Liberalised dualisation. Labour market reforms and the crisis in Portugal
| Author | Daniel Cardoso,Rui Branco |
| Published date | 01 March 2018 |
| Date | 01 March 2018 |
| DOI | http://doi.org/10.1177/1388262718763668 |
| Subject Matter | Articles |
EJSS
Article
European Journal of Social Security
2018, Vol. 20(1) 31–48
Liberalised dualisation. Labour
ª The Author(s) 2018
Reprints and permissions:
market reforms and the crisis
sagepub.co.uk/journalsPermissions.nav
DOI: 10.1177/1388262718763668
in Portugal: A new departure
journals.sagepub.com/home/ejs
Daniel Cardoso
Portuguese Institute of International Relations (IPRI-NOVA), Lisbon, Portugal
Rui Branco
Nova University of Lisbon and IPRI-NOVA, Lisbon, Portugal
Abstract
Drawing on quantitative and qualitative data, this article examines how the main dimensions of
labour market legislation (employment protection, security in unemployment, collective bargaining
and activation policies) changed in Portugal during the sovereign debt crisis from 2011 to 2014. We
show that the reforms passed during the Troika years were qualitatively different to earlier
reforms. Despite building upon previous trends, there were path-shifting changes. First, security in
employment and in unemployment for standard workers (insiders) declined substantially. Second,
a significant decentralisation of wage bargaining shifted the balance of power towards employers,
while a move from joint to statutory regulation stalled social cooperation. Third, neither of these
trends was offset by any relevant unemployment compensation strategy or activation effort tar-
geted at outsiders: no recalibration occurred in a historically dualised labour market. The balance
of power between employees and employers shifted towards the latter at the expense of the
former. A worse situation for insiders and outsiders points to wide market flexibilisation and
enduring segmentation at a lower level of security. The austerity-driven reforms brought the
Portuguese labour market to a liberalized dualisation, signalling a new departure for Portuguese
labour market relations.
Keywords
labour market reforms, Portugal, crisis, troika
Corresponding author:
Daniel Cardoso, Portuguese Institute of International Relations (IPRI-NOVA), Av. de Berna 26-C, 1069-061 Lisbon,
Portugal.
E-mail: daniel.cardoso@fcsh.unl.pt
32
European Journal of Social Security 20(1)
Introduction
From 2009, Portugal’s fiscal deficit and debt to GDP ratios increased sharply as global and
domestic economic conditions worsened. This led to rising pressures on the external financing
of Portuguese debt with steep increases in interest rates that reflected the deterioration of investors’
confidence (European Commission 2014: 3). Consecutive downgrades of Portuguese sovereign
bonds by rating agencies and growing financing needs made it harder for the Portuguese govern-
ment to refinance itself and continue paying its debt. Unable to face these rising debt commitments,
Portugal followed Ireland and Greece in April 2011 to become the third European Union (EU)
member state to request financial assistance from the European Commission (EC), the European
Central Bank (ECB) and the International Monetary Fund (IMF), known as the Troika. In May of
that year, the Portuguese government signed a Memorandum of Understanding (MoU) outlining an
extensive three-year programme of fiscal consolidation and structural reforms in exchange for a
€78 billion loan.
Like other crisis-stricken countries in Southern Europe, the crisis offered a window of oppor-
tunity to pass structural reforms in significant sectors, such as the labour market (Moury and
Standring 2017, Petmesidou and Guille´n 2014). While it is widely accepted that this juncture
favoured policy change, there is less agreement about its direction, particularly in the case of the
labour market. Many studies have pointed out that reforms during the crisis led to an overall
liberalisation of labour market institutions in debtor countries (e.g. Baccaro and Howell 2011,
Hopkin 2015, Meardi 2012, Pavolini et al. 2015). Others, such as Dubin (2012), have argued that
entrenched dualisation may well be the path of reform in Southern European countries. Hemerijck
(2012), on the other hand, asserted that the opportunity presented by the crisis could be used to
recalibrate labour markets, fixing long-standing, structural socio-economic imbalances. In contrast
with views advocating a single, exclusive reform path, Picot and Tassinari (2017) suggest that
reform paths are not mutually exclusive and can coexist. Analysing the Spanish and Italian cases,
they conclude that liberalisation went along with dualisation in the former and with recalibration in
the latter.
