Labour Market. - Indicators to assess the adjustment program - Adriana Ferro. Ana Rita Borges. Jacob Macdonald. Julia Seither.

Transcription

1 0 Labour Market - Indicators to assess the adjustment program - Adriana Ferro Ana Rita Borges Jacob Macdonald Julia Seither Marta Lopes Sara Almeida Under the coordination of LISBOA, 7 th DECEMBER 2012 Prof. Pedro Portugal Prof. Paulo Leiria Prof. Pedro Pita Barros

2 Nova Economics Club The Nova Economics Club is composed by a group of students from the Master in Economics of Nova School of Business and Economics. The purpose the club is to enable students to actively participate in projects outside the university, as a way to apply their academic knowledge to practical and valuable situations. Two main objectives were set by its members. The first is to develop and participate in economics research projects with academic or public interest, through the creation of partnerships when valuable for all parties. Secondly, members commit to proactively participate in forums and debates regarding the area of economics. Any contact to our institution is welcome and should be addressed to the following e- mail: novaeconomicsclub@gmail.com Disclaimer Members of the Nova Economics Club prepared this report. The authors are the sole responsible for the content of the report. The views expressed reflect only the opinion of the authors. NOVA SBE or its faculty accepts no responsibility whatsoever for the content of this report nor for any consequences of its use. The information contained herein has been compiled from several sources believed to be reliable, but NOVA SBE or the students accept no liability whatsoever for any direct or indirect loss resulting from the use of this report or its content. This report may not be reproduced, distributed or published without the explicit previous consent of its authors. At any time, NOVA SBE may decide to suspend this report reproduction or distribution without further notice.

3 Table of Contents I. Introduction II. III. IV. Assessment of MoU s content (including 1 st, 2 nd, 3 rd, 4 th and 5 th changes) Methodology Key Performance Indicators V. Final Remarks and Plan of action for the next report VI. VII. Bibliography Appendix I.) Introduction Being one of the most important areas in an economy, the Labour Market is also one of the areas to which the Memorandum of Understand (MoU) devotes more attention. Due to the complexity level of this market, this area was divided into 5 different topics: Unemployment Benefits, Employment Protection Legislation, Working Time Arrangements, Wage Setting and Competitiveness, and Active Labour Market Policies. In the previous report we have only approached the first and the last. In this version we have created indicators for the other three. Nevertheless, the UB and the ALMP s indicators will be kept on track, not only being updated with recent series but also being modified if necessary. The Unemployment Benefits area has suffered some changes due to methodology. When doing such analysis on unemployment, specially on unemployment benefits receivers, one should care about incidence, prevalence and duration of the unemployment, but most of all emphasize the distinction between the unregistered unemployed, and even among the registered ones, those receiving unemployment benefits or not. Regarding the Employment Protection Legislation, to which the last two reviews of the MoU have been more deepen, our approach goes beyond the Legislation per se. Keeping in mind the goal of constructing SMART (Specific, Measurable, Achievable, Relevant and Time phased) indicators, we have focused our analysis on real numbers of formulation and dissolution of legal persons and equivalents, on the job vacancy rate (through the Beveridge curve) and on the dismissals without mutual agreement. On the Working Time Arrangements topic we have devoted our analysis to shorttime working schemes and extra hours worked, relating them with other indicators like productivity and unemployment in order to better perceive the real impacts of the measures. Finally, regarding the Wage Setting and Competitiveness we decided to adopt a comparison approach once the main goal of this section is fostering job creation and improving firms competitiveness with a view to correct macroeconomic imbalances. Therefore, indicators on hourly earnings, minimum wages and unit labour costs are used to perform a benchmark of the Portuguese position in comparison to other countries of the European Union. Note that the Active Labour Market Policies updating will be left to the next report to take into account the recent programs approved in the last review. December /26

4 Objective set in the 1 st version MoU i) Reduce the maximum duration of UB to no more than 18 months Due date Assessment of MoU s contents Review Changes 1 st 2 nd 3 rd 4 th /5 th Unemployment Benefits - Reduce long-term unemployment risk & strengthen social safety nets Q N.A....while strengthening the length of the contributory careers vis-à-vis the workers age in determining benefits... The government will prepare by Q an analysis on benefit dependency and longterm unemployment to assess the need further measures N.A./N.A. Observations It will not concern the currently unemployed and will not reduce accruedto-date rights of employees; Approved by 64/2012 ii) Capping UB at 2.5 times the IAS Q N.A. N.A. N.A. N.A./N.A. Same obs. as above iii) Declining profile of benefits Approved by decreelaw 64/2012 over the unemployment spell after Q N.A. N.A. N.A. N.A./N.A. six months of unemployment iv) Reducing the necessary contributory period from 15 to 12 months v) For extending eligibility to unemployment insurance to clearly-defined categories of selfemployed workers Q N.A. N.A. N.A. N.A./N.A. Q N.A. N.A. N.A. N.A./N.A. Approved by decreelaw 65/2012 article 6 Approved by decreelaw 65/2012. vi) Draft legislation Q N.A. N.A. N.A. N.A./N.A. Employment Protection Legislation - Tackle labour market segmentation, fostering job creation, and easing adjustment in the labour market i)severance payments, for new hires, of open-ended will be aligned with those of fixedcontracts ix)total severance payments for new open-ended contracts will be reduced from 30 to 10 days per year of tenure (with 10 additional days to be paid by an employers End-July 2011 End-July 2011 N.A. N.A. N.A. N.A./N.A. Ongoing N.A. Reduction of severance payments to 20 days per year of work for both open ended and fixed term contracts( )and eliminating N.A. N.A./N.A. Law n. 53/2011 December /35

5 Assessment of MoU s contents financed fund) with a cap of 12 months and elimination of 3 of pay irrespective of tenure ixx)total severance payments for fixed-term contracts will be reduced from 36 to 10 days per year of tenure for contracts shorter than 6 months and from 24 to 10 days for longer contracts (with 10 additional days to be paid by an employers financed fund) ixxx)implementation of the fund agreed to partly finance the cost of dismissals for new hires ii)proposal to align severance payment entitlements for current employees in line with the reform for new hires, without reducing accrued-to-date entitlements - Draft legislation to be submitted iii)proposal to aligning the level of severance payments to that prevailing on EU-average; allowing the severance pay entitlements financed from the fund to be transferable to different employers by means of the creation of national individual accounts End-July 2011 End-Sept 2011 Proposal Q Draft legislation Q Proposal Q Draft legislation Q the 3 months of pay irrespective of tenure for permanent contracts N.A. N.A. N.A. N.A./N.A. The fund will contain law regulation and description of technical details about its operation and a planned time frame The partial financing of severance payments is now compulsory. Until the fund is operational, the employers remain responsible for payments. N.A. N.A./N.A. N.A. ( )EU average of 8-12 days N.A. N.A./N.A. N.A. N.A. N.A. N.A./N.A. Draft Law n. 46/XXI already presented December /35

