This Selected Issues paper on Portugal reviews the considerations regarding productivity slowdown. The favorable evolution of income growth from the 1970s to the mid-1990s in Portugal was associated with above-average productivity growth but also reflected a more moderate decline in the amount of hours worked than that experienced in other countries in Europe. Portugal was an outstanding performer with double-digit productivity increases in large several high-tech industries. The evidence suggests that the negative impact of high labor adjustment costs on productivity is more intense for small- and medium-size companies and depends on the nature of wage-bargaining systems.

Abstract

This Selected Issues paper on Portugal reviews the considerations regarding productivity slowdown. The favorable evolution of income growth from the 1970s to the mid-1990s in Portugal was associated with above-average productivity growth but also reflected a more moderate decline in the amount of hours worked than that experienced in other countries in Europe. Portugal was an outstanding performer with double-digit productivity increases in large several high-tech industries. The evidence suggests that the negative impact of high labor adjustment costs on productivity is more intense for small- and medium-size companies and depends on the nature of wage-bargaining systems.

I. Catching-Up? Considerations Regarding Productivity Slowdown in Portugal1

A. Introduction and Main Findings

1. After a fast catch-up from the early 1970s through the mid-1990s, income convergence has come to a halt in the last five years. Until the mid-1990s, Portugal’s labor productivity increased rapidly, only partly offset by a decline in relative hours worked. This mimicked, to some extent, the experience of other late converging economies (Finland, Greece, Ireland, and Spain), and led to a substantial improvement in Portugal’s relative per capita GDP position. However, trend GDP per-capita growth in Portugal began to slow down markedly in the mid-1990s, trailing that of the euro area. This is a key concern, because with average per capita GDP about two-thirds of that in the euro area, even with a growth differential of 1 percentage point it will take 35 years for Portugal to catch up to the euro area average.

2. These developments raise a number of important questions. What explains the recent growth slowdown? To what extent has productivity growth deviated from the European average, and why? How does Portugal compare with other late converging euro-area economies in recent years? What explains developments in labor and capital utilization?

3. To shed light on these questions this chapter uses a two-step approach. First, it uses a growth accounting perspective to compare developments in output, productivity, and labor utilization in Portugal with other late converging economies in the euro area (Spain, Greece, Ireland, Finland).2 Second, it explores sources of diverging productivity, including poor resource allocation and weak competition in labor and product markets.

4. Several databases were used to produce the results discussed here: aggregated data for the euro area and Portugal from the AMECO-European Commission database; industry-level data for selected euro area countries from the Groningen Center for Growth and Development (GCGD); and detailed data on factor utilization for Portugal, Greece, Ireland, Finland, and Spain also from the GCGD and the OECD.3 While the quality of data on an individual country basis is not perfect, the joint databases used in this paper allow for a harmonious treatment of individual countries.

5. Combining this information, the analysis yields the following considerations:

  • The favorable evolution of income growth from the 1970s to the mid-1990s in Portugal was associated with above-average productivity growth but also reflected a more moderate decline in the amount of hours worked than that experienced in other countries in Europe.

  • From the mid-1990s, however, Portugal’s widening income gap mirrors an incipient lag in terms of use of labor (hours worked) and a rising gap in labor productivity.

  • While the economy has operated mostly in low-skill labor intensive sectors, and labor utilization has been historically high compared with other euro area countries, employment has not grown as rapidly as in the euro area in recent years and has lagged significantly other late converging economies. This has contributed to the lackluster growth performance in recent years. Lack of wage moderation in agreements between social partners and labor market rigidities which remained through the 1990s translated into rising unit labor costs growth well above other euro area countries and a loss of competitiveness.

  • The deceleration in labor productivity in Portugal in the second half of the 1990s can be explained by both significantly slower capital deepening (the rate of growth in the capital-labor ratio) after the very high investment rates of the early 1990s and by efficiency losses in utilizing inputs (total factor productivity growth), which pushed labor productivity growth in Portugal below the rates in other late converging economies. Half of the decline in productivity growth (1.1 percentage points) can be explained by a reduction in the contribution from capital deepening. The remaining half results from deterioration in total factor productivity.

