The Politics of Labor Market Reforms before and during the Sovereign Debt Crisis: The Case of Portugal

Portugal’s labor legislation has been subject to several reforms since the beginning of the 2000s. Intended to reshape labor market in the face of the challenges brought out by technological advances and globalization, these reforms changed the rules in the fields of collective bargaining, wage setting and security in unemployment. However, security in employment, considered to be one of the most restrictive among OECD countries, remained fairly untouched in this period, despite constant demands from employers and international organizations for greater flexibility. This all changed during the austerity-driven adjustment following the sovereign debt crisis in 2011, when major reforms were undertaken in this realm, such as cuts in severance pay, changes in the conditions for fair dismissal or the minimum wage freeze. 

Comparing the period before and during the crisis, the paper asks: how and why did this outcome come about? We answer by looking at labor market policymaking process in Portugal to understand the drivers and the mechanisms behind this substantial change in employment protection legislation, which departs from a pattern of stability and continuity in Portuguese labor market relations. It analyzes the preferences of the actors, their resources and strategies as well as the structural conditions that made change possible. We argue that changes in the behavior of veto players such as the Socialist Party and UGT (General Union of Workers), combined with the executive and employers empowerment in the context of the crisis, paved the way for the passing of the reforms in this policy area.