6 Assessment of MoU s contents iv) Adjustments to the cases for fair individual dismissals - Draft legislation to be submitted to Parliament ivx)individual dismissals linked to unsuitability of the worker should become possible even without the introduction of new technologies or other changes to the workplace. Inter alia, a new reason can be added regarding situations where the worker has agreed with the employer specific delivery objectives and does not fulfil them, for reasons deriving exclusively from the workers responsibility; ivxx)individual dismissals linked to the extinction of work positions should not necessarily follow a pre-defined seniority order if more than one worker is assigned to identical functions. The predefined seniority order is not necessary provided that the employer establishes a relevant and nondiscriminatory alternative criteria; ivxxx)individual dismissals for the above reasons should not be subject to the obligation to attempt a transfer for a possible suitable position Proposal Q Draft Legislation Q Proposal Q Draft Legislation Q Proposal Q Draft Legislation Q Proposal Q Draft Legislation Q N.A. N.A. N.A. N.A./N.A. N.A. N.A. ( )The government will prepare a report on the effects of these changes on relevant labour market indicators by Q (4 th review) Report by Q Proposal already presented Approved Draft Law n. 46/XXI Approved N.A. N.A. N.A. N.A./N.A. Approved N.A. N.A. N.A. N.A./N.A. Approved December /35

7 Assessment of MoU s contents Working Time Arrangements- Contain employment fluctuations over the cycle, better accommodate differences in work patterns across sectors and firms, and enhance firms competitiveness i) Promote the use of flexible working time arrangements (ex. permitting the adoption of bank of hours working arrangements by mutual agreement of employers and employees negotiated at plant level) Q N.A. An action plan to promote the use of flexible working time arrangements was presented; implementation of bank of hours working arrangements N.A. N.A./N.A. Approved ii) Short-time working schemes Q N.A. N.A. N.A. N.A./N.A. iii) Minimum additional pay for overtime established in the Labor code, to a maximum of 50%; elimination of the compensatory time off equal to 25% overtime hours worked Q N.A. N.A. N.A. N.A./N.A. Approved Wage setting and competitiveness- Provide a stimulus to job creation and improve firm s competitiveness with a view to correct macroeconomic imbalances i) Contain increases in the minimum wage if not justified by macroeconomic conditions ii) Ensure wage moderation by using the available discretion in the current legislation of not extending collective contracts until clear criteria is defined. iii) Define clear criteria for the extension of collective agreements N.A. N.A. N.A. Q N.A. N.A. is added N.A. Entering into force in Q any increase in the minimum wage will take place only if justified by economic and labour market developments and agreed in the framework of the programme review. N.A. N.A./N.A. N.A./N.A. N.A./ (5 th review) Only collective Ongoing Draft legislation defining criteria at December /35

8 Assessment of MoU s contents iv) Prepare an independent review on how the tripartite concentration of wages can be reinvigorated to adapt to wage adjustments in line with economic developments and on the shortening of the survival of contracts that are expired but now renewed. v) Implementation of the Tripartite Agreement of March 2011, concerning organized decentralization at three levels: promotion of geographical mobility conditions and working time arrangements; creation of the Labour Relations Centre and lowering of the firm s threshold above which work councils can conclude firm-agreements with 250 employees; vi) Define the conditions under which work councils can conclude firm-level agreements without the delegation of unions. Q N.A. N.A. N.A. Q N.A. N.A. Action plan by Q Q N.A. N.A. N.A. N.A./N.A. agreements concluded by employers associations employing at least 50% of the workers in the sector will be considered for extension. (4 th review) Q /N.A. (4 th review) ( )firmagreements with 150 employees; Q report to assess the effect of the measures & if needed an action plan by Q2-2013/N.A. Q ; view to entering into force by Q First proposal for an action plan has been presented at Q First proposal for an action plan has been presented at Q December /35

9 vii) Reduce firms threshold for work councils to conclude agreements below 250 employees. Q N.A. N.A. Assessment of MoU s contents the decrease of the firm size threshold to 150 workers for unions to delegate power to conclude collective agreements to works councils N.A./N.A. Active labour market policies- To improve the employability of the young and disadvantaged categories and ease labour market mismatches i) Present a report on the effectiveness of current activation policies and other ALMPs ii) Present an action plan for possible improvements and further action on activation policies and other ALMPs, including the role of Public Employment Services Q N.A. A descriptive report is to be presented by Q Following this, an evaluation report with econometric modelling is to be delivered by Q Q N.A. N.A. Q Assessment of effectiveness to be presented by Q N.A./ (5 th review) Report results show that employment measures were more effective than training measures, of the last, short term measures are the most effective. The mix of ALMPs will be improved based on these results N.A./ (5 th review) Implementation of the Action Plans on secondary school and vocational training is in progress. The authorities have also prepared a draft proposal for a wage subsidy scheme targeted at the longterm unemployed to be co-financed by the European Social Fund. December /35

10 III. Methodology According to the Memorandum of Understanding and its five revisions, the reform in the Portuguese Labour Market can be divided in five different areas: unemployment benefits, employment protection legislation, working time arrangements, wage setting and competitiveness and active labour market policies. In this context, the indicators chosen to analyse the labour market reform are divided in five main areas of interest and follow close the proposed measures of the Memorandum of Understanding in each area. More precisely, the group s main objective was to associate each measure of the Memorandum with at least one indicator. In the creation of the indicators, the main priority of the group was that the data needed for its construction was easily available in the Internet. Therefore, careful research and data collection was made in the databases of Instituto Nacional de Estatística (INE henceforth), Instituto de Emprego e Formação Profissional (IEFP henceforth), Segurança Social (SS, henceforth), Organization for Cooperation and Economic Development (OCDE henceforth) and International Labour Organization (ILO henceforth). When the data needed was by no means available in the websites of these institutions, interviews were scheduled with experts on their databases. In this context, it is worth mentioning the meetings that have already taken place, with INE and Ministério da Solidariedade e Segurança Social (MSSS henceforth). Additionally, the group signed research protocols to obtain direct access to the databases of Quadros de Pessoal and INE-Microdata. Another detail regarding the data is that we will consider all the data available from 2002 onwards once it was when the Euro entered into circulation in Portugal. Regarding the definition of the indicators, one of the main concerns of the group was their time length and frequency. So far, time lengths of the different indicators have not yet been harmonized, especially due to the lack of data, but the group considers that it is important to assess the evolution of the labour market indicators before and after the reform was implemented, so at least the two years before the Memorandum entered into force will be considered, whenever possible. The harmonization of time frequency will also not be possible, due to lack of data, but whenever possible they will have monthly or quarterly frequency, to a better analysis of the impact of the reforms in the short-run. A last issue in the definition of the indicators is that, when needed we will use moving averages to correct for seasonality, many times present in the Labour Market series. In this second version of the report we have taken into consideration all the comments and suggestions to the previous report (published on May 2012). Therefore we not only present new indicators on the previous missing areas Employment Protection Legislation, Working Time Arrangements and Wage Setting and Competitiveness but also reformulate and/or update some of the past indicators in the areas of Unemployment Benefits and Active Labour Market Policies. December /35