  • Besides weak technological progress resulting from low investment in human capital, the paper argues two other factors help explain the recent deterioration in labor productivity in Portugal: the poor performance of ICT producing and using industries and inefficiencies in labor and product markets that led to poor utilization of resources. On ICT industries, output per hour continued to rise in Portugal in the second half of the 1990s, but Portuguese firms were unable to keep pace with growth experienced elsewhere. The productivity gap in these industries accounts for about 15 percent of the productivity growth decline in the second half of the 1990s. On weak competition in labor and product markets, while the available empirical evidence does not provide specific country estimates of the impact on productivity performance in Portugal, studies suggest the impact on productivity growth is greater the farther a country is from the technology leader.

6. Section B lays down the stylized facts on GDP per capita and labor productivity for Portugal, comparing the recent evolution of these indicators with the euro area and a group of late converging economies. Section C, discusses key sources of diverging productivity growth in Portugal.

B. Catching-up? GDP per Capita and Productivity Growth

7. Trend capita GDP growth in Portugal began to decline markedly in the mid-1990s, bringing to a halt its convergence to the euro-area average (Figure 1). This pattern of income convergence mirrored that of labor productivity growth, which declined steadily to under 2 percent (on average) in 1995–2004 and dropped below the euro area average for the first time early this decade (Figure 2). By 2004, labor productivity was only 55 percent of the euro area average, more than accounting for the relative income gap (Figure 3a).

Figure 1.
Figure 1.

Portugal: GDP per Capita Trend Growth

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: European Commission - AMECO Database; OECD; staff calculations
Figure 2.
Figure 2.

Portugal: Labor Productivity Growth

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: AMECO database; OECD; and staff calculations
Figure 3a.
Figure 3a.

Portugal: Growth Components, 1990–2004

(As percentage of the Euro Area)

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: Ameco

8. This growth pattern contrasts sharply with developments in other late converging economies where per-capita trend growth not only remained well above the euro-area average (Ireland) but in some cases even accelerated (Greece and Spain) in recent years (Table 1 and Figure 1). Starting in the mid 1990s, as suggested by Van Ark et al (2002) and Blanchard (2004), there was a clear change towards lower productivity growth in most euro area countries (Figure 3b). Table 1 provides a decomposition of growth across European countries for the period 1995–2004. It shows two distinct groups. In most economies, relative labor productivity declined while hours worked increased only slightly, leading to a decline in relative GDP per capita. Portugal did not escape this general trend. It diverged for the first time from other late converging economies (Finland, Greece and Ireland), which experienced continued productivity gains and were able to improve their relative income positions, and Spain, which sustained income growth above the euro area average, despite a relative decline in productivity, due to improved labor utilization.

Figure 3b.
Figure 3b.

Portugal: The general worsening in relative productivity levels with respect to the US masks important country differences within the area.

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Table 1.

Portugal: PPP GDP per Person, PPP GDP per Hour, and Hours per Person

(1970 and 2004: Selected EU Countries 1/)

article image

With respect to GDP per capita in the US. (U.S. = 100). Excludes Austria and Luxembourg.

Defined as economies with GDP per capita below that of the euro area as of 1995.

Excludes Austria, Belgium and Luxembourg.

Sources: European Union Ameco database, OECD, Economic Outlook and IMF World Economic Outlook.

9. Even if lower than in the euro-area as a whole, per capita GDP growth in Portugal did increase, on average, since the mid-1990s, when rising employment rates offset a deceleration in labor productivity and continued declines in average hours of work (Table 2). Overall, in much the same fashion as the aggregate for the euro area, Portugal achieved an increase in its contribution from labor accompanied by sharp reductions in the contribution from productivity. The opposite movements of employment rates and labor productivity suggest that lower labor productivity growth in Portugal could be related to a shift toward more labor-intensive production methods. This could also be related to reinsertion of low-skilled unemployed individuals back into employment, as it has been the case in other European economies, although the evidence for this effect in Portugal is weak.

