Thursday 5 May 2011

Firm (but not too strong) labour cuts

My summary of the main labour-market policies put forward by the troika:

1. Unemployment benefits: Capping unemployment benefits at 18 months and at around 1000 euros initially, plus a cut of at least 10% after six months (but not applying to those who lost jobs before the reform is introduced, while not reducing "accrued-to-date" rights of employees - more on this below); Reducing the minimum contributory period from 15 to 12 months and extending UB's to some workers under "recibos verdes";

2. Employment protection: Reducing severance to 20 days (10 of which paid by the employers' fund) per year of tenure with a cap of 12 months both for permanent and temporary jobs - to apply in full to new hires and in such a way that does not reduce "accrued-to-date" rights of current employees; Extending the grounds for dismissals for cause (e.g. when worker does not meet objectives agreed in advance for reasons of the worker's responsibility); and

3. Other aspects: Increasing flexibility in work hours (including reduction of overtime premium); Freezing the minimum wage; restricting the extension of collective agreements, strengthening works councils (to the detriment of unions); Assessing the effectiveness of current active labour market policies and designing plan for possible improvements.

The "accrued-to-date" formulation is not very clear but I think it means that a worker is always entitled to at least whatever s/he would have been entitled according to the current/old law by the time the new law is introduced. For instance, a worker with 15 years of tenure when the new law comes into force that is subject to a collective dismissal in his 16th year with the firm would be entitled to 15 months of severance - although the new law imposes a 12 month cap - given that the old/current law indicates one month of severance per year of tenure.

In this case, this approach would be a "generous" compromise between the tripartite agreement and the demands by some employers that the reduced severance levels would apply in full to all employees, not only the new employees. Also note that unemployment benefits access is widened - including to some people on "recibos verdes".

All in all, overdue policies to make the Portuguese labour market more modern and less segmented and the economy more competitive - so that the country can get out of the current utterly avoidable mess. Of course, it would be so much better to introduce some of these policies in periods of expansion - but the country was in some cases doing precisely the opposite of that in those times.


  1. "e.g. when worker does not meet objectives agreed in advance for reasons of the worker's responsibility"

    No room for abuse here \sarcasm

    In order to get any job in this economy workers will agree to all sorts of absurd objectives, hence putting themselves totally at the discretion of the employer when they inevitably fail to achieve them.

    The only honest position here is to say bluntly we have decided to end any concept of job security. Put in that way it is an arguable position, but to hide it in plain sight is just ugly and only gives unproductive work to the parasitic lawyers who carefuly scribble those contracts.

  2. I think most people - in particular international readers - would say that the law on dismissals for cause, as it currently stands - barely unchanged since 1975 -, is particularly strict already: a worker needs to behave in such an extremely serious way that the employment relationship becomes immediately and virtually impossible.

    (In the original version - "Constitui justa causa de despedimento o comportamento culposo do trabalhador que, pela sua gravidade e consequências, torne imediata e praticamente impossível a subsistência da relação de trabalho.")

    There is a still huge difference between the new version of the law proposed by the troika and dismissals at will.

  3. I think "Weak labour law reform" should be the more appropriate title to the blog entry.

    When you say that the current law is particularly strict, I assume you mean it is strict for the employers, the people actually credited for creating jobs.

    One of the major weaknesses of the European economies and in particular the Portuguese is the unfriendly nature of doing business. Job-creators are faced with unflexible laws that keep them from quickly staffing up their new startups or ventures; likewise they are not able to quickly terminate redundant, incompetent or lazy employees.

    This excessive labour protection laws result in a lagging and weak economy that ultimately harms employees as it keeps their wages and opportunities low.

    Employees are free to quit, strike, or otherwise cease their work, likewise Entrepreneurs and businesses should be free to discharge individuals for good cause, or bad cause, or no cause at all.