An overview of labour market developments in Portugal prepared by the International Labour Organization recommends an increase in the statutory minimum wage and social assistance, extended coverage of unemployment benefits, and more equity in pension and health reforms. The report also expresses concern about the decline of collective agreements and insists on the importance of collective bargaining and social dialogue.
Deterioration in the labour market
At a conference on 4 November 2013 in Lisbon, attended by government and social partner representatives, the International Labour Organization (ILO) presented an overview of Portugal’s labour market in a report, Tackling the jobs crisis in Portugal (1.9 MB PDF). It analyses the impact of the global economic crisis and austerity measures, saying that since Portugal’s financial assistance programme was agreed in 2011, there has been deterioration in the labour market situation that is without precedent in the country’s modern economic history. The ILO report stresses that the critical situation of Portugal’s labour market reflects a combination of macroeconomic and structural factors:
Fiscal policy has been geared towards a rapid reduction of deficits, which had reached alarming proportions. Restructuring measures in the public sector have directly affected unemployment. Cuts in wages and welfare programmes, combined with certain tax increases, have eroded family incomes and domestic demand. Enterprises have been affected by the exceptionally tight macroeconomic conditions that have prevailed since 2011.
The report says that more than one-fifth of all small- and medium-sized enterprises say access to credit is their most pressing problem, meaning lost opportunities for job creation. When they do find new credit, interest rates are around 5.5% compared with 2% in Germany and other core Eurozone countries.
Proof of the critical deterioration of the labour market can be seen in;
- extremely high levels of unemployment and long-term unemployment;
- the increase of involuntary temporary and part-time employment;
- rising emigration, with the number of people leaving the country exceeding the number of immigrants;
- the critical decline of average earnings, the minimum wage and unit labour costs;
- the decline of welfare provisions such as unemployment benefits, social assistance and pensions;
- a decline of the average income per person of 10% since 2008 and the resulting decline in living standards;
- increasing poverty rates, especially in families with children.
Guidelines and measures to tackle the crisis
The report suggests a number of measures to tackle the crisis. It says job recovery will depend on increasing demand and improving financial conditions for Portuguese enterprises. Analysis of wage developments shows that cost competitiveness is not a problem for the Portuguese economy. On the contrary, it considers that:
…the main barriers to job creation and investment lie in the dynamism of internal and external demand, and the ability of the financial system to channel resources in the most effective way to support firms, especially small ones.
To improve the labour market, the report suggests measures to:
- make it easier for small- and medium-sized enterprises to find credit;
- preserve jobs in viable enterprises;
- give support to jobseekers, especially for the young and the unemployed with families;
- make more resources available for effective active labour market policies;
- reinforce public employment services;
- address long-standing weaknesses in the education system;
- improve social protection and prevent its further deterioration.
Key elements to recovery
The report also identifies the key elements for a job-rich recovery in Portugal. The ILO considers an increase in Social Insertion Income (RSI) – Portugal’s version of an income support allowance – is vital. It also wants to see the main non-contributory social benefit programme targeted at households that are at severe risk of social exclusion and poverty. The number of beneficiaries over the past two years has declined and the ILO suggests that:
…reinforcing the basic [social protection] floor should attend to the safety net created by social insertion income, providing enough funding to avoid an additional decline in coverage, and focusing even more on families with children.
Minimum wage update
The freezing of the national statutory minimum wage at €485 since 2011, has led to a reduction of 4.7% in its value in real terms. The ILO argues that a new strategy is needed because the proportion of workers receiving the minimum wage has more than doubled since the start of the crisis. ILO data show that the proportion of workers receiving the minimum wage was 5.5% in April 2007, 10.9% in April 2011, and reached 12.7% in April 2012. The data also show that the absolute value of the statutory minimum wage in Portugal is relatively low by EU standards. The ILO says increasing the minimum wage would prevent further wage inequality and further income inequality.
Unemployment benefits and social protection
The ILO highlights the relatively low coverage of unemployment benefits and the declining trend in the coverage of jobseekers. In 2013, around 44% of jobseekers received unemployment benefits, compared with more than 50% before the crisis. In 2013, only 8.7% of young jobseekers received unemployment benefits.
The ILO proposes an increase in unemployment benefit coverage and social protection designed to prevent long-term unemployment and encourage faster transition back into employment. Moreover, it defends the full range of active labour market policies and unemployment benefits and argues for a gradual increase in active measures to help the long-term unemployed.
Pension and health system measures
In 2011, 19.2% of retired people aged 65 and over were at risk of poverty, compared with the EU average of 14.7%. However, around 40% of pension funds are received by the richest 5% of the population. The ILO suggests a restructuring of pension expenditure to favour the most vulnerable pensioners. In the ILO’s words, ‘a well-designed redistribution may also help to rationalise public resources so that an adequate coverage can be maintained and further extensions of the retirement age avoided’.
The ILO also says that the health system should not be reformed in a way that harms low-income individuals, arguing that ‘there is evidence that clearly associates income inequality to health inequality that, in turn, is linked to lower labour productivity’.
Improving collective bargaining and social dialogue
Finally, the report also focuses on changes to collective bargaining:
The reform of collective bargaining agreements in 2011 aimed to promote [negotiation at] the enterprise level between employers and workers. Yet, so far, the reform has resulted in an overall reduction in the coverage of collective agreements, thus increasing the pressure to reduce wages and contracting domestic demand even more.
The ILO puts the case for a new approach to collective bargaining to ‘build an environment that allows wages and working conditions evolve in line with productivity while favouring employment recovery’.
It highlights the importance of social dialogue, particularly for the setting of the minimum wage, stressing ‘the fundamental nature of the principle of full consultation and direct participation, on an equal footing, of the social partners in the application of minimum wage fixing machinery’.
Furthermore, the ILO suggests that a better operation of different levels of collective bargaining agreement could be considered to increase coverage, while taking into account economic circumstances. It cites the examples of multi-level collective bargaining in Denmark and in Italy.
Commentary
The ILO report not only documents the dramatic trends observed in the labour market in Portugal, but also provides explanations for those trends which are highly critical of the direction and speed of austerity policies.
The ILO’s recommendations challenge the rationale of the measures in the Troika’s financial assistance programme and of other government measures. They focus particularly those that have an impact on internal demand and on the decline of living standards.
It supports the improvement of social dialogue and collective bargaining, stressing the importance of operating at different levels of bargaining and the extension of bargaining coverage. The ILO wants to see the minimum wage set through negotiations with the social partners.
Maria da Paz Campos Lima, Dinâmia