It would be more efficient and fairer from social and labour market perspectives, to reduce the maximum duration of the unemployment benefit and the ease of conditions for eligibility.
The current context of the Portuguese economy and of many European Union countries is one of low unemployment rates and economies close to full employment (AMECO database) and some shortage of manpower. In spite of this, there is the risk of a recession and of increasing unemployment in the coming months as the European Central Bank has to increase interest rates to bring down inflation to around 2%. Moreover, there is a war in Europe, the end and therefore the consequences of which are uncertain.
From the structural point of view, there are other factors that also influence the economy, the labour market and the shortage of manpower. First, a decreased fertility rate over last decades implies that fewer national workers are entering the labour market, while the older generations retire. Data from the World Bank shows that this rate was 3.2 in 1960, 2.3 in 1980, 1.6 in 2000 and 1.4 in 2020. So, the trend towards lower fertility is unequivocal and its consequence is a lower influx of workers into the labour market. Second, the average level of education of the Portuguese has been increasing although is still lower than in other European and developed countries. According to the OECD’s Education at a Glance 2021, 28% of the adults between 25 and 64 years old have some kind of tertiary education in Portugal; the OECD average on this item is 33% and in the European Union at 22 (EU22) is 32%. So, our tertiary education levels are not very far from the international standards. However, for upper secondary education (12 years of school) the difference between Portugal and other countries is higher: 27% in Portugal, 43% on the OECD average and 46% on the EEU22 average. Even so, Portugal has made a great progress in education as in 1998, for example, we had 10.8% and 9.2% of the same population group with upper-secondary education and a university degree, respectively. Hence, from the supply side of the labour market the trend in Portugal is clear: fewer workers enter the labour market, but these workers are more skilled. Naturally, these more skilled workers have a lower propensity to accept less skilled jobs.
On the demand side, as the Portuguese economy has specialized in some labour-intensive industries such as tourism, wholesale and retail trade, construction, agriculture and others, there is a high need for less skilled workers and a shortage of them in the national supply – at least so the entrepreneurs claim. This opens space to import workers from other countries (Africa – mainly ex-Portuguese colonies, Brazil, and others) which is a necessary and inevitable step towards solving the problem of the insufficient supply of workers to perform some not very skilled occupations, a problem in common with other developed countries. A recent change in the Portuguese law allowing for a temporary visa for foreigners searching for employment (four months + two months) is a good measure that disincentivizes illegal immigration.
However, the apparent shortage of unskilled workers is difficult to understand in face of the public data displayed by the Instituto de Emprego e formação Profissional – the Portuguese Public Agency of Employment – which shows that about ¼ of the registered unemployed are unskilled workers (the largest group) and this is not a cyclical situation as last year the picture was roughly the same. This situation coexists with a regime of unemployment benefit (UB), the duration of which is particularly generous, which discourages the search for a job, inevitably increasing the duration of unemployment and the unemployment rate. In fact, the maximum period for which a worker can benefit from UB depends on the worker’s age and on the length of the period of paid employment before the unemployment status, but ranges from a minimum of five months for those under 30 years old (but can easily last for about one year for those with a record of two years of paid employment) to more than two years for workers of 40 years old or more. There is also the possibility of workers having UB available for about three years in case of being unemployed for the first time and having fulfilled the conditions of a more favourable regime in 31/3/2012. These duration periods are quite generous from the point of view of the international comparation – one of the most generous regimes at the international level – as is recognized in papers of the International Labour Organization and of the European Commission.
On the contrary, the regime of qualifying conditions for UB is very strict in Portugal, requiring a minimum of 360 days of length in the previous spell of paid employment in the last 24 months. This restricted regime is unfavourable to the youth, one of the groups most affected by unemployment and, therefore, influences the low coverage of UB in Portugal, which was less than 58% in July of 2022.
Therefore, in my opinion, it would be more efficient and fairer from social and labour market perspectives, to reduce the maximum duration of UB and the ease of conditions for eligibility, mainly for the youth to, for example, six months of paid work in the last two years (close to the conditions for eligibility in Germany). These changes in the regime of UB would allow to reduce the unemployment rate and extend the coverage of UB to groups that really need it. Moreover, we would not be paying for long periods of unemployment and at same time importing workers to fill jobs, some of which could be filled by national workers that are receiving UB.