Labor laws and precarious employment

   It seems more than obvious that one of the reforms that will be taking place in Portugal in the near term is the labor market reform. And no, I am not talking only about making firings cheaper. The truth is that, for better or for worse, more labor market flexibility is simply inevitable, either with this government (if forced by our European partners), or with the next government (the most likely outcome). Why? Because Portugal is the OECD country with the highest strictness of employment protection for individual workers, something that impedes a faster job creation and penalizes the competitiveness of our exports.

   Still, and even though this reform is inevitable, it would be nice if there were more elevation in the public debate arena with regards to these matters. The fact is that, among us, often political and ideological rhetoric take the place of common sense when we talk about these questions. And both common sense and abundant empirical research show unequivocally that out labor laws not only promote unemployment, but also they are the main reason that explain why Portugal is one of the countries with the highest incidence of temporary work in all OECD.

   In order to understand why, it might be worth looking to the graph below, which confirms that Portugal is one of countries of the OCDE with more precarious employment as a percentage of total employment (horizontal axis), something that is intrinsically correlated to our labor laws with regards to individual workers (vertical axis).

   It is also noticeable that, contrary to the (wrong) perception that is prevalent amongst us, many of the countries where labor laws are less rigid (i.e. where it is easier to fire individual workers) are exactly some of the countries that have strong Welfare States (e.g,. Denmark or Canada). That is, to make our labor laws more flexible is not akin to destroy our Welfare State. Quite the contrary. By promoting faster labor job creation and by enhancing the competitiveness of our exports, less rigid labor laws contribute to more wealth creation, which then can be used to protect the Welfare State. Denying this is mere ideological rhetoric.

   The words “Precariedade, precariedade, precariedade” (the incidence of temporary employment) should be front and center in the strategy of the main opposition parties when they defend deeper reforms of our labor laws. They should emphasize that the reform of our labor laws is an imperative because, among other things, we have to combat the incidence of temporary work and we have to create more employment. The truth is that our “irrevocable” labor rights (“direitos adquiridos”) are the main source of temporary work in the Portuguese job market. Labor economists know this for a long time. It would be nice if our politicians as well as all of us knew it too.

 

Source: OECD, Santos Pereira (2011) "Como Retomar o Sucesso"  

Note: A Portuguese version of this post can be found here.