1) Portugal implemented numerous structural reforms since the economic crisis to address low productivity growth in areas like education, product markets, the judicial system, and the labor market. 2) Reforms show progress, with Portugal ranking highly on indicators like the Product Market Regulation and Doing Business indicators. 3) While firm productivity declined from 2006-2012, it has recovered since 2012 alongside reforms that reduced less productive firms and changed market conditions. 4) The document examines the impact of reforms on firm productivity and how gains diffuse through the economy.

1. Productivity and
structural reforms
Ana GOUVEIA
Inês GONÇALVES
Sílvia SANTOS
GPEARI, Office for Economic Policy and International Affairs
14th October 2016
Ministry of Finance – Portugal

2. Background
2Ministry of Finance – Portugal
In the recent years, as a response to the economic crisis, Portugal implemented a large number of
reforms to address its major structural vulnerabilities and foster productivity growth
Low
productivity
growth
Education
system
Product
markets
Judicial
system
Labor
market
E.g. Enhanced
vocational and
professional training, in
close cooperation with
firms
E.g. New Insolvency Code
based on the
international best
practices
E.g. Liberalization
of the energy and
gas market

3. 1. Statistical evidence - reforms
3Ministry of Finance – Portugal
Reform indicators show the progress achieved in recent years.
Examples:
1) According to the PMR (OECD 2013 edition) PT ranked 12th position among 33 OECD members (between 2008 and 2013
improved 14 positions in the global ranking).
2) World Bank’s Doing Business 2015 and 2016 editions, Portugal was ranked 20th in terms of the Enforcing Contracts
indicator, within a universe of 189 economies (26th position in 2010).
Global competitiveness Index Doing Business

4. 1. Statistical evidence - productivity
4Ministry of Finance – Portugal
• From 2006 to 2012, firms’ productivity followed a downward trend
• Since 2012, firms’ productivity started to recover in a context of a smaller
number of enterprises operating in a different context, where some structural
reforms are already materializing.

5. 5Ministry of Finance – Portugal
Recovery not only driven by the ones that continue to operate, but
also by the exit of firms which have lower productivity levels than the
ones that enter the market
1. Statistical evidence - productivity

6. 2. Main questions
6Ministry of Finance – Portugal
What is the impact of structural reform on firms productivity?
How are the gains channeled to the economy (frontier v. laggards)?
Are there diffusion mechanisms in place?

7. 3. Data and methodology
7Ministry of Finance – Portugal
Informação Empresarial
Simplificada – IES
Sistema de
Contas
Integradas das
Empresas (SCIE)
– Statistics
Portugal –
i) Firm level database:
Period: 2004-2014

8. 3. Data and methodology
8Ministry of Finance – Portugal
OECD; World Economic
Forum; World Bank
PMR;
Global
Competitiveness
Index;
Doing Business
ii) Reforms database:
Period: 2006-2014 Institutions
Infrastructure
Macro environment
Health and primary education
Higher education and training
Goods market
Labor market
Financial market
Technological readiness
Market size
Business sophistication
Innovation
Starting a business
Construction
Property
Paying taxes
Trading across borders
Enforcing contracts
Resolving insolvency
Network sectors

9. 3. Data and methodology
9Ministry of Finance – Portugal
∆ TFP t = β0 + β1 ∆ TFP Frontier t + β2 DTF t-1 + β3 REF i,t-1 + μ t + ν i+ ε i,t
∆ LP t = β0 + β1 ∆ LP Frontier t + β2 DTF t-1 + β3 REF i,t-1 + μ t + ν i+ ε i,t
What is the impact of structural reform on firms productivity?

10. 4. Outcome
10Ministry of Finance – Portugal
Not all reforms have a
positive impact!!!
WHY?
Is it related with the type of
reforms?
OR … with the type of firms
that benefit from those
reforms?
What is the impact of structural reform on firms productivity?

11. 3. Data and methodology
11Ministry of Finance – Portugal
∆ TFP t = β0 + β1 ∆ TFP Frontier t + β2 DTF t-1 + β3REF i,t-1 + β4Dfront*REF i,t-1 + μ t + ν i+ ε i,t
∆ LP t = β0 + β1 ∆ LP Frontier t + β2 DTFt-1 + β3REF i,t-1 + β4Dfront*REF i,t-1 + μt + ν i+ ε i,t
How are the gains channeled to the economy (frontier v. laggards)?
Are there diffusion mechanisms in place?

12. 4. Outcome
12Ministry of Finance – Portugal
With one exception, the
impact on productivity
is always positive for
frontier enterprises!!!
Resolving insolvency is
the reform with more
impact on productivity
growth.
How are the gains channeled to the economy
(frontier v. laggards)?

13. 4. Outcome
13Ministry of Finance – Portugal
Laggards also benefit,
in some cases
directly…
How are the gains channeled to the economy
(frontier v. laggards)?

14. 4. Outcome
14Ministry of Finance – Portugal
… and in all cases via
diffusion mechanisms
DTF
(β2)
∆ TFP
Frontier
(β1)
Spillover
effects
to other
firms
Are there diffusion mechanisms in place?

