According to a new report from the Organisation for Economic Co-operation and Development, comprehensive reforms to Portugal’s labour market between 2011 and 2015 have helped create jobs and reduce unemployment, but the country should build on the reforms to address continued challenges.

 The report, ‘Labour Market Reforms in Portugal 2011-2015 – A Preliminary Assessment’, says that since economic growth turned positive in early 2013, Portugal has seen major improvements in both employment and unemployment rates that are better than expected given the pace of the recovery. However, unemployment remains high, particularly among youth. According to Eurostat, the youth jobless rate in Portugal was 28.4% in November 2016. Furthermore, the labour market remains highly divided between workers on permanent and temporary contracts.

The OECD states that Portugal’s reform of employment protection legislation was one of the most substantial and has moved it closer to the EU average. The report suggests a number of additional areas where reforms might be needed and which would further encourage hiring on permanent contracts, tackle labour market duality, and help reduce potential disputes between employers and workers.

The report also argues that the unemployment safety net should be strengthened by extending benefit coverage to more workers, but that further disincentives to work inherent in the current system should be removed if long-term unemployment is to be tackled effectively. Furthermore, the reports states that employment losses associated with economic shocks could be contained if wages are allowed to reflect productivity developments at the firm-level more closely. Further increases in the minimum wage might help address in-work poverty but, to minimise any potential job losses, reductions in employers’ social security contributions on minimum-wage workers should be considered.

Among the OECD’s suggestions for further improvements to Portugal’s job market performance include: the need to return for higher and more sustainable levels of growth; further reforms of product market regulations; better access to credit for firms; a reduction in employers’ non-wage labour costs; and additional investments in skills.