11 2002Q1 2002Q3 2003Q1 2003Q1 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 Nova Economics Club KPI s for the Labour Market IV. Key Performance Indicators 1. Unemployment Benefits Regarding the Unemployment Benefits area we are going to follow the approach suggested by our mentor Professor Pedro Portugal. Therefore, the indicators will be characterized by the incidence, prevalence and duration of unemployment as shown below (see the appendix for a summarized description): 1.A Unemployment Rate (as % of the Active Population) 1.B Unemployed Population by Duration of Unemployment 1.C Unemployment Benefit s receivers by age group (to be created) 1.D Average Monthly Amount of Subsidy per Beneficiary, in Euros 1.E Ratio of Unemployment Benefit s receivers to Total Unemployed which were Previously Self Employed Workers (to be created) 1.A. Before analysing in depth the unemployment, one should have the notion of the general Unemployment Rate (as % of Active Population). Therefore we show in the graph below the quarterly series computed by INE, which contains the number of unemployed (by definition, that have shown search for a job during the last three weeks, that are available to work and are currently without job) over the active population (by definition, the sum of the employed and unemployed with minimal age of 15 years old). The sharp increase since beginning of 2009 is mainly due to the increase in the unemployment series, once the active population has been constant over time. Graph 1.A. Unemployment Rate (% Active Population) Thousands % Unemployed Pop Active Pop Unemployment Rate (right-axis) Source: INE 1.B. Although, the previous indicator already gives us an idea on the incidence and prevalence of unemployment it lacks information on duration. In order to measure the risk of long-term unemployment and to better understand the components of the Unemployment Rate we decided to monitor the Unemployed Population by Duration of Unemployment. This indicator, calculated by INE on quarterly basis, will give us a perception about the contribution of the new entrants in this state but also on the long-stayers (i.e., on the long-term unemployed population). Note that this indicator was modified to a 4 months moving average December /35

12 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 Nova Economics Club KPI s for the Labour Market in order to minimize the seasonality with each year. Through the analysis of the graph below, we can conclude that the contribution to the increase in the Unemployment Rate comes not only from the increase in the number of those looking for a job for less than 6 months but mainly because of the sharp increase (also since the beginning of 2009) on the number of unemployed that are looking for a job for more than 2 years. Therefore measures such like the cap in the potential duration of unemployment benefits are crucial to change this indicator. According to the literature, those increase the probability of getting out of unemployment. Graph 1.B. Thousands Unemployed by Duration (Mov Avg 4 months) <1month 1-6months 7-11months 12-24months >24months 0 Source: INE 1.C. In the previous report we wanted to monitor the ratio between the registered unemployed with more than 35 years old and the total registered unemployed. The main goal was to assess whether the measure of reducing the potential unemployment benefits duration, especially to the elder unemployed, would actually diminish the number of unemployment benefit s receivers within the upper age groups. However, in order to evaluate this accurately we decided to suspend this indicator to get data from Social Security divided into the age groups in accordance to the conditions of unemployment benefit potential duration and also to focus the analysis on the unemployment benefit s receivers within the total registered ones. 1.D. With the aim of reducing public expenditure, the average amount of the unemployment benefit will decrease, either by shortening the period of unemployment benefit or by the measure of capping it at 2.5 times the IAS ( Indexante de Apoio Social, instituted by law as a reference to determine and update of contributions, pensions and other social benefits which indicate the Minimum Guaranteed Amount per month and that in 2012 has a value of ). To monitor the effects of those policies, we decided to follow the Average Monthly Amount of Subsidy per Beneficiary, in Euros (absolute value, monthly series). With the average subsidy over the number of days subsidized, taken from SS, from January of 2010 to February of 2012, we can draw the graph 1.D which plots an increasing trend over time, especially from October of 2010 to October of However, this increasing trend has reflected a slowdown in the last three months. We also decided to plot in the same December /35

13 2010M1 2010M4 2010M7 2010M M1 2011M4 2011M7 2011M M1 2012M4 Nova Economics Club KPI s for the Labour Market graph the amount of the IAS, which has been constant since 2010 at 419,22 in order to emphasize the gap between the trends of the two series. As a further research we are looking for a database which disaggregates the average monthly subsidy into categories in order to verify if the decrease in this average in the next periods reflects the percentage of people that were receiving between 3xIAS and 2.5xIAS. Until there, we will interpret this indicator as a proxy and in order to understand its fluctuations we included the proportion of benefit receivers by the type of benefit. From the graph below we can see that the noticeable increase in 2010/2011 is mainly due to the increase in those receiving the General Benefit while actually the two other categories have decreased. 1 Graph 1.C Average monthly amount of subsidy per beneficiary ( ) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average Amount IAS(419,22 ) General Benefit Social Initial B. Social Subseq B. 1.E. In line with the objective of the Memorandum of Understanding to extend unemployment benefits to self employed workers, we decided to monitor the Ratio of Unemployed Subsidy Beneficiaries to Total Unemployed (which were Previously Self Employed Workers) (ratio, quarterly series). However, we are also going to suspend this indicator once the number of registered unemployed that were self-employed at the moment do not receive the unemployment benefit. Therefore, they should not be comparable with the number of those that have been receiving the benefit since July of the present year (thus not available data yet). Expectations for the Indicators regarding the Unemployment Benefits For now we keep on constructing the benchmark to later analyse the impact of the measures registered in the Memorandum of Understanding but the main objectives for the previous (current) indicators are: (although not in a short-time period) a decrease in the general Unemployment Rate; A decrease in the percentage of long-term unemployed among the active population; A movement from the unemployed for more than 24 months to the lower categories; A decrease in the average monthly amount of subsidy per beneficiary. Source: Segurança Social 1 Social Initial Benefit Initial Benefit that the unemployed receives if he/she does not has the necessary requirements to receive the General Benefit, therefore, this subsidy has a lower amount Social Subsequent Benefit if the unemployed continues in this state for more than a certain period (it varies with age and contributory years) the amount of the subsidy diminishes but is still sustained December /35

