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Labour Market Reforms in Portugal 2011-15

A Preliminary Assessment

image of Labour Market Reforms in Portugal 2011-15

This report, commissioned by the XIX Government of Portugal, provides an evaluation of the comprehensive labour market reforms undertaken in Portugal over the period 2011-2015. It describes reforms in the areas of employment protection legislation, unemployment benefits, activation, collective bargaining, minimum wages and working time. The report reviews the reforms in detail and assesses the available evidence on the impact they have had on the labour market. The report concludes that the Portuguese labour market reforms were a move in the right direction. However, despite the progress made, many challenges remain and some of the reforms may not have gone far enough. Unemployment remains high and this situation has fuelled an increase in both poverty and long-term unemployment The labour market remains highly segmented and, in the context of very low inflation, the presence of downward nominal wage rigidity is likely to remain a barrier to the competitiveness of the Portuguese economy – unless productivity growth is strengthened.

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The impact of reductions in unemployment benefit levels on flows from unemployment to employment

Evidence from administrative data

The reforms of the Portuguese unemployment benefit system reduced the generosity of benefits for unemployment spells starting after April 1st 2012. The reforms entailed: i) a reduction in the maximum amount of unemployment insurance (from 3 to 2.5 times the social support index187), and ii) a 10% reduction in the unemployment insurance level after six months of unemployment (i.e. a declining replacement rate). The primary goal of these reforms was to encourage recipients to look more actively for a job and reduce the length of unemployment spells. It is important to note that the reduction in the level of unemployment benefits was only a small part of the total unemployment benefit reform package, and that the biggest effect is to be expected from the reduction in the maximum duration of unemployment insurance. However, because the latter will not apply to the first spell of unemployment after the reform, it is too early to assess its impact on unemployment duration.

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