Address by the Minister of Labour and Social Solidarity to the OECD, Employment, Labour and Social Affairs Committee, in Paris
Let me start by thanking the OECD for the kind invitation to participate in this session of the ELSA Committee and for the opportunity to present here the main features of the policy strategy adopted by Portugal to tackle national structural problems since the beginning of the present parliamentary term.
You may know that between mid 1980s and the year 2000, the Portuguese membership of the European Communities is a case of success.
During those years, Portugal has converged to the EU15 average in terms of GDP per capita and productivity; the employment rate has been higher than average; and, thanks to policies adopted on the second half of the 1990’s, unemployment was one of the lowest in the EU.
Since 1997, the Portuguese society has no longer been based on a long hours’ economy; minimum income has been introduced to reduce poverty’s harshness; and national minimum wage has grown above the annual average of wages and salaries while these have grown above the EU average.
From 2001 to 2005, when the present Government took office, the economic and social trends have been the opposite:
- GDP per capita, expressed in Purchasing Power Standards, was 77,3% of the EU27 average in 2001 and had declined to 75,2% in 2005 and to 74,3% in 2006;
- Productivity per hour worked has been diverging from the European average since 2000;
- Unemployment rose from 4% in 2001 to 7,6% in 2005 and to 7,7% in 2006;
Faced with a very difficult situation, the Portuguese government has adopted a comprehensive set of reforms which includes a vast number of measures in multiple sectors of governance and is backed by methodological innovations that later I will briefly present. These reforms aim for twin targets: to restructure the functioning of the national economy and society, and to get back to the respect of the criteria of the Stability and Growth Pact.
To put it simply, the rationale of the policy measures adopted is to tackle short-term problems with instruments which do have positive and sustainable effects on the medium and long run.
I will focus my presentation on the domain of employment, social protection and labour market regulation, the three main areas of my ministry.
But before that, let me summarize the strategy adopted on the crucial field of public administration, including the civil servants statute, coordinated by the Ministry of Finance and Public Administration.
The reform of public administration is based on four pillars.
Firstly, to set up a new architecture of the State organization, to obtain economies of scale via the elimination of parallel structures, redundant processes and costs and by the streamlining of services’ structures.
To achieve this target, responsibilities and structures have been redefined and the Program of Reforms of the State’s Central Administration or PRACE (Programa de Reformas da Administração Central do Estado) has been put in practice. The measures taken through this program imply that, for instance, each ministry has reduced by ¼ (one fourth) the number of structures and top level management.
Another example: Simplex, a program to ease the access of citizens and companies to public services, has also been launched. Its concrete results have got very positive evaluation by international organizations and, namely by the OECD.
Secondly, a new model of human resources management is already being implemented and will be fully implemented by 2009.
The rationale of this second pillar is fourfold: to orient public services towards citizens and enterprises; to assess and manage performance; to encourage managerial flexibility and make managers more accountable for performance; to promote initiative and reward merit of civil servants.
Portugal has now a new Law of Civil Servants Contractual Ties, Careers and Remuneration that includes a relevant set of innovations among which I would like to underline the reduction of the number of contractual ties, the increased flexibility, competitiveness and speed of recruitment and the drastic reduction of the number of careers, scales and pay positions.
Also, the social protection regime of civil servants has been revised to reduce inequality in the allocation of public resources and to get better financial sustainability. As a consequence, this regime will converge with the private sector one (namely concerning retirement age and the pensions’ calculation formula).
Thirdly, to get a better integration between human resources management and budgetary management, planning of human resources has been improved, mobility of personnel has been improved and the number of civil servants has been reduced according to the rule of one in for every two out.
The above mentioned changes implied that a large number of legal and administrative acts had to conceived, debated with trade unions and approved either by the government or the Parliament.
The achievements made possible by this strategy of reform include: the "special mobility" statute of civil servants; the inversion of the growth of employment in public administration, which had been the trend in the previous decades.
Together with tax reform for securing fiscal and budgetary consolidation, securing an environment of sustainable sound public finances as far as the Stability and Growth Pact criteria is concerned, the adopted measures seem to be producing the aimed results. This can be illustrated by the decline of Public Deficit from 6.1% of GDP in 2005 to 2.2 in 2008.
Let me turn now to my political area of responsibilities, namely employment, social protection and labour market policies.
The Portuguese employment rate is traditionally high and above the EU’s average, both for men, women and older workers.