Table 2.

Portugal: Determinants of Labor Productivity Growth

article image

10. With the economy operating mostly in low-skill labor intensive sectors, and labor utilization historically high compared with other euro area countries, it is not surprising that employment growth has lagged other late converging economies (Figure 4). But low employment growth also reflected rapid growth in real hourly labor compensation (wages and non-wage labor costs), with the cost acceleration particularly pronounced in the second half of the 1990s. Real hourly compensation in Portugal grew more than in the euro area and significantly more than in other late converging economies (Figure 5). This upward trend reflects the lack of wage moderation in agreements between social partners and was partly due to labor market rigidities, which remained through the 1990s (discussed below). Low unemployment rates helped fuel wage demands, which translated into rising unit labor costs growth.

Figure 4.
Figure 4.

Portugal: Employment Rates

(In percent of total population)

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Figure 5.
Figure 5.

Portugal: Real Compensation

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: AMECO Database; OECD; and staff calculations.

11. Breaking down labor productivity growth into the contribution of employment, capital and total factor productivity (TFP) shows that the productivity deceleration in Portugal in the last decade was due to a significant decline in capital deepening (slower increase in the capital-labor ratio) and lower TFP growth (Table 3 and Figure 6).4 Half of the 1.1 percent decline in productivity growth, can be explained by a reduction in the contribution from capital deepening. The remaining half results from deterioration in total factor productivity. While this mimics the general trend in the euro area, it diverges significantly from the acceleration in TFP and capital deepening growth in most other late converging economies (Finland, Greece, and Ireland).

Figure 6.
Figure 6.

Portugal: Labor Productivity Growth, in percent

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: AMECO database, Fund staff calculations.
Table 3.

Portugal: Determinants of GDP per Capita Growth

article image

C. Sources of Diverging Productivity Growth 5

12. A number of factors can help explain the growing productivity gap in Portugal: poor performance of ICT producing and using industries; inefficiencies in labor and product markets that lead to poor utilization of resources; the recent growth of public sector employment; and weak technological progress resulting from low investments in human capital, R&D and information technology. The latter has been a focal point of the government’s legislative program (“Program do XVII Governo constitucional, 2005-09”) and has been discussed in detail elsewhere (EC Review, 2003). The government has also outlined important steps to start downsizing public employment. This section focus instead on the other two factors: the performance of ICT industries and inefficiencies of labor and capital markets as driving forces of the recent productivity slowdown, with likely complementarities between these factors.

Performance of ICT industries

The data suggest three broad trends:

13. Among ICT producing industries, Portugal was an outstanding performer with double-digit productivity increases in large several high-tech industries in the 1980s and the first half of the 1990s (Table 4).6 7 However, Portugal later began lagging the euro area and other late converging economies, with productivity growth falling to about 5.5 percent at an annual rate in the subsequent years. Portugal’s technological shock began to moderate at the time it accelerated in other late converging economies.

Table 4.

Portugal: Labor Productivity Growth By ICT Classification

(In percent, at an annual rate)

article image
Source: Industry Labor Productivity Database - EC and Groningen Growth and Development Center; Estevao (2004) and staff calculations.Notes: Productivity is defined as real value added per hours worked. Detailed breakdown by ICT type as in IMF-Country Report 04/235.

14. Among intensive users of ICT, the decline in productivity growth was partly reversed in the second half of the 1990s, but Portugal still underperformed compared to other late converging economies. In these economies, ICT users in the services sector posted a strong surge in productivity growth, explaining the large difference in performance among countries.

15. The productivity deceleration in ICT industries in Portugal was partly offset by an opposing trend in traditional non-ICT industries, which helped keep overall productivity growth above euro area levels. In this category, labor productivity growth rose from 2.1 percent at an annual rate in the first half of the 1990s to 3 percent at an annual rate in the subsequent six years. In the euro area, the deceleration was of 1.2 percentage point, with the service industries in this category accounting for the majority of the discrepancy.

