Labour Market Reforms in Portugal 2011-2015 – A Preliminary Assessment says that, since economic growth turned positive in early 2013, Portugal has seen major improvements in both employment and unemployment rates that are better than expected given the pace of the recovery.
But joblessness remains high, particularly among youth, and this has driven an increase in poverty and long-term unemployment. The labour market remains highly divided between workers on permanent and temporary contracts.
Portugal’s reform of employment protection legislation was one of the most substantial among OECD countries in recent years and has moved it closer to the EU average. The report suggests a number of additional areas where reforms might be needed and which would further encourage hiring on permanent contracts, tackle labour market duality, and help reduce potential disputes between employers and workers.
The report also argues that the unemployment safety net should be strengthened by extending benefit coverage to more workers, but that further disincentives to work inherent in the current system should be removed if long-term unemployment is to be tackled effectively. This should go hand in hand with measures to reinforce employment programmes to support the reintegration of jobseekers into employment.
A significant number of reforms during the crisis were aimed at making the collective bargaining system more representative, decentralised and dynamic – but with mixed success. Going forward, employment losses associated with economic shocks could be contained if wages are allowed to reflect productivity developments at the firm-level more closely.
Further increases in the minimum wage might help address in-work poverty but, to minimise any potential job losses, reductions in employers’ social security contributions on minimum-wage workers should be considered.
More generally, further improvements to Portugal’s job market performance will require tackling other economic challenges. These include: the need to return to higher and more sustainable levels of growth; further reforms of product market regulations; better access to credit for firms; a reduction in employers’ non-wage labour costs; and additional investments in skills.