Economic survey of Portugal 2008: Improving the functioning of the labour market

 

Contents | Executive summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of Portugal published on 25 June 2008.

 

Contents                                                                                                                             

 

The labour market performance is worrisome. Although participation rates are relatively high in international comparison – including for women and the low-skilled – employment trends have deteriorated since the beginning of the 2000s. The unemployment rate has doubled over the past five years, reaching 8% in 2007, with a growing share of long-term unemployment, as the labour market was not able to get job-seekers back into work as effectively as in the past. Employment protection legislation, overall, remains restrictive in comparison with other OECD countries. To facilitate the adjustment of the economy to the forces of globalisation and reduce the social costs of the adjustment process, policies have to focus on easing labour market regulations that hinder workers' mobility, while reinforcing the support to job losers. Several reforms have been made over the past few years, including changes to the labour code, stronger controls of undeclared work, bringing the social security schemes of the private and public sectors closer and tighter eligibility conditions for unemployment benefits. These measures are an important step to strengthen work incentives and facilitate workers mobility; but more needs to be done to further improve the adaptability of the labour market.


A new framework for active labour market policies (ALMP) is under discussion. It envisages rationalising the programmes in place and improving their effectiveness. It is important to move ahead with the reform, so as to improve the effectiveness of activation strategies, especially given the large financial resources allocated to active programmes. The new framework, when approved, should be implemented without any delay, in particular the evaluation and rationalisation of activation programmes, and a strong focus should be given to improving the performance of the public employment services. Experience elsewhere shows that activation programmes can have a positive employment impact, but substantial results cannot be expected from reforming ALMP alone and it remains important to also press ahead with a broader labour market reform.


Additional measures are needed to improve the functioning of the labour market. A further easing of employment protection legislation should be undertaken. Current dismissal rules are relatively stringent, in particular for individual dismissals, and procedures tend to be long and costly. By expanding the scope of formal dismissals carried out according to the rules, measures that ease regulations would reduce uncertainty for the employer about the specific cost of dismissal when hiring and could thus increase job creation, in particular with regular contracts. It would also allow workers to benefit from greater certainty that the rules will apply upon termination of contract. Conditions for temporary employment should also be relaxed: these jobs are often used by young cohorts as stepping stones for more durable employment in the future. It is important to combine the easing of employment protection legislation for temporary work with an easing for permanent work to avoid worsening the dualism of the labour market.


The government has launched a comprehensive review of labour relations, with the stated objective of fostering job creation, reducing the segmentation of the labour market and enhancing mobility, while improving the protection of displaced workers. The conclusions, presented in the “White Book on Labour Relations” at the end of 2007, address several of the problems that are impeding the adjustment of the labour market. They have been under discussion with the social partners in the first half of 2008, with a view to presenting a reform proposal to the parliament. The changes envisaged include revisions to the labour code as well as specific measures to facilitate the application of the law. There are also suggestions for reviewing bargaining procedures to give more room to agreements at the enterprise level and for increasing the adaptability of working time. The White Book proposals go in the right direction and, if enacted, would represent a step forward.


Increasing human capital is essential to improve the adaptability of the workforce to the on-going structural transformation and to foster stronger productivity growth. Portugal suffers from a large education gap vis-à-vis the rest of the OECD and action is required not only to raise the education attainment of the population, but also to review the type of education provided and its quality, as was highlighted in the special chapter of the 2006 OECD Economic Survey. Measures are being implemented to address supply bottlenecks, especially in technical education and vocational training, and to enhance teachers’ performance. The focus given to diversifying training supply for adult workers and developing skills certification has a strong potential to attract a wider public in lifelong learning.


The government’s strategy to upgrade competences and provide the skills that are needed in the labour market is centred around the Novas Oportunidades initiative. The initiative includes two main pillars: i) providing new opportunities to young people at risk of dropping out of school; and ii) offering learning opportunities to adults with low educational attainment, based on the recognition and certification of acquired skills. Key steps have already been achieved in implementing this initiative, for instance the development of the network of Novas Oportunidades centres, the diversification in the supply of courses (notably double certification courses) for the young people still in education, and the recognition and certification of skills for adults. And the first results, in terms of attendance, are encouraging with a notable increase in the proportion of young people enrolled in technical and professional courses at the secondary level, and strong demand of adults for the recognition of competences and for lifelong learning. More should be done to develop the information base, to undertake systematic field monitoring and conduct rigorous evaluations of the results. But, as the scale of application of the programme expands, the most difficult task is to ensure the quality of the services provided. It is also a sine qua non for the success of the government’s strategy to enhance human capital.

How to obtain this publication                                                                                   

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Portugal 2008 is available from:

 

Additional information                                                                                                  

 

For further information please contact the Portugal Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Bénédicte Larre, David Haugh and Claudia Cardoso under the supervision of Stefano Scarpetta. Research assistance was provided by Roselyn Jamin.

 

 

 

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