Portugal launches labor reforms amid recession

January 17, 2012 - 8:20 AM

LISBON, Portugal (AP) — Portugal is to cut holiday entitlement, introduce more flexible working hours and cut compensation for layoffs in a package of labor reforms aimed at reversing the country's steep economic decline, officials said Tuesday.

Outdated labor practices were among the factors blamed for a decade of slender growth and mounting debts that compelled Portugal to take a euro78 billion ($99.6 billion) financial rescue package last year.

Its financial plight has aggravated Europe's sovereign debt crisis and brought fears that its economic downturn, compounded by austerity measures, could eventually force it to follow Greece and restructure its debt.

Standard & Poor's last week downgraded Portuguese debt to junk status amid forecasts the economy will contract by 3.1 percent this year. Portugal went into a double-dip recession last year when Moody's and Fitch Ratings, the other two leading ratings agencies, classified the country's debt as junk. The yield, the interest rate Portugal pays on its debt, for a 10-year bond has risen to 14.2 per cent following the S&P downgrade.

The jobless rate, meanwhile, has climbed to a record 13.2 percent, with unions staging strikes and protests against the center-right government's policies.

The labor law changes were agreed in the early hours of Tuesday morning after 17 hours of talks between the government, trade unions and business leaders.

Portugal committed to the reforms in return for the bailout granted by its European partners and the International Monetary Fund. The European union and other international bodies had long pressed Portugal to modernize its labor laws.

The bailout deal was signed by all the country's main political parties, but agreement on detailed measures required months of negotiations with unions and business confederations.

Economy and Employment Minister Alvaro Santos Pereira said the reforms would make the Portuguese economy more competitive and drive fresh growth.

He said the agreement "shows the world and the markets ... that we are laying the foundations to beat this crisis."

Full details of the agreement, which is due to be signed at a ceremony with Prime Minister Pedro Passos Coelho on Wednesday, were not immediately available.

However, delegates who attended the talks did say the changes included: shortening workers' annual vacation entitlement from 25 days to 22, scrapping at least three public holidays, reducing layoff payouts, cutting overtime pay levels, and giving companies 150 work hours per employee without overtime to be used by employer as and when they were needed.

Also, jobless people who accept work that pays less than their unemployment benefit are to keep 50 percent of that benefit.

But the government had to ditch its controversial proposal allowing companies to demand that staff work an extra 30 minutes a day without overtime pay. The novel measure, the government claimed, would have reduced unit labor costs and thereby made exports cheaper.

But trade unions balked at the idea, saying it would overturn labor movements' long struggle for an eight-hour day, and the main opposition Socialist Party also opposed it, arguing there was no economic study to support the government's claim. Business leaders were also lukewarm on the measure, saying it would bring limited benefits.

Tuesday's agreement won the blessing of the General Workers' Union, one of the country's two main trade union confederations. However, the General Confederation of Portuguese Workers, the other group, said it would fight the measures.