16. In sum, while output per hour continued to rise in both ICT producing and using industries in Portugal in the second half of the 1990s, Portuguese firms were unable to keep pace with the growth experienced elsewhere. The productivity gap in ICT producing industries can help explain the aggregate productivity gap vis-à-vis other late converging economies. It accounts for about 15 percent of the productivity growth decline in the second half of the 1990s. The overall effect is limited primarily by the low share of this sector in total value added (under 5 percent of GDP). Thus, other factors affecting efficiency gains in product and labor markets (discussed below) must be at play.

Performance of Labor Markets

17. Assessing the impact of labor adjustment costs on productivity in Portugal is difficult. The aim here is to assess the impact of labor adjustment costs indirectly by examining whether labor market institutions and regulations are likely to be conducive to fast productivity growth. Recent empirical evidence suggests that high labor adjustment costs can lower incentives for firms to innovate or adopt new technologies with negative effects on productivity performance (Figure 7).

Figure 7.
Figure 7.

Portugal: Market Regulation and Productivity Growth

Citation: IMF Staff Country Reports 2005, 376; 10.5089/9781451928006.002.A001

Source: OECD PMR Database

18. Two studies (Scarpetta and Tressel, 2004; and Bassanini and Ernst, 2002) examine institutional factors affecting labor costs as possible drivers of industry-level productivity growth. Their results suggest the effect of high labor adjustment costs (proxied by strict employment protection legislation, EPL8) on productivity growth is statistically significant but dependent on the structure of wage bargaining and the average size of firms. They estimate a correlation of -0.7 between the acceleration in productivity growth and employment protection legislation.

19. The use of the EPL as a proxy for labor adjustment costs in Portugal is complicated, as restrictions may be less binding in practice than in the law. However, dismissal restrictions do prevent labor adjustments in firms that are bound by the law. For other firms, EPL still tends to lead to high temporary employment and self-employment, which is not conducive to fast productivity growth: technological change is associated with skill upgrading of the labor force. Firms would refrain from innovating or even adopting new technologies if return on training is not guaranteed, thus slowing the catch-up process.

20. The evidence suggests the negative impact of high labor adjustment costs on productivity is more intense for small- and medium-size companies and depends on the nature of wage bargaining systems. This is because large firms may have greater ability to adjust to new technologies in spite of high labor adjustment costs by tapping into their internal labor supply. In addition, technological change is associated with skill upgrading of the labor force. Such upgrading is likely to take place through the internal labor market of firms (via training) if labor adjustment costs are high, because tapping into the external labor market is costly. But such upgrading, and thus the adoption of new technologies, will take place only if the bargaining system guarantees a high return on internal training. Otherwise, firms would refrain from innovating or even adopting new technologies, thus slowing the catch-up process.

  • Gomez-Salvador et al., (2004) suggest a model where dismissal restrictions hamper the efficient reallocation of workers, leading workers to remain longer in jobs. They control for firm size and show that high labor adjustment costs (proxied by EPLs) can reduce job creation. Blanchard and Portugal (2001) show that quarterly rates of job creation and destruction are significantly lower in Portugal (a high EPL country) than in the United States. Assuming technological change is associated with the skill upgrading of the labor force, restrictions on employers’ ability to adjust their labor forces are likely to imply productivity losses.

  • Takizawa (2003) calibrates such loss in labor productivity in a model for Portugal. He finds that a dismissal penalty and the associated slow pace of worker reallocation result in a great number of unproductive jobs that can cause substantial losses of labor productivity—up to 35 percent—and consumption. Although lower worker mobility induces job-specific investment that offsets part of the labor productivity and consumption losses, the size of this offsetting effect is modest.