14 2. Employment Protection Legislation Taking into account the objective within the Memorandum that deals with Employment Protection Legislation (EPL) we present the following indicators (see the appendix for a summarized description): 2.A Formulation and Dissolution of legal persons and equivalent entities 2.B Beveridge Curve 2.C Proportion of fired registered unemployed over the total registered ones 2.A With the purpose of measuring whether flexibility of the Portuguese labour market is being eased, we decided to monitor the Formulation and Dissolution of Legal Persons and Equivalents. This indicator would provide us with the information on whether it has become easier to create or to dissolve an enterprise in Portugal, which is a proxy to measure the strength of regulations concerning the formulation and dissolution of legal persons. Besides that, if a significant difference between the number of legal persons created and the number of legal persons extinct was observed after the implementation of the MoU, this could also mean that more jobs were being created owing to a more flexible legislation. To build this indicator, we took the series number of legal persons and equivalent entities created and number of legal persons and equivalent entities extinct from INE (which has collected it from Direcção-Geral da Política de Justiça), for the period comprised between January 2008 and July These were monthly series, however they suffered from severe seasonality and thus could not be used without modifications. We decided to compute the monthly average per year of the series, which eliminate the seasonality and allow us to see the main monthly trend in each year. The only drawback of this indicator, given the seasonality problem, is that it can only be interpreted in the end of the year. Henceforth, the values of the indicator for 2012 should be left without interpretation for now. Our results, presented in the graph below, show that the number of legal entities per month has been increasing since 2009 until The number of dissolute entities does not follow a clear trend, since it has decreased from 2008 until 2010 but risen in With the measures proposed in the MoU, we would like to observe an increase in the number of entities created and extinct, meaning that legislation is being eased. Furthermore, it would be expected that the difference between the number of entities created and extinct increases, implying that more jobs are being created. Graph 2.A 4000 Formulation and Dissolution of legal persons and equivalents (monthly averages per year) Dissolution Formulation until M7 Source: INE (DGPJ) December /35

15 Job Vacancy Rate Nova Economics Club KPI s for the Labour Market 2.B. In line with the objectives of fostering job creation and easing the labour market adjustment we are monitoring the Beveridge Curve for Portugal. This indicator measures the relationship between the job vacancy rate (number of vacant jobs over the sum of vacant jobs and the occupied ones) and the unemployment rate (number of unemployed over the active population). Both series have a quarterly basis and were taken from the Eurostat. In the graph below, we can clearly observe that not only the unemployment rate has increased sharply during the year of 2008 but also that the job vacancy has decreased 30 p.p. from 2008Q2 to 2009Q2. Since then, it has maintained more or less the same level while the unemployment rate keeps increasing pushing the curve away from the origin and revealing some mismatches in the Portuguese Labour Market. With the measures of the MoU, we expect to observe a shift (thus a structural change in the labour market) up and leftwards meaning that not only the job vacancy rate would increase (as a result of the decrease in the strictness of Portuguese Labour Market Legislation) but also the unemployment rate would decrease (due to the increase in job offers). Graph 2.B 0,8 Beveridge Curve 0,7 0,6 0,5 2008Q1 0,4 0,3 2009Q1 2012Q2 2011Q2 0,2 7,0 8,0 9,0 10,0 11,0 12,0 13,0 14,0 15,0 16,0 17,0 Unemployment Rate Source: Eurostat 2.C. Within the easing of labour market adjustment goal, some of the measures aim to facilitate the dismissals, namely by financing and diminishing the severance payments and putting down some rules in the priority of dismissals. Given this, our group is going to monitor the Proportion of Registered Unemployed that were Fired (without mutual agreement) over the total registered unemployed. Both sources have a monthly basis and were taken from the IEFP. This does not show the reality but we consider it as a proxy since the number of registered unemployed is not too far (usually more than 80%) to the estimated number of unemployed in the whole economy. Moreover we have decided to use the three monthly averages in order to remove seasonality. Observing the first graph below, we conclude that although there is a slightly increasing trend (due to the year of 2011), the indicator has been decreasing during the present year. However, since most of the measures were only applied in 2012 and some of them will only affect the new hires, the impact on this indicator should not be evident soon. In the second graph, one can follow both series that constitute the indicator. From there one can conclude that during the last quarter of 2011 and the first of the present year, the number of registered unemployed people that were fired (without mutual agreement) increased above the average of the last 4 years while the total number of December /35

16 registered unemployed has decreased explaining thus the fact that the indicator is above the trend, during that period, in the first graph. Graph 2.C.1 Moving Average 3 Months Proportion of Fired (without mutual agreement) Registered Unemployed 0,25 0,2 0,15 Trend 0,1 0,05 0 Graph 2.C.2 Source: IEFP Mov Avg 3M Total Regist Unemp Avg 3M Fired Regist Unemployed Source: IEFP Expectations for the Indicators regarding the Employment Protection Legislation Although it is still not possible to observe consistent effects of the MoU on the indicators for Employment Protection Legislation due to its very recent implementation which precludes data collection, our expectations are: An increase in the formulation and dissolution of legal persons and equivalents, which indicates greater enterprise flexibility in the Labour Market; A shift in the Beverigde curve upwards and leftwards, indicating that the job vacancy rate increased as a result of greater Labour Market flexibility and that the unemployment rate decreased due to the increase in job offers; An increase in the proportion of Registered Unemployed that were Fired (without mutual agreement) over the total registered unemployed, as a result of the measures aimed at increasing the facility of dismissals. December /35

17 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 Nova Economics Club KPI s for the Labour Market 3. Working Time Arrangements Regarding the Working Time Arrangements area, we have chosen the following indicators to monitor the Memorandum (see the appendix for a summarized description): 3.A Adequacy of Short-Time working schemes 3.B Behaviour of overtime hours with productivity 3.A Regarding the first indicator - Adequacy of Short-Time working schemes it aims at measuring if fixed-term contracts are being used according to their objective. The Memorandum states that in times of industrial crisis the flexibility of using them should be eased. Therefore we expect the number of fixed-term contracts to increase and the number of permanent contracts to decrease in times of recession. Consequently, this indicator shows the change in the percentage of fixed-term contracts. To see when those changes occur and to conclude if fixed-term contracts are an effective instrument, the indicator also reflects GDP growth and the unemployment rate. As we expect the instrument to have an impact on longterm unemployment through a higher degree of labour mobility, we also include the long-term unemployment rate in a second graph. The data for the share of fixed-term contracts come from INE reflecting the development of the period from the first quarter of 2002 until the second quarter of 2012, as do the data for the both unemployment rates. The data for the growth rate of GDP also come from INE using data of GDP on current prices with a year-onyear growth with base year Our computations are showed in graph 3.A.I and 3.A.II. We can see that the share of fixed-term contracts remained more or less constant over the period with only a slight increase since Until 2012 we cannot see the desired relation between GDP growth and fixed-term contracts. For the beginning of 2012 the instrument indicates to be working as the unemployment rate increased more slowly while the number of fixed-term contracts increased. As there are no data available yet for 2012, we cannot conclude anything about the long-term unemployment rate and it is very difficult to draw any final conclusions as the period we observe the before mentioned effect is very short. Graph 3.A.I % Adequacy of Short-Time Working Schemes 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% Unemployment Rate GDP% Share of fixed term contracts Source: INE December /35

