OECD evaluates positively the labour market reforms from 2011 to 2015
The provisional estimate of the unemployment rate for December stood at 10.2%, corresponding to a decrease of 0.3 pp from the previous month. The OECD presented the report on the preliminary assessment on the labour market reforms in Portugal from 2011 to 2015 where it concluded that the reforms helped create jobs and reduce the country’s high unemployment rate but warned that the labour market remains highly segmented. The Government has proposed a reduction in the Special Payment on Account of companies in response to the rejection of the reduction of the Single Social Tax in Parliament.
The definitive estimate of the unemployment rate of November 2016 was 10.5%. The estimated unemployed population was 537 700 people, corresponding to a decrease of 7 200 people compared to the previous month. The employed population was estimated at 4 581 400 people, an increase of 800 people compared to October, with the employment rate remaining unchanged at 58.8%. The provisional estimate of the unemployment rate for December stood at 10.2%, which compares with 12.2% in December 2015.
The agreement between the Government, employers’ associations and trade union confederations for the increase of the national minimum wage from 530 euros gross (annual 7 420 euros) to 557 euros (annual 7 798 euros) as of January 2017, contemplated a compensation for employers that consisted on the temporary reduction of its social security contribution of 1.25 pp from February 2017 until January 2018. This more pronounced temporary reduction was to replace that of 0.75 pp currently in force. However, the Communist Party and the Left Bloc demanded a parliamentary vote of the diploma and together with the Social Democratic Party approved the cessation of this measure, thus devolving the social security contribution for employers to 23.75%.
As an alternative, the Government has already approved in the Council of Ministers a proposal for a law to reduce the Special Account Payments for companies (PEC) by reducing the minimum collected amount of income tax by 100 euros and also by a further 12.5% of the remainder of the amount collected by each company. The Government expects that there will be 122 000 companies benefiting from this plan. The PEC consists in the payment of Corporate Income Tax (IRC) that companies advance to the State, through a single instalment in March or in semiannual instalments in March and October, an amount that is then deducted from the IRC tax bill of that same year.
The OECD presented the report on the preliminary assessment of labour market reforms in Portugal between 2011 and 2015 where it concluded that the reforms implemented helped to create jobs and reduce the country’s high unemployment rate. With regard to employment protection legislation, the OECD considers that the reduction of severance pay would have had a positive impact on-the-job search, as well as on hiring, and on the share of hiring on permanent contracts. However, the OECD indicates that the regulatory gap between permanent and temporary contracts remains significant and to reduce segmentation it suggests further clarification about how employers can dismiss individual workers on permanent contracts for economic reasons, as well as reduction on the compensation following unfair dismissal and limiting the possibility of reinstatement in the case of unfair dismissal. With regard to unemployment benefits, the OECD notes that the shortening of the maximum duration and the reduction in benefit levels is positive, and points out that these measures may have increased exits from unemployment, and in the future they should eventually help shorten unemployment spells and reduce the level of long-term unemployment. To tackle this issue and to strengthen incentives for job search, the Organization recommends widening further the coverage of unemployment benefits and reduce even more the maximum duration of unemployment benefits. With regard to working time, the OECD praises the reform that gave firms additional flexibility to respond to changes in demand by adjusting working time instead of employment, since Portugal was one of the OECD countries with the highest level of job destruction in times of crisis. The OECD also advocates an increase in the effectiveness of active labour market policies, encouraging subsequent hiring on permanent contracts; limitation of the negative consequences of administrative extensions of collective bargaining agreements; making easier for firms to opt out of collective agreements at times of crisis; and reduction in employer social security contributions on all minimum-wage workers, including new hires, in order to mitigate the impact of the already announced increases in the national minimum wage on labour demand.
ECO News- Portuguese Economy
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