21. The latest EPL indicators for the year of 2003 suggest room for improvement with respect to the strictness of employment protection in Portugal (Figure 7). Despite reform initiatives in the 1980s and 1990s, which eased some firing restrictions, Portugal still has the most regulations among industrial countries with respect to protection against individual dismissal. The new labor code that came into effect in December 2003 has eased the use of temporary employment and has given more leeway to introduce flexibility in collective agreements at the firm level regarding rules for fixed-term contracts and dismissals, but the reform was partial.9 This suggests that further labor market reforms that lead to increases in human capital accumulation and better allocation of labor across alternative uses are likely to have a positive impact on productivity growth in Portugal (Figure 7).

Performance of Product Markets

22. A growing body of research has attempted to link productivity differentials across countries with structural differences in the level of product market regulation at the individual country level. This is not surprising, since lowering entry barriers and the regulatory burden for the creation of enterprises is likely to facilitate the replacement of less productive by more productive firms. Two channels are at play: a direct channel whereby regulation can affect productivity growth on its own and an indirect channel whereby regulation hinders competition among the incumbents and thus reduces incentives for the adoption of new technologies. Blanchard (2004) suggests that barriers to firms’ entry and exit in the retail sector in Europe could be behind the observed productivity differentials. European Commission (2003) stresses that gains from deregulation in terms of technological catching-up or from privatizations of state monopolies yield static efficiency gains with limited associated increase in TFP growth in the long term.

23. While there is a broad consensus that product market deregulation may help reduce static inefficiencies, evidence that it can actually increase TFP growth in the long-term is scant. Cross-country evidence on competition and productivity is limited and often confined to bivariate correlations. The more recent literature on this topic focus on the policy determinants of market competition and productivity performance.

  • Bassanini et al (2001) examine bivariate correlations between indicators of regulation and growth. They find supporting evidence of a statistically significant impact of different indicators of the stringency of regulation in product markets on total factor productivity growth, with correlation coefficients for state control and barriers to entrepreneurship ranging from -0.3 to -0.6.

  • Using objective economy-wide and industry-level indicators of product market regulations, Nicoletti and Scarpetta (2003) examine the impact of “barriers to entrepreneurship” and public ownership on productivity. They construct an index on a common (0–6) scale, from least to most restrictive. Their empirical evidence on the regulation-productivity link suggest two main results. First, that entry liberalization in services industries towards the OECD average is estimated to boost annual TFP growth in the overall business sector by about 0.1–0.2 percentage points in countries like Portugal. Second, they estimate a move to the OECD average share of state-owned firms in total value-added would boost annual TFP growth by 0.7 percentage points in European countries (like Portugal) that still have a large stake of business activities in public hands. Thus, greater product market liberalization (particularly in the large wholesale and retail trade) should add to efficiency gains of labor market reforms and increase TFP growth.

  • OECD (2003) extends the analysis above to consider the indirect effect of regulations on productivity via a slower adoption of technologies. It finds that strict regulations have a statistically significant effect on productivity the further a country is from the technology frontier, possibly because they reduce the scope for knowledge spillovers.

24. The latest product market indicators for 2003 suggest that even though privatization has proceeded in recent years, state control of business operations in Portugal remains significantly above industrial country levels. This suggests that further privatization and greater competition, particularly in sectors such as energy, transportation, water, radio and television, and telecommunications are likely to have a significantly positive impact on productivity growth in Portugal.

APPENDIX ICT and Non-ICT Sectoral Classification

  1. ICT Producing. In Manufacturing: Office machinery (30); Insulated wire (313); Electronic valves and tubes (321); Telecommunication equipment (322); Radio and television receivers (323); Scientific instruments (331). In Services: Communications (64); Computer & related activities (72).