18 Graph 3.A.II Long Term Unemployment in % Source: INE 3.B. For the second indicator - Behaviour of overtime hours worked with productivity (%, quarterly series) - the goal is to assess if the decrease in the incentives to work overtime hours (by decreasing the additional payments for overtime hours) has efficient benefits. Therefore, it aims at drawing the evolution of the productivity per hours worked with the evolution of overtime hours worked. Moreover, the data for productivity per hours worked comes from OECD, and reflects the percent change of respective period compared with forgone year in the period from 2002Q1 to 2012Q2. Also, the data for the overtime hours worked comes from Instituto Nacional de Estatística Estatísticas do Emprego, and reflects the percentage of overtime hours worked relative to the total number of hours worked. It needs to be highlighted that for this last variable, for now we only have values from 2007Q1 to 2011Q4, but the series will be completed in future reports. Our computations are showed in graph 3.B. As we can observe from the graph, overtime hours worked relative to the total number of hours worked has been rather stable and productivity has no clear path, therefore there is no linked behavior between the two variables. Therefore, the impact that we aimed at measuring cannot still be observed. Although we cannot find a relationship between the two variables, different approaches to assess this measure will be developed in future reports. Graph 3.B Behaviour of overtime hours with productivity (%) 5,0 4,0 3,0 2,0 1,0 0,0-1,0-2,0 Productivity per hours worked Overtime hours worked per total hours worked Source: INE Estatísticas do Emprego and OECD December /35

19 Expectations for the Indicators regarding the Working Time Arrangements An increase of the share of fixed-term contracts as the recession proceeds and a decrease of the long-term unemployment rate. A decrease in the overtime hours worked relative to total hours worked, combined with an increase in productivity. Wage Setting and Competitiveness Regarding wage setting and competitiveness, the following indicators were chosen to track potential impacts from the Memorandum. Summaries of the indicators are provided in the Annex 4.A Monthly Minimum Wages 4.B Portugal Full-time Workers Covered By the Minimum Wage 4.C Hourly Earnings 4.D Unit Labour Cost For comparison on cross-country competitiveness, certain countries were chosen to compare indicators with Portugal. In choosing countries, it was desired that they be located in the Euro area, and have connections with the economy in Portugal. For comparison purposes, the criteria adopted was to choose the major trading partners of Portugal - Spain, France, and Germany. These countries represent the top three exporting and importing partners as given in the table below. Additionally, Greece is included in the list of comparable countries given the similarities in current economic environments. In cases where countries chosen are unavailable, the aggregate for the European Union is substituted or the comparison is omitted. Table 4.1 Spain #1 Importer 30.0% (of World Imports) 1 #1 Exporter 29.9% (of World Exports) 2 Germany #2 Importer 10.5% #2 Exporter 10.4% France #3 Importer 9.1% #3 Exporter 5.7% Greece Similar Economic Environments 1, 2 Source: INE 4.A. Monthly Minimum Wages measure the lowest possible wage as determined by nation s governments. These are administratively set values, and represent only the minimum legal wage possible without indication as to the number of individuals earning this wage. The data is presented in Euros, and obtained largely from administrative and legal sources collected twice a year during the references months of January and July. 4.A. Monthly Minimum Wages measure the lowest possible wage as determined by respective national governments. These are administratively set values, and represent the minimum legal wage possible without indication as to the number of individuals earning this December /35

20 (Euro) Nova Economics Club KPI s for the Labour Market wage. The data is presented in Euros, and obtained largely from administrative and legal sources collected twice a year during the references months of January and July. From 2002 onward, Portugal has had lower minimum wages compared to reference countries. Germany is omitted since minimum wage laws are not in effect in the country. In the past decade the minimum wage in Portugal has raised almost 160. Growth in all countries is relatively consistent with few shocks seen across countries. More recently there has been a sharpe decline in minimum wages in Greece in The minimum wage in Portugal has remained relatively stable currently at 565,83 in Graph 4.A Minimum Wages Portugal Greece France Spain Source: Eurostat 4.B. From 2009 to 2011, the number of people earning minimum wage in all sectors increased with the exception of arts, entertainment, and sports activities. For the economy as a whole, the number of people earning minimum wage increased from 8,1% to 11,3%. The highest proportion of (Full-time) Workers Earning Minimum Wages come from accommodation, restaurant and similar services, real estate activities, and other sectors. Sectors with the lowest proportion of workers making minimum wage include financial and insurance; electric gas, steam, water and air; and information and communications activities. Real estate activities had the highest net gain of workers earning minimum wage, and one of the largest net percent change (1,21%) along with information and communications activities (1,53%) and education (1,09%). Increases in the number of workers earning minimum wage suggest that employers are decreasing their costs by increasing the number of workers earning the lowest possible wage. Under recessionary economic times, industries and firms are faced with cost cutting decisions, and often achieve this through lowering the costs associated with wages. December /35

21 Table 4.B Portugal Full-time Workers Covered By the Minimum Wage (by activity and % of Employees) T2 T4 T2 T4 T2 T4 B Extractive Industry 4 3,1 2,1 4,7 6,7 7,7 C Manufacturing 10,7 10,8 12,8 13,2 14,3 14,2 D Elect. Gas, Steam, Water, Air 0 0 0,1 0,1 0,1 0,1 E Water Treatment 3,7 4,1 2,3 5,5 6,2 5,9 F Construction 6,5 6,4 7,2 7,9 9,5 9,7 G Retail and Wholesale 8,5 8,9 9, ,6 Industries H Warehousing and Transport 2,4 1,8 2,3 1,7 3,2 3,8 I Accomodation, Restaurants and 13,5 15,8 15,7 16, ,5 Similars J Information and Communication 1,3 1,7 1,2 2,1 2 3,3 Activities K Finance and Insurance 0 0,1 0,1 0,8 0,8 1,1 Activities L Real State Activities 7,8 7,1 8 15,5 17,2 17,2 M Consultancy, Science and Technical 3,2 3,4 3,5 5,9 5,2 5,3 Activities N Administrative Activities and 7 10,4 9,8 9,8 9,6 11,4 Social Services P Education 2,3 5,4 5,8 7,4 8,1 4,8 Q Human Health and Social Services 7,1 8,5 9,9 10,8 9,7 11,9 R Arts, Entertainment and Sports 8,6 9,9 7,8 8,8 8 7,8 Activities S Other 20 18, ,5 22,7 21,2 Total % 8,1 8,7 9,4 10,5 10,9 11,3 Total (Thousands) , , , , , ,5077 Source: INE 2 The absolute value is found using INE database for total employees in Portugal and applying the % given above. Total of employees covered by MW = %( employees covered by MW) * Total employees. December /35