Against this background of variation, we ask, first, how does the Portuguese case fare relative to
the plausible reforms paths laid out in the literature; second, how did Portuguese policy reforms
fare regarding the policy prescriptions outlined in the 2011 bailout Memorandum; and third, given
the historical legacy of reforms in Portugal: did crisis-driven policy changes bring about a new
departure, an acceleration or a U-turn relative to past trends?
Previous studies have provided only partial responses to these questions since they focused on
specific dimensions of the labour market in the crisis period (e.g. Lima 2016, Moreira et al. 2015,
Ramalho 2013, Valadas 2017). In order to fully understand the overall reform outcome, we carry
out a multipronged analysis which looks at the four main dimensions of labour market: regula-
tion of standard and non-standard employment, unemployment benefits, wage and collective
bargaining, and active labour market programmes (ALMP), and then analyse both their direction
and extent.
This article is structured as follows: the next section elaborates the analytical framework and
discusses reform typologies under austerity. The methodology, data and case-selection are then
presented. The empirical section opens with a historical overview of Portuguese labour market
dynamics before the crisis and goes on to provide a detailed assessment of Portuguese reforms
during the crisis. The article concludes by discussing the main findings and outlining some further
lines of research.
Cardoso and Branco
33
Varieties of crisis reform trajectories: liberalisation, dualisation
and recalibration
After a brief counter-cyclical, neo-Keynesian reaction to the economic and financial crisis, in 2010
the EU’s response veered towards austerity. Policy goals under austerity were both fiscal con-
solidation and so-called ‘structural reforms’ recasting institutions to improve international eco-
nomic competitiveness (Petmesidou and Guille´n 2014).
During the crisis, and since the 2011 bailout, Portugal was under formal conditionality from
external authorities, which exerted strong pressure for labour market reform – as were, to varying
degrees, other Southern European countries. Going into the crisis, Portugal, Spain, Italy and
Greece all shared a policy history of increasing flexibility on the margins, which left those in
permanent contracts largely protected, and thus shared a set of challenges, such as insider-oriented
segmentation, a qualification deficit, lower productivity, and crisis-induced high unemployment.
The literature suggests that austerity-driven labour market reform in Southern Europe could
follow three different paths: liberalisation, dualisation and recalibration across employment pro-
tection legislation (EPL), security in unemployment, collective bargaining, and ALMP.
Liberalisation is the trajectory most frequently identified in the literature after 2010 (Baccaro
and Howell 2011, Hopkin 2015) and is understood as the steady expansion of market relations into
areas hitherto reserved for democratic and collective decision-making (Streeck 2008). In terms of
the labour market, this means a weakening of workers’ rights (both in standard and non-standard
employment), achieved through the deregulation of dismissal protection as well as the decentra-
lisation and limitation of mandatory extensions in collective bargaining. The underlying expecta-
tion is for the labour market to clear by adjusting the price of labour downwards so that economic
activity can pick up and employment rebound. Meardi (2012) and Pavolini et al. (2015), for
instance, have identified this trend in the Spanish and Italian cases.
Dualisation as a reform outcome in an already segmented labour market follows the logic of
imposing the cost of reforms on labour market outsiders (those in atypical employment contracts),
rather than on insiders (those in standard, full-time jobs with benefits) (Thelen 2014: 6). In terms of
labour market policies, this entails the deregulation of non-standard employment, and retrench-
ment of needs-based unemployment benefits and ALMP. As mentioned above, this was the policy
trajectory followed by most Southern European countries before the crisis. Dubin (2012), looking
at the changes to the Spanish labour market during the crisis, argues that this continued to be the
preferred reform trajectory.
With recalibration – the third reform path – the focus is on correcting long-standing, structural
socio-economic imbalances between insiders and outsiders. Therefore, the central aim is to
advance a policy mix that fosters both economic competitiveness and social solidarity, while
promoting a more equitable distribution of the modern labour market’s risks and opportunities
(Ferrera and Hemerijck 2003: 90). It purports to redress long-standing imbalances in the labour
market and associated social protection by targeting the peripheral workforce as the recipient of
extra labour market support. This works through the erosion of dismissal protection in standard
employment accompanied by...
To continue reading
Request your trial