  2. ICT Using. In Manufacturing: Clothing (18); Printing & publishing (22); Mechanical engineering (29); Other electrical machinery & apparatus (31–313); Other instruments (33–331); Building and repairing of ships and boats (351); Aircraft and spacecraft (353); Railroad equipment and transport equipment (352+359); Furniture, miscellaneous manufacturing; recycling (36–37). In Services: Wholesale trade and commission trade, except of motor vehicles and motorcycles (51); Retail trade, except of motor vehicles and motorcycles; repair of personal and household goods (52); Financial intermediation, except insurance and pension funding (65); Insurance and pension funding, except compulsory social security (66); Activities auxiliary to financial intermediation (67); Renting of machinery & equipment (71); Research & development (73); Legal, technical & advertising (741–3).

  3. Non-ICT. In Manufacturing: Food, drink & tobacco (15–16); Textiles (17); Leather and footwear (19); Wood & products of wood and cork (20); Pulp, paper & paper products (21); Mineral oil refining, coke & nuclear fuel (23); Chemicals (24); Rubber & plastics (25); Non-metallic mineral products (26); Basic metals (27); Fabricated metal products (28); Motor vehicles (34). In Services: Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of automotive fuel (50); Hotels & catering (55); Inland transport (60); Water transport (61); Air transport (62); Supporting and auxiliary transport activities; activities of travel agencies (63); Real estate activities (70); Other business activities (749); Public administration and defense; compulsory social security (75); Education (80); Health and social work (85); Other community, social and personal services (90–93); Private households with employed persons (95); Extra-territorial organizations and bodies (99).

  4. Other: Agriculture (01); Forestry (02); Fishing (05); Mining and quarrying (10–14); Electricity, gas and water supply (40–41); Construction (45).

Source: O’Mahony and van Ark (2003).

References

  • Bassanini, A., and E. Ernst, 2002, “Labour Market Institutions, Product Market Regulation, and Innovation: Cross-Country Evidence,” Economics Department Working Paper 316, January (Paris: Organisation for Economic Co-operation and Development).

    • Search Google Scholar
    • Export Citation
  • Bassanini, A., S. Scarpetta, and P. Hemmings, 2001, “Economic Growth: The Role of Policies and Institutions. Panel Data Evidence from OECD Countries,” ECO/WKP(2001)9.

    • Search Google Scholar
    • Export Citation
  • Blanchard, O., 2004, “The Economic Future of Europe,” (forthcoming) Journal of Economic Perspectives, NBER Working Paper 10310, February (Cambridge: National Bureau of Economic Research).

    • Search Google Scholar
    • Export Citation
  • Blanchard, O.,, 1997, “The Medium Run,” Brookings Papers on Economic Activity, 2, pp. 89158.

  • Blanchard, O., and Wolfers J., 2000, “The Role of Shocks and Institutions in the Rise of European Unemployment: the Aggregate Evidence,” The Economic Journal, March, 110 (462): C1-C33.

    • Search Google Scholar
    • Export Citation
  • Boeri, T., 2005, “Reforming Labor and Product Markets: Some Lessons from Two Decades of Experiments in Europe,” IMF Working Paper 05/97, May (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Cazes, S., and A. Nesporova, 2003, “Employment Protection Legislation (EPL) and its Effects on Labour Market Performance.

  • CPB Netherlands Bureau for Economic Policy Analysis, (The Hague)

  • Debrun, X., 2003, “Unemployment and Labor Market Institutions: Why Reforms Pay Off,” World Economic Outlook, Chapter IV, April (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Decressin, J., M. Estevão, P. Gerson, and C. Klingen, 2001, “Job-Rich Growth in Europe,” France, Germany, Italy, and Spain: Selected Issues Paper, Chapter 2, IMF Country Report 01/203, pp. 3680.

    • Search Google Scholar
    • Export Citation
  • Estevão, M., 2004, “Why is Productivity Growth in the Euro area so Sluggish?” IMF Country Report 04/235, August (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • European Commission, 2003, “Drivers of Productivity Growth: An Economy-Wide and Industry Level Perspective,” The EU Economy 2003 Review.

    • Search Google Scholar
    • Export Citation
  • Foster, L., J. Haltiwanger, and C. J. Krizan, 2002, “The Link Between Aggregate and Micro Productivity Growth: Evidence from Retail Trade,” NBER Working Paper 9120.