22 (Euro) (Euro) Nova Economics Club KPI s for the Labour Market 4C. Hourly Earnings are sub-divided for workers in the manufacturing and private sectors of the economy. These earnings are composed of the wage rate, overtime payments, bonuses, remuneration, and other payments in kind. In the private sector, hourly earnings in Portugal have been increasing consistent with other countries and the European Union overall. From 2005 to 2012, Portugal has seen an increase from 98,14 euro to 119,50 euro in earnings for workers, representing a 21,75% increase. In the manufacturing sector, Portugal experienced a decline in hourly earnings starting following While earnings in other countries continued to increase, manufacturing workers in Portugal experienced decreases in compensation. From 2009 to 2012, the percent of workers in the manufacturing sector earning minimum wage increased from 10,7% to 14,2% (as seen in indicator 4B). While other countries experienced average increases in manufacturing hourly earnings of 18%, Portugal decreased by 2,8% for hourly earnings of 97,15 euro in (See Table 2 and Table 3 in the Appendix B) Graph 4.C Hourly Earnings (Private Sector) France Portugal European Union (27 countries) Germany Spain Source: OECD Graph 4.C Hourly Earnings (Manufacturing) France Portugal European Union (27 countries) Germany Spain Source: OECD December /35

23 4D. Data obtained on Unit Labour Cost (ULC) from the OECD measures the total labour cost as a ratio of real GDP. This productivity indicator is indexed using 2005 as a base year which allows for the comparison across countries. From 2005 onwards, the ULC of countries has been increasing. Germany originally had decreases in ULC, however has increased in recent years still below the other countries. Portugal, Greece, and Spain follow the trend of increasing ULC following 2005 with decreases in recent years. The growth rate of ULC in France has been consistent while between 2007 and 2010 Spain and Greece experienced a peak in ULC. Of the comparison countries, Portugal has the lowest ULC at the beginning of (See Table 4 in the appendix B) Graph 4.D 120 Unit Labour Cost (Index = 2005) Portugal Greece Germany France Spain Source: OECD 4.E. Data obtained on Wage Rate Dispersion from the OECD is a measure achieved through the computation of Standard Deviation of the Hourly Earnings (Quarterly data) by year, from 2005 to With information for Portugal, Germany, France, Spain and an average of the European Union, this indicator allows examining the wage rate discrepancy for both the Manufacturing and Private Sector. 3 Taking into account the previously studied level of hourly earnings for the Portuguese manufacturing sector, with the course of the crisis, along with a significant decrease in this value, the discrepancy between salaries has significantly increased. Workers from different economic levels are being subject to such different effects that high earners are earning more and/or workers with low income are receiving less per hour. Either way, the outcome implies that the damaging effect is prevailing. In turn, in the private sector there is no evidence of damaging effects of the current crisis, indeed the tendency line of earnings dispersion has a slightly downward slope, indicating the possibility of 3 For a matter of presentation the graphic representations for German, France and EU-17 will be attached in annex. December /35

24 Standard Deviation Standard Deviation Nova Economics Club KPI s for the Labour Market both sectors to have opposite reactions to the measures applied to the labour market. Looking now at the other countries, the interpretation will focus variations more that absolute values, since the level of dispersion almost always varies within the same gap for every country. What is happening in Portugal is quite similar to German s case. Although in the analysis of hourly earnings the strong impact of the crisis for the Portuguese manufacturing sector was quite evident, this was not true for Germany, where hourly earnings values kept a constantly increasing of the even after This is, since in Germany the discrepancy is also increasing, one can conclude that here the positive effect of discrepancy is dominating, increase in highwage workers is overcoming, or simply, there are much less workers in the low-income branch. Finally, all over Europe hourly earnings presented a quite similar behaviour over time (4.C.). On the other hand, using the average for EU-27, the results show wage dispersion has been decreasing for both the private sector and manufacturing, which is in harmony to what happened to the French and Spanish labour market, but opposite to the other two cases described. The evidence here suggests that even though Portugal is part of a group whose labour market seems to be reacting in a sustainable way to the crisis, internally we have not been able to follow such path. Graph 4.E1 Graph 4.E2 Portugal Wage Rate Dispersion (Private Sector) Portugal Wage Rate Dispersion (Manufacturing) 1,8 1,4 1,6 1,4 1,2 1 1,2 1 0,8 0,8 0,6 0,4 0,2 0,6 0,4 0, Source: OECD Source: OECD Expectations for Indicators As Portugal adopts reform policies, the indicators for wage setting and competitiveness will continue to be tracked. As outlined in the Memorandum, increases in minimum wages for Portugal should only occur if dictated by economic and labour market conditions. Hourly earnings for the private sector in Portugal have been increasing in line with earnings in comparative countries; however, earnings for the manufacturing sector in Portugal have been decreasing relative to all others. Such variations have implications in Unit Labour Costs which have been decreasing since the beginning of the crisis, which according to the literature and together with an increase in productivity may increase competitiveness in Portugal. December /35

25 V. Final Remarks and Plan of action for the next weeks This version of the report includes new sets of indicators to capture the Portuguese labour market. Building from Unemployment Benefit and Employment Protection Legislation indicators, this report includes Working Time Arrangements and Wage Setting and Competitiveness indicators. One final group of indicators to be developed in future editions of this report are related to Active Labour Market Policies. Main conclusions are highlighted above with detailed descriptions of each indicator located in the appendix. There will be some time before detailed labour market conclusions on the effects of the Memorandum of Understanding can be made, and these indicators provide the foundation for future research. Since many of the policy changes were only applied within the last year, the effects on the Portuguese economy are yet to been observed. The Portuguese Government continues to approve and apply the measures proposed by the Memorandum and it is the goal of this project to continue to track indicators with the intention of analyzing the impacts in the future. The effort of the Government to meet the measures proposed in the Memorandum is visible through the establishment of deadlines for the submission of draft legislation and the approval of some measures through laws or decree-laws (see table Assessment of MoU content above). Given this, our previsions are that the Portuguese Labour Market is in the right track to fight against a sclerotic and overprotected situation. Future reports will continue to analyse the evolution of the above labour market indicators as the Portuguese economy continues to adapt to reform changes. The following will be the focus for future revisions and updates of this report: Update and review the indicators related to Active Labour Market Policies presented in the first report; Completion of the database for some indicators and continue actualizing current indicators with new published data; Discrimination of certain indicators by sex, region, profession and educational level; Work to obtain more specific data available from Segurança Social and INE, namely through meetings to be scheduled; Continue to find and analyse certain indicators suitable for cross-country comparisons; Evaluate if the indicators are being affected solely by a cyclical component or truly reflects the impact of the Memorandum and in line with this divide between short and long-run effects; Further causality tests in the variables mentioned can be conducted as more data becomes available. December /35

