Labour market institutions and growing inequalities
Accounting for the devaluation of work in the case of Portugal
Maria da Paz Campos Lima, University Institute of Lisbon, DINÂMIA’CET – IUL
José Castro Caldas, University of Coimbra
Nuno Nunes
João Ramos de Almeida, University of Coimbra
Neoliberal transformations of labour market have generated since the 1980’s continued deterioration of wages and widespread job insecurity contributing, alongside with the process of financialisation for unprecedented levels of inequality since the end of World War II (Schäfer and Streeck, 2013; Piketty, 2014; Alvaredo, 2017). Although the causes of inequality are multidimensional (Therborn, 2013), changes in labour market institutions and shifts in power relations unfavourable to organized labour are major factors explaining growing inequalities (Vaughan-Whitehead, 2017, 2018). They explain to a great extent the transfer of income from labour to capital and the decline of the share of wages in GDP, in Europe and beyond (Karabarbounis and Neiman, 2014; Guschanski and Onaran, 2016; Tridico, 2017; Theodoropolou, 2018).
Following the international crisis and in particular after the 2010 sovereign debt crisis, EU policies and intervention of multilateral institutions intensified austerity and neoliberal policies, in line with a strategy of internal devaluation, where labour and social rights became the variables of adjustment (Pochet and Degryse, 2013; Van Gyes and Schulten, 2015) in particular in Southern Europe. These policies reconfigured employment regimes (Gallie, 2013), paving the way for the erosion of institutions related with employment security, unemployment protection, and collective bargaining (Marginson, 2014; Cruces et al, 2015; Koudiadaki et al, 2016). Post crisis debate brought to the front stage the concern of major international institutions with the persistence of economic inequality and slughish wage growth, despite economic growth and employment increase (United Nations, 2015; OECD, 2018; EC, 2018). However, the “knowledge gap” of the lasting effects of past reforms in terms of devaluation of work and growing inequalities persists.
This paper aims to contribute to this debate, scrutinizing the articulation between the internal devaluation strategy and the reconfiguration of the employment regime and cumulative lasting impact on the devaluation of work and income inequality in Portugal, in the last decade. In this decade, the country moved from a cycle of profound economic crisis amplified by neoliberal austerity under troika intervention and a centre right government, to a new, post troika, economic cycle. This new cycle of economic growth and employment increase, coincided since 2015 with a new political cycle with a PS government supported by left parties, commited to turn the page of austerity, with emphasis on three areas influencing wage growth and reducing inequality: reversing nominal wage cuts, promoting minimum wage increase, combating precarious work and promoting the inclusiveness of collective bargaining.
The analysis of the lasting effects of devaluation of work and inequality in Portugal will adress the institutional changes following the 2008 international crisis and in particular those observed, under the Troika MoU: reduction of employment protection, facilitating dismissals and precarious work; corrosion of collective bargaining institutions; reduction of unemployment social protection levels; freezing the minimum wage and cuts in public sector nominal wages; and forms of working time flexibility with impact on the decline of hourly wages and overtime payment. The evaluation of the short-term impact of those measures in amplifying the economic crisis and escalating unemployment (Reis et al, 2013), in favouring a trajectory of wage decline (Cruces et al, 2015), in transferring income from labour to capital (Leite et al, 2013), in increasing inequalities and risk of poverty and social exclusion (Campos Lima and Abrantes, 2016) and in the erosion of collective bargaining (Campos Lima, 2017) is documented and corroborated by the most recent studies (ILO, 2018). Medium and long term analysis is missing. In which way the new economic and political cycle halted these negative trends and initiated a positive trajectory, and what obstacles are in the way towards fair and decent wages, remains to be examined in detail.
One clear indication of lasting and cumulative effects of internal devaluation in Portugal refers to the emergent pattern of economic growth - a problem the Financial Times adressed as the “Eurozone’s strange low-wage employment boom” (Schulten and Luebker, 2017). Recent analysis looking at the recovery of employment between 2013 and 2016 gave evidence that the wage depreciation induced a structural change in the Portuguese economy that favored the increase of employment in sectors with wages lower than the national average, thus contributing to an even more pronounced decline of the average real wages in the economy as a whole (Caldas and Almeida, 2018). Finally, one major issue to be adressed is the impact of devaluation of work in the labour share downards trajectory. Recent data (INE, 2018) shows that, in the same period, companies recorded an average annual increase of the gross value added above four percent, while the gross operating surplus rise above the pace of GVA growth, indicated an uneven form of revenue sharing. The weight of remuneration fell from 62.4% to 56.2% in 2016, although, as a whole, the remuneration rose at an annual rate of 5.6%. Understanding this unequal distribution will require to examine the changes within sectors and in the sectoral structure of employment.
The paper will be structured in three sections: Section 1 will examine institutional changes reconfiguring the employment regime and collective bargaining and the evolution of wage levels and various indicators of economic inequality (wealth, incomes and wages) in the period 2008-2017. Section 2 will combine national and sector level data analysis to scrutinize how the lasting effect of internal devaluation operated in terms of influencing the employment growth pattern and changes of employment structure, contributing for wage stagnation or decline; and how internal devaluation operated in terms of generating a downwards labour share trajectory. Section 3 will map wage levels and wage inequality in particular sectors (considering section 2), looking at differences regarding gender/education/qualifications/occupations, type of labour contracts, working time and wage bargaining coverage, in selected years, over a longer period, between 2000-2017, with the objective of capturing long term tendencies of devaluation of work and inequality.