From the employment rate perspective, Portugal is far from being a typical Southern European society, especially for women - whose employment rate rivals the indicators of Nordic European countries, and almost exclusively through full-time jobs.
Nevertheless, Portugal needs to solve two main problems: (1) skills shortage; (2) a high proportion of atypical employment in the workforce and excessive labour market segmentation.
To tackle the first problem, the Portuguese government has launched a set of coordinated measures that imply a reinforced coordination between two ministries, the Ministry of Education and the Ministry of Labour and Social Solidarity (which has had the responsibility for vocational training over the years).
Reinforcement and improvement of synergies between the two ministries has allowed to launch a coherent strategy that includes the rationalization of the school network, the modernisation of curricula, the introduction of evaluation of teachers’ performance linked to their career, and a stricter evaluation of the system’s performance.
The rationale of the reforms undertaken by the Ministry of Education aims at the inclusion of all young people in the appropriate school level; the generalization of access to upper secondary education; a steady reduction of early drop out of the education system and the improvement of the present poor performance of students.
To reach these objectives, many relevant measures were taken. I would underline: universal learning of the English language in the first cycle of basic education; generalized access to information and communication technologies in all schools and by all students engaged in primary and secondary education; a program aiming at the improvement of literacy and numeracy has been implemented; and the diversification of educational curricula.
If the enhancement of educational system outcomes is certainly an indispensable instrument to overcome the Portuguese skills deficit, it is also essential to deal with the problem of adult qualifications. To this purpose, a broad reform of vocational training, including youth and lifelong learning for adults, has been put in place.
The Portuguese government launched a new program – Novas Oportunidades, or New Opportunities – whose main objective is to have 1 million more people aged 18 and over with double certification of both vocational training and adult education schemes by 2010.
The program is a joint responsibility of the Ministries of Education and of Labour and Social Solidarity and is being implemented by a specialized public body, the National Agency for Qualification.
To achieve this objective, the program combines enhancing the system of recognition of qualifications acquired during working life (CRVCC) with the reinforcement of lifelong access to vocational training.
The system of qualifications’ recognition and validation was launched on 2001, but it had had a reduced level of performance until 2005. This dimension of Novas Oportunidades has already produced a huge increase of the number of enrolled and certified adults in CRVCC between 2005 and 2008.
A decisive feature of the reform, which is significantly a key priority of European Sructural Funds, is the renewal and reinforcement of access to quality vocational training opportunities, as well as the integration in new education programs for adults with less than the 12 years of schooling.
Overall, Novas Oportunidades has already reached more than half a million adults in two years and is proving to be a very relevant tool to change the Portuguese material and symbolic landscape on both young and adult access to education and training.
I will refer to the second main problem of employment (the excessive proportion of atypical employment in total workforce and the segmentation of labour market) when I present the reform of labour market regulation.
Now, let me approach the social protection reforms, whose main topics comprise the reform of unemployment benefits, pensions’ reform and facing the problem of inequalities and poverty. Here, the latter dimension includes most notably the creation of the Solidarity Supplement for the Elderly – and is complemented in other fields by measures I will refer to such as the progressive increase of minimum wages agreed with social partners and the above mentioned fight against segmentation and precariousness in the labour market.
The unemployment benefit scheme was reformed in the end of 2006, after a social partners’ agreement.
The main objective of the approved legal change is to avoid the misuse of the unemployment benefit, by combining active labour market measures with measures aiming at the reduction of unjustified use of this social benefit.
The reform carried out has fostered the further activation of beneficiaries of unemployment insurance benefits by reinforcing the role of public services in tackling the existing mismatches between supply and demand in the labour market and promoting a greater job-seeking effort by the beneficiaries.
Firstly, the individual employment plans prepared by public employment services must include detailed job seeking activities, so that the plans offers now more assistance to the unemployed workers but also imposes the adoption of a more active approach in seeking new employment;
Secondly, to promote a quicker adjustment to the labour market conditions, the notion of suitable employment has been redefined and the conditions to be matched according to the new concept have been fine tuned by leveling the new job pay conditions to the benefit amount and by promoting occupational mobility and lifelong learning;
Thirdly, the eligibility conditions have been revised by linking the qualifying period, both to age and to the contribution period.
Fourthly, the sanctions against both employers and employees have been raised to reduce the improper use of unemployment benefits;
The second structured intervention of the Portuguese government concerns pensions.