26 VI. Bibliography Official documents: Memorandum of Understanding (May 2011), (Sept 2011) (Dec 2011) (July 2012) (Oct 2012) Diário da República Decretos de Lei 64/2012, 65/2012 Websites: OECD Statistics International Labour Organization Instituto de Emprego e Formação Profissional World Bank Data Gabinete de Estratégia e Planeamento Ministry of Solidarity and Social Security Federal Reserve Economic Data INE Statistics Portugal Portuguese Social Security Beveridge Curve Skill Gaps and Labour Mobility December /35

27 VII. Appendix Appendix A KPIs profiles Name 1. Unemployment Benefits 1.A Unemployment Rate (as % of Active Population) Frequency Quarterly Period Start: 1 st Quarter,2002 End: 2 nd Quarter, 2012 Reference Area Mainland Portugal, Madeira and Azores Objective Unit Formula Globally assess the measures on the Unemployment Benefits area Percentage (Unemployed Population/Active Population) Variables Unemployed Population searching for a job during the last three weeks (and available to work and without job) Active population sum of employed and unemployed with minimal age of 15 years old Sources INE Inquérito ao Emprego Interpretation If this indicator decreases it may demonstrate effectiveness of the measures on the Unemployment Benefits area as well as in the other areas of the Labour Market in the MoU Last Update October 2012 Name 1.B. Unemployed by duration Frequency Quarterly Period Start: 1 st Quarter,2002 End: 2 nd Quarter, 2012 Reference Area Mainland Portugal, Madeira and Azores Objective Unit Formula Understand the main components of the previous indicator as a way to assess the control in the long-term unemployment Thousands NA Variables Unemployed by Duration: <1 month; 1-6 months; 7-11 months; months; >24 months Sources Interpretation Last Update October 2012 INE Inquérito ao Emprego If the series of Unemployed for months and >24 months decrease, the goal of reducing long-term unemployment has been accomplished December /35

28 Name Frequency 1.D Average Monthly Amount of Subsidy per Beneficiary, in Euros Monthly Period Start: January, 2010 End: July, 2012 Reference Area Objective Unit Formula Variables Sources Mainland Portugal, Madeira and Azores Verify in how much the average decreased as a consequence of capping unemployment benefits Absolute value, in Euros NA Average monthly unemployment benefit in Euros SS Estatísticas do Desemprego e do Apoio ao Emprego Interpretation Last Update October 2012 If this indicator decreases it means that there was a relevant number of people receiving between 2.5 and 3 times the IAS decreased in relative terms (using this indicator as a proxy) 2. Employment Protection Legislation Name Frequency 2.A Dissolution and formulation of legal persons and equivalents Monthly average per year Period Start: January 2008 End: July 2012 Reference Area Objective Unit Formula Variables Sources Mainland Portugal, Madeira and Azores Measure the dynamism of enterprises creation and dissolution as a proxy for the flexibility in the Portuguese labour market. Absolute value NA Number of legal persons and equivalent entities created Number of legal persons and equivalent entities extinct INE Direcção-Geral da Política de Justiça Interpretation An increase in the number of dissolutions in a given year means that on average, more enterprises are being extinct per month. An increase in the number of formulations in a given year means that on average, more enterprises are being created per month. Last update October 2012 December /35

29 Name Frequency Period Reference Area Objective Unit Formula Variables Sources 2.B. Beveridge Curve Quarterly Start: 2008Q1 End: 2012Q2 Mainland Portugal, Madeira and Azores Assess whether the goals of fostering job creation and easing the adjustment in the labour market are being accomplished NA NA Job Vacancy Rate (industry, construction and services except activities of households as employers and extra-territorial organisations and bodies) is given as the number of vacant jobs over the sum of vacant jobs and occupied positions) Unemployment Rate Eurostat Interpretation If the curve moves away from the origin it may reflect some labour market mismatches. A shift means a structural change while movements along the curve reflect business cycle movements. Last Update October 2012 Name Frequency Period Reference Area Objective Unit Formula Variables Sources 2.C. Proportion of Fired Registered Unemployed Monthly (although, presented as 3 monthly averages) Start: 2009M3 End: 2012M8 Mainland Portugal Assess if the decrease in the severance payments and easiness on dismissals actually increased the number of individual dismissals Percentage Fired Registered Unemployed/Total Registered Unemployed Registered unemployed that were fired (without mutual agreement) Total number of registered unemployed IEFP Concelhos: Estatísticas Mensais Interpretation If the indicator increases it can either mean that there are more registered unemployed that were dismissed (without mutual agreement) or that are less registered unemployed. That is why both components of the ratio are presented in attachment to the main graph of this indicator. Last Update October 2012 December /35

30 Name 3. Working Time Arrangements 3.A. Adequacy of Short-Time working schemes Frequency Quarterly Period Start: 1st quarter, 2002, End: 2nd quarter, 2012 Reference Area Objective Unit Formula Variables Sources Interpretation Last Update October 2012 Mainland Portugal, Madeira and Azores Performance of the use of this specific working time arrangements in accordance with the level of activity of the country. Percentage/absolute number of contracts Short-time working contracts and permanent contracts in comparison with GDP growth and unemployment rate. Nº of employees working under short-time schemes* Nº of employees working under permanent contracts* Unemployment rate* Growth rate of GDP at current prices (Year-on-year growth base 2006)* *INE If the number of fixed-term contracts increases in times of negative GDP growth it means that the short-time working schemes are being used according to their purpose. Name Frequency Period Reference Area 3.B. Behaviour of overtime hours with productivity Quarterly Start: 1 st Quarter, 2002 End: 2 nd Quarter, 2012 (Productivity) Start: 1 st Quarter, 2011 End:4 th Quarter, 2011 (Overtime hours worked) Mainland Portugal, Madeira and Azores Objective Unit Formula Variables Sources Interpretation Effectiveness of decreasing additional payment for overtime hours in productivity Percentage Last Update October 2012 Productivity per hours worked and overtime hours worked per total hours worked series Productivity per hours worked (percent change of respective period compared with forgone year) * Percentage of overtime hours worked per total hours worked** *OECD **INE Estatisticas do Emprego If overtime hours worked decreases and productivity increases, it means that the incentive to decrease the additional payments for the overtime hours is having efficient benefits, since the labor force is becoming more efficient, and therefore firms competitiveness is enhanced. December /35

