School of Business and Management

Reforming labour market laws in Portugal

A world-renowned expert on labour economics, Professor Pedro Martins had a unique opportunity to put the insights from his studies and research into practice when he was seconded from Queen Mary to become the Portuguese Secretary of State for Employment from 2011 to 2013.

During this period, Martins initiated and implemented a programme of successful labour market legislative reforms designed to reduce unemployment by partly deregulating the labour market, thus reducing the disincentives for firms to employ people, and by promoting active labour market policies to raise skill levels within the economy.

When Martins started his tenure the Portuguese economy was on the point of crisis and the labour market had serious structural problems. Employment legislation was very generous towards workers in permanent positions, but disadvantaged those entering the labour market or seeking to change jobs. The regulatory framework reinforced these inequalities, hindering company performance and the incentives for employers to expand their workforces.

Following Martins’ reforms – initiated as part of the wider economic and financial adjustment programme agreed between Portugal and the European Commission, the International Monetary Fund, and the European Central Bank – Portugal’s unemployment fell, from 17.7% to 15.1%, and GDP increased, by 1.2%, between the first quarter of 2013 and the first quarter of 2014.

The reforms included a modernised labour code, and several other policy changes affecting individual dismissals, working time, collective bargaining, new incentives for companies to train existing staff and hire new ones.

These reforms included:

• reducing severance pay levels towards the European mean
• introducing a longer maximum duration of fixed-term contracts
• widening the range of economic circumstances under which permanent workers can be dismissed
• facilitating the adoption of short-time working schemes
• allowing greater involvement of works councils in collective agreements and restricting the extension of collective agreements to firms or workers not affiliated to councils or unions
• giving employers a social security reimbursement for hiring unemployed people aged 30 or below, and unemployed workers aged 45 and above; and
• providing training to specific groups of unemployed people.