Green Paper on labour relations paves the way for reform

In recent years, the need for labour relations reform in Portugal has grown, both to support the necessary modernisation of the economy and to encourage a more equitable distribution of income. In this context, the recent and most controversial change in labour legislation, Labour Code 2003, has led to conflicting results. In response, the Portuguese Ministry of Labour has published a Green Paper on labour relations, which will serve as the basis for a forthcoming White Paper. The latter will set out the key principles for a reform of labour relations, including the revision of the Labour Code.

In April 2006, the Portuguese Ministry of Labour published a Green Paper on labour relations (in Portuguese, 6.89Mb PDF), containing basic information on and analysis of the current situation regarding labour relations in Portugal. The paper is designed to contribute to a common understanding of the key problems and challenges in industrial relations for the government and social partners. It will fuel the debate at the upcoming negotiations on industrial relations reform.

The collective bargaining and legislative situation, as well as the low participation of workers in decision making and a general loss of regulation capacity, have been the focus of growing public debate. In this regard, the recent and most controversial change in labour legislation, Labour Code 2003 (PT0305101N), has led to conflicting results (PT0604019I). One result, for example, was a dramatic decrease in the number of workers covered by renewed collective agreements, while social partners in some sectors endeavoured to establish a general reform of existing regulatory frameworks.

Content of Green Paper

The Green Paper presents the available information and analysis, based on national and international sources, while also providing new information and analysis on labour relations. For example, the aeuro~flexicurityaeuroTM debate is addressed, comparing the Portuguese situation with other EU countries.

Economic and labour market developments

The paper states that, after a period of significant economic growth between 1995 and 2002, leading to a convergence with the EU25 level, the Portuguese economic path has been divergent. For instance, the inflation rate has kept on a par with average EU levels, while productivity and labour costs continue to be below the EU average. The average labour productivity per hour worked, which represented 57.2% of the EU15 average in 1995, increased to 63% in 2000, but declined to 57.7% in 2003. The evolution in labour costs per unit of production remains unfavourable compared with the EU25.

Moreover, the Green Paper outlines recent labour market developments and highlights that activity and employment rates are above the EU average. The youth employment rate also remained above the EU25 average of 36.8% in 2004, even if it declined significantly between 1999 and 2004, from 42.6% to 37.1%. In addition, employment levels decreased in the manufacturing sector from 1998 to 2005, at an annual average rate of 2.3%; the textiles sector was particularly affected with an employment decline of 4.5%. The percentage of wage earners with non-permanent contracts increased from 12.5% in 1992 to 19.5% in 2005. Long-term unemployment also grew from 2001 to 2005.

Education levels

Furthermore, the level of education of the population (including the labour force) remains critical, despite some improvements to date. People in the 25aeuro"64 years age group attaining upper secondary level education (ISCED Level 3) represent only 23.5% of the population, compared with 68% in the EU25. Looking at the same indicator for people in the 20aeuro"24 years age group, the educational level remains critical, with only 49% of Portuguese 20aeuro"24 year olds attaining secondary level education compared with 76.7% for the same age group in the EU25. A significant number of young people continue to leave school before completing compulsory education: around 4% in 2005.

Collective bargaining

The Green Paper highlights the prevailing division of trade unions and employer organisations in Portugal and the decrease in collective bargaining coverage since the Labour Code 2003 came into force. Links between the different bargaining levels remain weak, which is also the case within an organisation and between several organisations. Across all sectors, several collective agreements are applicable to the same company and even to the same occupational category; however, the effects of this formal pluralism of agreements are not relevant as their content is similar.

The paper also examines the content of collective agreements, by looking at a sample of 65 collective agreements covering all economic sectors. It analyses the agreements in relation to several qualitative issues, such as personality rights, working time arrangements (duration, flexibility), supplementary work, functional flexibility, mobility of workers, telework, vocational training, social protection, safety, hygiene and health at work, gender equality, and renewal of agreements.

Working time

In 2004, the average number of normal working hours defined by collective agreements was below the EU average. However, the effective normal working time average observed from 1996 to 2003 was higher, even though it declined due to the law on working time (PT9712154F). Furthermore, the percentage of part-time employment in Portugal in 2004 (11%) was below the EU25 average (17.7%).


Since 2003, the national minimum wage increase, which was above the average increase of collective agreements from 1995 to 2002, has been less than that of the collective agreements. The Green Paper emphasises that collective bargaining has a relatively low impact on wage policies adopted by employers, which the significantly high wage gap indicates. Portuguese wages are low compared with other European countries and are related to high levels of poverty and inequality in income distribution.

Social concertation

The Green PaperaeuroTMs analysis of social concertation draws on conclusions based on previous studies. The paper underlines that social concertation plays a key role in defining the agenda and the scope of change in labour and social legislation. However, it states that social pacts did not influence collective bargaining in order to drive change at company level, in line with the decisions of the bipartite and tripartite pacts.


The Green Paper also discusses the issue of aeuro~flexicurityaeuroTM, drawing on relevant international and European studies. According to the paper, the Organisation for Economic Cooperation and Development (OECD) evaluation of flexibility only focuses on external flexibility, which does not reflect the required degree of adaptability of labour relations to market changes and workersaeuroTM social needs. The Green Paper calls for a detailed examination of the composition of the employment protection legislation (EPL) index, highlighting that Portugal has a more rigid system than other Member States in relation to individual dismissals only. Regarding collective redundancies, the EPL in Portugal is close to that of the EU15; this is related to the more flexible legislation in Portugal compared with legislation in Belgium, Denmark, Germany and Italy. In addition, legislation on temporary employment is more flexible in Portugal than in other southern European countries.

The Green Paper underlines the advantages of the aeuro~flexicurityaeuroTM approach and the range of possible strategies in this regard. In Portugal, public expenditure on active employment policies for people participating in the labour market, measured as a percentage of gross domestic product (GDP), represents 60% of the EU15 average. In all, PortugalaeuroTMs state efforts towards protecting unemployed people, as well as promoting employment and social protection, represents around 90% of the European average; this is clearly better than the rate of countries in the weakest position, such as Ireland, Greece and the United Kingdom.

In conclusion, the Green Paper highlights a strategy that simultaneously improves flexibility and security; however, it also points to the fact that successful aeuro~flexicurityaeuroTM strategies are based on redefining the role of legislation and collective bargaining, as well as the active participation of the social partners in this process.

Maria da Paz Campos Lima and Reinhard Naumann, Dinâmia

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