15. 5. Conclusions
15Ministry of Finance – Portugal
Structural reforms boost productivity growth for frontier firms
While for laggards the impact is not necessarily direct,…
…it is always present via diffusion mechanisms, which are working
properly

16. 6. Avenues for further work
16Ministry of Finance – Portugal
Firms’ heterogeneity (age; dimension; etc.) may also explain the
impact of reforms?
Why do we have a negative impact of network reforms?
How does the diffusion mechanism operates (e.g. linking with
agglomeration economies)?

17. Thank you
Ministry of Finance – Portugal 17
ssantos@gpeari.min-financas.pt

18. Structural Reforms
Ministry of Finance – Portugal
Product
Market
Reforms
Energy
• Liberalization of the energy and gas market
• Measures to reduce and eliminate the tariff debt and to limit price increases (e.g. special levy on energy
operators, social tariff of electricity)
Housing
• New Urban Lease Act, Renovation Works and Urban Rehabilitation Laws that introduced transition periods
for the convergence of rents and a negotiation mechanism between landlords and tenants
• Setup of a working group for the monitoring of the rental market in Portugal and implementation of
measures to fight tax evasion
Services
• Implementation of the Services Directive
• Liberalization of regulated professions’ access and exercise
Telecommunications
• Lowering of mobile termination rates
• Transposition of EU Directives increasing the sector’s competitiveness
• Privatization of postal services company (CTT)
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19. 1. Structural Reforms
Ministry of Finance – Portugal
Product
Market
Reforms
(cont.)
Transports
• Strategic Plan for Transports and Infrastructures 2014-2020
• Privatizations (e.g. ANA, TAP, CP Carga)
• Ports’ reform (e.g. elimination of the TUP Carga tax, reform of the ports’ labour law (ports’ labour legal
framework), renegotiation of port terminal concession contracts)
Labour
Market
Reforms
Working Time arrangements
• Increase of working time flexibility and of working days (vacations up to 22 days, minus 3, and 9 pubic
holidays, minus 4)
• Introduction of an individual bank of hours
• Collective bank of hours
Individual dismissals
• Reduction of restrictions to individual dismissals: based on performance
Wage setting
• Restrictions on automatic extension of collective agreements: based on representativeness of employer’s
association
• Trade Unions can delegate on working councils in corporations with more than 150 employees
19

20. 1. Structural Reforms
Ministry of Finance – Portugal
Labour
Market
Reforms
(cont.)
Severance Payments
• Reduction of severance payments to align with the EU average: from 30-36 to 12 days, with a 12 months
maximum
• Implementation of a compensation fund to finance severance payments
Unemployment benefits
• Unemployment subsidy entitlement period reduced from a maximum of 38 months to 26 months
• 2.5xIAS (3xIAS before) with a 10% reduction after 6 months
• Reduction of the minimum contribution period to 12 months (15 before)
• Extension to self employed (with more than 80% of wage coming from one employer)
Public Sector
• Approved the new legislation on working time, geographical mobility and voluntary termination of public
labour contracts
Active Labour Market Policies (ALMPs)
• Streamlining of active labour market policies: more effective in supporting job creation, strengthening
activation and offering better training opportunities
20

21. 1. Structural Reforms
Ministry of Finance – Portugal
Judicial
Reform
• Adoption of a new arbitration law based on international best practices;
• Approval of a new Code of Civil Procedure empowering judges to expedite cases, promote pre-court
settlement and enforce statutory deadlines
• New Competition Law aligned with EU law on merger control and strengthened power of Competition
• Creation of a specialized court in property rights and competition
• New Insolvency Code based on the international best practices, similar to the US Chapter 11
• Special Revitalization Procedure (PER) and Companies’ Recovery System through Extrajudicial Agreements
(SIREVE) to help companies in serious financial distress or in a imminent insolvency situation
• Adoption of a new Judiciary Map
• Streamlined court network and implementation of a modern court and judge performance management
21
Education
• Implementation of the increased number of compulsory education years
• Enhanced vocational and professional training, in close cooperation with firms
• Incentives for pedagogical and organizational autonomy of schools
• Life-long training for teachers and reinforcement of the scientific component in the training activities
• Enhanced external evaluation and transparency with examinations in the end of all educational cycles
• Development of a system to anticipate the need for qualifications, identifying priorities areas
• Revision of the school curricula

22. 1. Structural Reforms
Ministry of Finance – Portugal
Fiscal
Reforms
Organization of Public Administration
• Review of public employment legislation
• Regulate the creation/functioning of all public entities (e.g. foundations)
• Reorganization of local administration
Public Financial Management
• Overhaul of Regional and Local Financing Laws
• Design and implementation of new commitments law
• Strategies for arrears’ clearance
• New budgetary framework law
Tax Administration
• CIT reform, PIT reform, Green Tax reform
• Improved efficiency and effectiveness of tax collection
• Creation of the Large Taxpayers Office
SOEs and PPPs
• Continued privatization process
• Enhanced efficiency of SOEs and restoration of their financial sustainability
• Containment of fiscal risks resulting from the large use of PPPs and review of the PPPs’ contracts
Quality of the Public Spending
• Review of public procurement code and implementation of Portal Base
• Improved efficiency and effectiveness in the health care system
22