How Politics Matters. Coalitional politics and labour market reforms during the crisis in Portugal

Prof. Rui Branco
Dr. Daniel Cardoso

This paper describes and explains labour market reforms in Portugal during the sovereign debt crisis. Reforms under conditionality brought the labour market to a liberalised dualisation: broad flexibilisation, liberalisation for insiders, offset by a whiff of recalibration, falling short of de-segmentation. In terms of policy outcomes, the implementation of the MoU was not homogenous, but differentiated between a first phase where recalibration coexisted alongside liberalising measures followed by a second phase where recalibration was dropped and liberalisation went into overdrive. We argue that changing coalitional politics underpinning policy-making explain this outcome. While relatively moderate reforms were the work of a broad informal political coalition, including the governing centre-right parties and the Socialists in opposition, the moderate trade union (UGT) and employers’ associations, the breakdown of the bailout coalition from late 2012 and the executive’s subsequent unilateralisation deepened liberalisation, froze collective bargaining, and ended recalibration. In theoretical terms, we make two contributions. First, despite external conditionality, domestic coalition politics affects the nature and direction of reforms, namely that the breadth of the reform coalition is related to moderation in policy outcomes. Second, cooperation in policy-making between government and opposition and government and social partners is possible even during external conditionality.