08 July 2016

By Isabel Távora, University of Manchester; and Pilar González, University of Porto

In the fifth article of our EU Comparative Series, academics from the University of Manchester and the University of Porto examine the impact on trade union and workers’ rights of a shift towards neoliberal structures in Portugal following intervention of the Troika.

Introduction

The sovereign debt crisis was a period of significant labour market reform in Portugal. This paper examines the process of implementation of these reforms, their substance and their impact. It draws on a research project conducted in 2014 comprising 30 interviews with employer and union organisations in Portugal at the national and sectoral levels, as well as in manufacturing firms.

In 2011, Portugal received a €78billion loan by the ‘troika’ of creditors – the European Central Bank (ECB), the European Commission (EC) and the International Monetary Fund (IMF). In exchange, Portugal had to commit to a three-year programme of fiscal consolidation and labour market reforms to relax employment protection, make working time more flexible, and decentralise collective bargaining. The specific measures to be implemented were laid down in a comprehensive and detailed memorandum of understanding (MoU).

Background

Collective bargaining in Portugal has been characterised by the predominance of industry-level bargaining but also fragmentation and low levels of coordination. The fragmentation results from the bargaining authority being distributed by multiple organisations in each sector, while company agreements are rare. Nevertheless, and despite the decline in union membership in recent decades, the coverage of collective bargaining remained around 90%. This high coverage has been enabled by legal extensions of sectoral agreements to all workers and firms of the respective sector and by after-effect rules which allow an existing agreement to remain valid until a new one is reached.

While the 2012 revision to the labour code mostly implemented the reforms prescribed by the MoU, many of these reforms had been covered by tripartite agreements previously reached with the social partners (signed only by one of the two peak union organisations). Moreover, many of the legal changes came in the continuity of a process of reform that had already been initiated in 2003. The 2003 labour code had introduced different regimes of working time flexibility and important changes to collective bargaining, including restrictions to the after-effect duration of collective agreements. This had been then highly contentious and resisted by trade unions but national agreements signed between the social partners in 2005 and 2006 involving even the most radical of the two union confederations signalled a growing consensus on the need for reform. However, the crisis and the involvement of the troika in 2011 enabled the government to implement measures that had previously been considered unacceptable by trade unions.

The labour market reforms and their impact

The labour market measures introduced during the crisis were broad and involved reforms in three main areas: 1) employment protection legislation; 2) working time flexibility and compensation of overtime work and 3) wage determination and collective bargaining. The key challenges to collective bargaining involved the suspension and then restrictions to the extension of sectoral agreements, progressive challenges to the after-effect rules and the legal cut to overtime pay that superseded existing collective agreements.

The impact of the labour market reforms was substantial. There was a dramatic decline in the number of collective agreements concluded between 2008 and 2012, and even though company agreements also declined, there was an increase in their proportion in relation to sectoral agreements. This did not translate into a proportional fall in the number of workers covered because most workers were still covered by pre-existing agreements that remained valid. However, a major consequence of the decline in new agreements was that a large proportion of workers did not benefit from wage increases during the crisis, especially in low-skilled sectors such as clothes manufacturing. These changes also had a negative effect on unions, weakening their bargaining position and increasing the pressures on unions to make concessions. While the reforms contributed to innovation in the content of agreements, they did so in circumstances that limited the capacity of unions to protect workers from the deterioration of pay and working conditions. The manufacturing sector did not see an increase in firm-level agreements as happened in other troubled EU member states, but there was a growth in individualised arrangements and a reinforcement of managerial unilateralism in firms. For example, following the reforms, in seven of the ten manufacturing firms studied, management unilaterally cut overtime pay, which was seen by workers and unions as a breach of the collective agreement.

Many of the reforms were similar to those in other European countries, namely the weakening of multi-employer bargaining, the general decentralisation trends and the reinforcement of managerial prerogative. However, while the breadth of the changes was similar, their depth and impact was somewhat lower. For example, the minimum wage was frozen rather than cut (as happened in Greece); sectoral bargaining was constrained but not dismantled (as in Romania); and opportunities for non-union worker representative bodies to sign company agreements were reinforced, but this still required trade union authorisation. Moreover, despite the decline in real earnings and cuts to overtime pay, the reforms did not enable employers to reduce workers’ basic pay, as it has been reported in countries such as Greece, Ireland and Spain.

How can this lower depth and impact of the labour market reforms be explained in the case of Portugal? The Portuguese constitutional court played a role in setting limits to employment deregulation. On several occasions during the crisis, the constitutional court ruled against government measures and reversed legislative changes that curtailed collective bargaining and restricted workers’ rights. Moreover, in contrast to what happened in other EU countries in similar circumstances, the process of reform relied to some extent on social dialogue and there was a greater input of social partners. This enabled a degree of continuity with the previous path of reform and prevented more radical change. Nevertheless, despite the initial reliance on social dialogue, the government progressively disregarded social partners and took a more unilateral stance, which led to a deterioration of social dialogue throughout the crisis.

Conclusion

Overall, even if to a lower extent than in countries like Romania and Greece, the labour market reforms in Portugal also weakened social dialogue and collective bargaining. Following the exit of the adjustment programme, the slight improvement of the economic outlook and a change of government, a more favourable environment to social dialogue and collective bargaining is emerging. Some of the labour market reforms have been reversed – e.g. extensions of sectoral agreements were reinstated, the minimum wage has been increased twice, and restrictions to overtime pay have been lifted. The new government is also gradually reversing pay cuts and working time extensions in the public sector. Under these circumstances, collective bargaining has been gradually resuming but it still faces uncertain prospects with respect to a renewed capacity for regulating employment and protecting workers’ rights.