they would be less reluctant to hire them. The incentives would end a situation where the vast majority of young people were employed via insecure short-term contracts.

BETTER LAST YEAR

With the reform in place and the economy growing, a net 83,000 jobs were created between January and October, the last month for which ISTAT figures are available.

In the same period of 2014, however, with the economy in its third straight year of recession and under the old labor rules, the number of jobs rose by 174,000 -- more than twice as much.

Employment actually fell by 39,000 in October after a drop of 45,000 in September.

“The Jobs Act doesn’t offer us anything,” says Alessandro Vergili, who runs the bustling Creo panino bar that opened two years ago in the center of Rome. “What we need is lower taxes, lower electricity bills and banks that will offer credit.”

Vergili said this year’s economic recovery was too fragile to consider hiring new staff or switching the temporary contracts into stable ones, with or without the incentives.

At the other end of the size scale lies multinational brake-maker Brembo, based in northern Italy, which employs 7,800 people worldwide and 2,950 in Italy.

Its head of HR Paolo Ferrari said the Jobs Act was “very positive” -- a view shared by most big businesses -- but had not been a factor in its decision to hire 200 people this year, two-thirds of them on permanent contracts.

“We would have hired them all anyway,” he said. “Business is going well and that depends on investments, innovation and productivity growth, not the Jobs Act.”

Multinational shoemaker Tod’s said it had hired 432 people in 2015, of which 290 were on temporary contracts. It said it accelerated some permanent hiring to take advantage of the incentives, which will be gradually phased out after this year.

GIVING UP

ISTAT’s data shows the jobless rate, which measures people actively looking for work, has fallen sharply since June mainly because thousands of job-seekers were so frustrated they had simply given up looking for work.

This is reflected in the fact that the labor force -- the sum of those in work or looking for work -- fell in October to its lowest level for more than three years.

The Jobs Act was controversial. Big business cheered the tax breaks and the easing of firing restrictions, while unions said easier dismissal undermined basic workers’ rights.

Some economists said it would attract foreign investors, while others said what was really needed to boost jobs was investment in education and technology and, as in Germany, closer links between schools, universities and companies.

A common criticism was that it did not apply to anyone already in work and excluded all state workers.

Renzi pushed the changes through over resistance from the left of his own party, pledging nearly 2 billion euros ($2.20 billion) this year of public money on the financial incentives for companies to hire.

Michele Tiraboschi, a professor of labor law at Modena University, said it normally takes four to five years to gauge the full effects of a labor reform,

Renzi, who faces elections before then, insists that his Jobs Act is already producing results.

He stresses the numbers of people hired under his new, open-ended contract with reduced job protection, citing monthly data issued by the labor ministry and the state pensions agency.

However, only ISTAT compiles statistics covering the whole labor force using internationally standardized methodology.

These show that since December last year, the last month before the incentives, a statistically negligible 2,000 permanent jobs have been created in net terms. Since March, when the new, more flexible contract was introduced, permanent workers have actually declined by 23,000.

Temporary jobs -- the kind that the reform was supposed to discourage -- have increased by 178,000 since the start of the year and by 190,000 since March.

Among those over the age of 50, employment increased by 186,000 in the 10 months to October, due to the statistical effect of a 2012 pension reform that keeps people working longer. Jobs fell by 103,000 among the under-50s.