    • Search Google Scholar
    • Export Citation
  • Jorgenson, D., and K. Stiroh, 1999, “Information Technology and Growth,” American Economic Review, May, pp. 10915.

  • Kolasa, M., 2005, “What Drives Productivity Growth in the New EU Member States? The Case of Poland,” Working Paper 486 (Frankfurt: European Central Bank).

    • Search Google Scholar
    • Export Citation
  • Nicoletti, G., and S. Scarpetta, 2003, “Regulation, Productivity, and Growth: OECD Evidence,” pp. 972.

  • Oliner, S., and D. Sichel, 2000, “The Resurgence of Growth in the late 1990s: Is Information Technology the Story?Journal of Economic Perspectives, Vol. 14, no. 4, pp. 322.

    • Search Google Scholar
    • Export Citation
  • O’Mahony, M. and B. van Ark, 2003, EU Productivity and Competitiveness: An Industry Perspective (Brussels: European Commission).

  • Organisation for Economic Co-operation and Development (OECD), 2003, “A Detailed Description of Employment Protection Regulations in Force,” Background Material for the 2004 Edition of the OECD Employment Outlook.

    • Search Google Scholar
    • Export Citation
  • Organisation for Economic Co-operation and Development (OECD), 2003, “The Sources of Economic Growth in the OECD Countries.

  • Organisation for Economic Co-operation and Development (OECD), 2004, “OECD Employment Outlook.

  • Schreyer, P., 2000, “The Contribution of Information and Communication Technology to Output Growth: A Study of the G7 Countries,” STI Working Papers (Paris: OECD).

    • Search Google Scholar
    • Export Citation
  • Stiroh, K.J., 2002, “Information Technology and the US Productivity Revival: What Do the Industry Data Say?” American Economic Review, December, Vol. 92, no. 5, pp. 155976.

    • Search Google Scholar
    • Export Citation
  • Takizawa, H., 2003, “Job-Specific Investment and the Cost of Dismissal Restrictions—The Case of Portugal,” IMF Working Paper 03/75 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
1

Prepared by Paulo Drummond.

2

Economies with GDP per capita below that of the euro area as of 1995.

3

To the extent possible, the cross-country comparisons in this paper use harmonized data from the same database for all countries. Yet, national accounts data could still differ due to different national methodologies in the calculation of investment flows, deflators (including the treatment of quality improvements in high-tech equipment), aggregation methods, and changes in labor quality.

4

Basic identity: -TFP = -Y Δ α-L Δ (1 Δ α)-K, where, Y is real value added, L is total hours of work, K is the capital stock, and α is the share of labor compensation in total domestic income.

5

This section is based on the Industry Labor Productivity Database from the Groningen Growth and Development Center. The database contains information on value added, employment and hours worked in the countries covered in this section for 56 separate industries between 1979 and 2002. For details on the methodology, see http://www.ggdc.net/dseries/60-industry.

6

The list of by ICT classification follows the work in O’Mahony and Van Ark (2003).

7

The industry data suggest a somewhat stronger deceleration in labor productivity in Portugal, by 2.2 percentage points since the first half of the 1990s, as opposed to 1 percentage point in the AMECO database.

8

For a review of the employment protection legislation indicator as a useful indirect indicator of labor adjustment costs, see OECD Employment Outlook, 2004.

9

The indicators of employment protection legislation focus on both regular and temporary contracts. Regulations for regular contracts include: i) procedural inconvenience that employers face when trying to dismiss a worker; ii) advance notice of dismissal and severance payments; and iii) prevailing standards of, and penalties for, unfair dismissals. Indicators of the stringency of EPL for temporary contracts include: i) the objective reasons under which they can be offered; ii) the maximum number of successive renewals; and iii) the maximum cumulated duration of the contract.

Portugal: Selected Issues
Author: International Monetary Fund