Too many labour law restrictions do not reduce unemployment and create flexibility in the employment market.
This was the conclusion of World Bank senior economist, Simeon Djankov, in his analysis of Portugal last week.
In the wake of the publication of Doing Business 2007 the economist said, that while unions were guaranteeing the protection of employees with between 30 and 40 years experience, this was not the same guarantee that everyone had jobs. “The logic is that the more flexible the labour laws, the easier it is to hire and fire staff if things are not going well, resulting in a higher unemployment rate.
“Portugal, like other countries in southern Europe has legislation in place that protects workers, yet these are the very countries that have a high level of unemployment,” Djankov said.
Those workers that had work were being protected instead of those who didn’t have jobs, namely young people who would like to have a job and graduates who come onto the market and are turned away.
The World Bank also said that the Portuguese government needed to turn its attention to the issue of licences. It was all very well creating reforms to set up businesses in an hour, but when laws controlling the necessary licences to start a business were 30-years-old, they were hampering the success of reforms and controlling the number of companies entering the market place.
For example, despite new reforms begun in 2004, many old and out–of-date rules and regulations, such as the Commercial Code and Registers had not been correspondingly reformed, which means that many other documents have to be filled out before a business can start trading, taking far too long.
“It is not simply enough to create a new law, you have to make sure that all the earlier laws correspond to the new ones and work with them towards the same aim,” said Djankov. The economist also said that the law, with regards to closing down failed businesses, was not equally clear as setting new ones up. The government needed to make sure that businessmen understood the changes and used the system, which wasn’t happening in the case of companies closing down.
Another problem was that with the rapid growth in the private sector it was imperative for the government to inspect companies to make sure they were producing good quality products.