31 4. Wage Setting and Competitiveness Name 4.A Monthly Minimum Wages Frequency Bi-Annual (S1, S2) Period Start: 2002-S1 End: 2012-S2 Reference Area Spain, France, Portugal, Greece 1 Objective Unit Formula Variables Sources Interpretation Last Update August National minimum wages set by fairly comprehensive inter-sectoral agreement 2 Germany does have statutory minimum wage laws, Slovenia is replaced as a comparison. To track the changes of minimum wages in Portugal and compare against other countries. Currency Euro Collection from administrative sources twice a year in January and July. Monthly minimum wages EuroStat Increases in this indicator show that minimum wage laws in Portugal are increasing the lowest legal gross monthly wages. Name 4.B Portugal Full-time Workers Covered By the Minimum Wage (by activity and % of Employees) Frequency Quarterly (Q2 and Q4 only) Period Start: 2009-Q2 End: 2011-Q4 Reference Area Objective Unit Formula Portugal Measure and observe the tendency of the number of full-time workers covered by the Minimum Wage, by activity. Data is collected from business surveys and administrative data. Percentage of Total Employment 1) Employment i) Number of workers employed ii) Number of workers covered by the Min wage. Variables Sources Interpretation 2) Percentage = ii)/i) Last Update September 2012 Full-time Workers Covered By the Minimum Wage National Statistics Institute of Portugal (INE) Data is collected from business survey s and administrative data. Number of workers with a wage level equal to the minimum allowed by national legislation. December /35

32 Name Frequency 4.C Hourly Earnings (Private Sector and Manufacturing) Quarterly (Q1-Q4) Period Start: 2005-Q1 End: 2012-Q2 Reference Area France, Germany, Portugal, Spain and EU-27. Objective Measure and comparison of the hourly earnings based on employees in the manufacturing and private sector, and compared across countries. Unit Index: Base Year 2005 = 100 Formula 1) Wage rates (basic wages, cost-of-living allowances, and other guaranteed and regularly paid allowances) i) overtime payments ii) bonuses and gratuities regularly paid iii) remuneration for time not worked iv) bonuses and gratuities irregularly paid v) payments in kind Variables Sources Interpretation Last Update September ) Earnings = 1 + i) + ii) + iii) + iv) + v) Hourly Earnings(wage rate) Private Sector and Manufacturing Organization for Economic Co-operation and Development (OECD) Seasonally adjusted average total earnings paid per employed person per hour, including overtime pay and regularly recurring cash supplements. This value is based only on the manufacturing industry and Private Sector. December /35

33 Name 4.D Unit Labour Cost Frequency Quarterly Period Start: 2002-Q1 End: 2012-Q2 Reference Area Objective France, German, Greece, Portugal, Spain Measuring and tracking the unit labour costs, the cost of labour per unit of output, calculated as the ratio of total labour costs to real output. This measure is linked to productivity and an increase in the unit labour cost represents an increased reward for labour s contribution to output. Unit Index: Base Year 2005 = 100 Formula total labour cost ULC = GDP constant.price Total labour costs = wage rate + non. wage earnings + (job compensations, benefits, training, etc. ) + costs from job tax Variables Total Labour Cost (wage, non.wage, additional costs) GDP in constant prices Sources Organization for Economic Co-operation and Development (OECD) Interpretation Last Update September 2012 Unit labour cost is a reflection of cost competitiveness, and shows how much output an economy receives relative to wages or labour cost per unit of output. An increase in this indicator can be attributed to an increase in the labour costs (wage rate, earnings, compensations, training, transport and taxes), or a decrease in the GDP by expenditure. December /35

34 Name Frequency 4.E Wage Rate Dispersion Annual Period Start: 2005 End: 2012 Reference Area France, German, Portugal, Spain and EU-27. Objective Studying wage rate (hourly earnings) data dispersion for the last years both in Manufacturing and Private sector, measuring how the crisis affected the discrepancy between wages in the European Society. It implied the computation of standard deviation of hourly earnings using Quarterly data. Unit Index: Base Year 2005 = 100 Formula σ = x ti x i 2 Standard Deviation (σ) = Sq. Route ourly earnigs at time t of coutry i ourly earnings average of country i Sq. Variables Sources Interpretation Hourly Earnings(wage rate) Private Sector and Manufacturing Organization for Economic Co-operation and Development (OECD) Wage Rate dispersion assesses the discrepancy between wages in a certain country, based on the standard deviation as the evaluation measure. Shows to what extent and in which direction the lag between high and low-earning workers is evolving for the last years. An increase in this indicator means that workers with higher wages have been receiving more, or/and workers with lower wages are receiving in such a way that the economic levels of both branches are growing far apart. Last Update October 2012 December /35

35 Appendix B Tables Table 1 Monthly Minimum Wage 2002-S S S S2 Greece 571,71 582,00 876,62 683,76 Spain 515,90 515,90 748,30 748,30 France 1.127, , , ,67 Portugal 406,01 406,01 565,83 565,83 Slovenia 432,63 417,87 763,06 763,06 Table 2 Hourly Earnings (Private Sector) Q1... Q3... Q1... Q2 France 98, ,13 109,88 119,79 Germany 100,40 104,59 109,84 117,24 Portugal 98,15 105,67 113,31 119,50 Spain 98,92 108,32 115,90 124,17 European Union (27 countries) 99,11 107,81 112,61 121,32 Table 3 Hourly Earnings (Manufacturing) Q1... Q2... Q3... Q4 France 98,88 105,34 111,60 117,15 Germany 99,88 101,86 107,12 112,82 Portugal 99,96 103,26 99,26 97,15 Spain 98,88 105,34 111,60 117,15 European Union (27 countries) 99,44 106,69 114,72 120,85 Table 4 Unit Labour Cost 2002-Q Q Q Q2 France , ,038 Germany , ,734 Greece Portugal ,885.. Spain , ,122 December /35

36 Standard Deviation Standard Deviation Standard Deviation Standard Deviation Nova Economics Club KPI s for the Labour Market Graph 5 Graph 6 Spain Hourly Earnings Dispersion (Private Sector) Spain Hourly Earnings Dispersion (Manufacturing) 1,6 3 1,4 1,2 1 2,5 2 0,8 1,5 0,6 0,4 0,2 1 0, Source: OECD Source: OECD Graph 7 Graph 8 EU (27) Hourly Earnings Dispersion (Private Sector) EU (27) Hourly Earnings Dispersion (Manufacturing) 1,2 1 0,8 0,6 0,4 0, ,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0, Source: OECD Source: OECD December /35