Economic Survey of Portugal 2006: Creating a More Dynamic Business Environment and Improving the Functioning of the Labour Market


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The following OECD assessment and recommendations summarise Chapter 5 of the Economic Survey of Portugal 2006 published on 20 April 2006.


Creating a more dynamic business environment would also encourage innovation
and contribute to overall productivity growth

There has been a significant improvement in reducing the burden of regulations. The cost of doing business in Portugal has come down and red tape has been cut, but other countries have made rapid progress as well. The benchmark for the Portuguese regulatory policy environment should now be the settings in the best-practice countries rather than those of the average EU countries, where regulations tend to remain excessive. Recent action to ease registration requirements for business creation is appropriate. Further measures are desirable to further reduce the cost of firm creation, cut administrative overheads of running a business and facilitate the exit of poorly performing companies. A more dynamic business environment would help Portuguese firms' competitiveness and enhance the attractiveness of the country as a location for foreign direct investment, thereby, as in the 1990s, offering opportunities for learning from international best practices.

More growth could also be obtained by further strengthening competition…

Portugal has made much progress in enhancing competition, which could be a major source for economic growth. But in a number of areas, in particular in network industries, more competition is needed. In the energy sector, the structure and regulations provide little incentive to improve efficiency and pass on lower costs to consumers, so that prices remain high by international standards. For instance, electricity prices for industry are among the highest in the EU, except for large consumers where they are at the EU average. The government has started the restructuring of the energy sector which foresees a pro-competitive re-deployment of electricity and gas assets. An agreement has been reached with all shareholders of the companies involved, including some major European energy players. This restructuring has the potential to raise efficiency and improve consumer welfare by reducing prices and should be carried through and accompanied by appropriate measures to facilitate consumer switching. In the telecommunications sector, where the incumbent holds a dominant position on several markets, and despite action by the sector regulator to reduce interconnection charges, more needs to be done to ensure a level playing field. A key step to developing competition in the sector would be to separate ownership of the fixed telephony and cable networks.

Energy prices in industry


1. Data for 2002.
2. Excluding taxes.
3. Data for 2003.
Source: AIE, Energy prices and Taxes.

… and by easing labour market regulations that inhibit the expansion
of regular employment and impede workers' mobility

Portugal’s labour market is characterized by traditionally high participation, but over the past years unemployment has risen to high levels. As in many other OECD countries with relatively restrictive employment legislation, firms have favoured the use of fixed-term contracts, aggravating problems of a dual labour market, which raises equity concerns and tends to reduce incentives for firms to provide training. Although the recent changes to the labour legislation have several commendable elements, such as increasing flexibility in collective agreements at the firm level, the overall setting for employment security remains too strict and procedures are cumbersome. International experience shows that his hampers labour mobility, inhibits the creation of permanent jobs, lengthens unemployment spells and also slows the pace of innovation within firms. More measures are needed, including easing dismissal rules and simplifying procedures for dismissals which would it make more attractive for employers to offer regular contracts and raise the dynamic efficiency of the economy. On the labour supply side, it would be desirable to review the unemployment and related benefit system   and its interaction with the tax system   to achieve the appropriate balance between providing income support for job seekers and preserving work incentives. This should involve both enhancing the effectiveness of active labour market policies and tightening up benefit programmes and also requires improving the performance of the Public Employment Service (PES).

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.

The complete edition of the Economic Survey of Portugal 2006 is available from:

Additional information                                                                                                  

For further information please contact the Portugal Desk at the OECD Economics Department at The OECD Secretariat's report was prepared by Bénédicte Larre, Stéphanie Guichard and David Haugh under the supervision of Wilhelm Leibfritz.




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