The significant increase of social transfers in recent years had deteriorated the financial situation anticipating the expected deficits of the social security balance sheet.
Recent projections of the evolution of the social security system published by a special commission established for this effect in 2005 showed that the expected ageing of the population in the next decades would put the pensions system under significant strain.
Without the adopted measures, the social security system was expected to start generating deficits in 2007, and by the end of 2015 the pension trust fund (FEFSS) would run out of its reserves.
This situation has led the Portuguese Government to adopt a series of structured actions aiming at the sustainability of the system and taking immediate measures to reduce budgetary imbalances. These include the reduction of contributions’ evasion, the tightening of early retirement conditions and the raise of 50% in the minimum contribution of self employed workers.
These measures have shown positive results, reversing the trend initiated in 2004 and allowing for an improvement of the subsequent budgetary years.
As for the pension’s reform of private sector, the already mentioned studies led to the conclusion that it was necessary to adopt a set of changes on the legislation.
After a successful negotiation with the social partners, the Portuguese Government signed in 2006 a tripartite agreement on social security reform.
The necessary legal changes have been adopted and this agreement is already being implemented.
Among those changes, I would like to mention the following:
- The so-called sustainability factor, i.e., linking the calculation of pensions to the evolution of average life expectancy;
- The new formula for the calculation of pensions, which accelerates the transition to the rules of calculation of pensions based on the whole contributory career introduced on the early 2000’s;
- A transitional system designed to minimize the effects of the rules to the beneficiaries of long contributory careers;
- The modification of the legislation on the flexibility of the retirement age, to guarantee actuarial neutrality trough new bonus and penalties, now linked both to age and career;
- The introduction of a cap on the calculation of pensions, designed to limit the highest pensions;
- A new public scheme of individual accounts of voluntary nature;
- A new Code of Contributions is to be adopted in the near future, aiming at the broadening the base of contributory incidence and the modulation of contributions according to type of employment.
Another dimension of the adopted reforms is the strengthening of instruments to tackle poverty and exclusion. A paramount example in the social protection field was the creation of the Solidarity Supplement for the Elderly, or CSI after its name in Portuguese (Complemento Solidário para Idosos), a new tool to fight poverty, which is higher amongst senior citizens. CSI is a means tested supplement to all above 65 whose income is below the poverty line, in order to, together with the traditional pensions, help reduce poverty in this cohort.
Overall, the reforms on the social protection domain have increased the financial sustainability of the system and improved its justice and adequacy, thus promoting social cohesion.
The last policy domain I wish to present you is the reform of labour market regulation.
A new Labour Code had come into force in 2003 and, as an immediate consequence, the coverage of collective bargaining had fallen sharply.
Shortly after coming into office, after an agreement with social partners, the Government proposed and the Parliament adopted a reduced set of changes on the Labour Code designed to reestablish the power balance between trade unions and employers’ associations and to get back to the traditional levels of coverage.
These changes worked and thus created conditions for a more ambitious reform of labour law and have thus contributed to enlarge the room for the subsequent decisions, together with a tripartite agreement on the sustained positive discrimination of the minimum wage vis-à-vis expected wage increases, which I will refer later.
Due to the prevailing adversarial approach in industrial relations in Portugal, the reform could not be successful without both substantive and procedural innovations.
The main methodological difference has consisted on linking expertise to the traditional role of social concertation, which has permitted the renewal of the agenda, a grounded proposal of the government and, finally, an encompassing tripartite agreement.
In fact, before engaging in a formal negotiation process with the social partners, the government developed a two-step approach to design a proposal.
Firstly it asked an experts group to produce a Green Paper on Industrial Relations (LVRL, after its Portuguese title, Livro Verde sobre as Relações Laborais) that collected and analysed information on key issues concerning the labour market and industrial relations, as a basis for subsequent work.
A second committee of experts was established in 2006 with a clear mandate: submit to the government, one year later, a new report, the White Paper on Industrial Relations, or LBRL, once more after its Portuguese name, Livro Branco das Relações Laborais. Based on the Green Paper and additional research commissioned by the White Paper Commission, the White Paper included a broad set of specific proposals. These were meant as possibilities for changes in labour market regulation.
Both documents were published and social partners were invited to debate them in social concertation, both in meetings and through written opinions.
Based on the in-depth diagnosis of the Green Paper, the political proposals of the White Paper and the reactions of social partners, the government eventually designed its own proposal to social partners on the reform of labour market regulation. The proposal followed a broad integrated approach including labour law, social protection and employment policies, in order to broaden the scope and coherency of reforms.
These methodological innovations proved to have good results on the renewal of agenda setting. For the first time in Portugal, the evidence and the rationale of proposals were made public before the formal process of social concertation, thus reducing the room for the traditional veto powers, while the combination of different fields, problems, solutions and instruments on the table increased the room for maneuver for both policy design and consensus-building.
Government proposals have thus been based on an accurate diagnosis of problems, which can be summarized this way:
- Low adaptability levels of both companies and workers to economic and social change and scarce possibilities for workers to reconcile professional life with personal and family life;
- Insufficient dynamism of collective bargaining and increasing obsolescence of collective agreements;
- Formal strictness of labour law combined with limited enforcement of labour norms;
- High levels of precarious employment and strong segmentation of labour markets.
To tackle these problems the Government presented to the social partners a set of proposals around five strategic goals:
- The creation of a new relation between labour law, collective agreements and individual contracts, increasing the role of social partners in labour market regulation;
- The promotion of internal flexibility within enterprises and the improvement of conciliation between professional and family life;
- The simplification of administrative procedures on dismissals;
- The reduction of atypical employment on the overall employment rate and the reduction of labour market segmentation;
- Fostering the enforcement of the legal framework.
The agreement signed by a majority of social partners stands as a new and balanced shared social commitment which simultaneously promotes competitiveness and adaptability to change and tackles the problems of inequalities and segmentation. Moreover, it strengthens the scope for social partners
In fact, the Governments’ proposal, which has been submitted to the Parliament and is at present under debate, includes a set of important changes in the Labour Code, opening new possibilities to collective bargaining on key fields such as working time flexibility.
But it also includes changes in social protection which are strong steps against the excessive levels of atypical employment. For example, the reduction of social security contributions by employers for open-ended contracts while increasing them for fixed-term contracts and for the self-employed, as well as improving the social protection of the self-employed. Also, it strengthens the legal instruments for detection and correction of self-employment misuses.
This dimension of the reform, concerning the reduction of inequalities and segmentation, is in fact coherent with the structural modernization efforts being put in practice since 2005. Given the history and profile of the country, tackling the significant levels of poverty and inequalities is one of key dimensions of modernization.
Policy strategy in this regard has covered different fields, ranging from investment in human capital and integration in the labour market to positive differentiation of low pensions combined with steady improvements in social protection. For instance, the introduction of a national Minimum Income Scheme with an activation component in 1997 or the already mentioned Solidarity Supplement for the Elderly in 2006.
Another recent and important example is the tripartite agreement with all social partners concerning the increase of national minimum wage above the expected growth of prices and salaries every year until 2011. Again, it is a good sign for the possibilities of a renewed social commitment that combines fostering economic competitiveness with enhanced social fairness and cohesion.
Thus, the reform of labour market regulation is also another step towards the reduction of segmentation, inequalities and poverty as a part for the modernization Portuguese economy and society.
Let me conclude with some brief comments on the lessons of this strategy of reforms.
To put it simply, the Portuguese case seems to suggest that the success of reforms, which is always a contingent result, cannot be explained only by its substantive contents.
Equally important is to base proposals of reform on accurate and sound diagnosis of the problems to be tackled and to involve social partners on the agenda setting and on the definition of solutions.
Sequence of reforms is also very important, as it may increase or reduce the room for subsequent decisions.
In nowadays world, multi-level and multi-actor governance is often the only possibility available if reforms are meant to be successful.
In any case, the way to relevant economic and social change is a hard and dangerous road to travel, where the Cartesian design of reforms must pay tribute both to the bounded rationality of each angle of the corporatist triangle and to relevant opinion makers.
But it is the price to pay to pave a new way for renewed regulatory framework, more necessary than ever before, as the present financial crisis shows.
As institutional and informal veto powers cannot be ignored on our societies, it is of paramount relevance that both the design and the results of social dialogue on reforms pay tribute to the key principle of legitimacy of social and labour market policies: private rights, interests and expectancies must be compatible with general rights, interests and expectancies.
So far, public opinion acceptance suggests that this principle has been successfully explained and that the need and fairness of reforms is understood by citizens.