The role of the state in the labour market: its impact on employment and wages in Portugal as compared with Spain

Article is part of a special issue entitled 'Spain and Portugal in the European Union. The first fifteen years'.
Article abstract:

During the last two decades, unemployment rates in Portugal were significantly lower than the average of the European Union. The contrast in the evolution of unemployment between Portugal and Spain has been a source of perplexity for many analysts. This study presents some possible explanations for that contrast. It argues that in spite of labour regulations that are among the tightest in Europe, unemployment has been comparatively low in Portugal because there is a very large proportion of workers who are not adequately protected by those regulations, increasing the flexibility of the Portuguese labour markets. Lower unemployment rates result also from the combination of faster GDP growth and lower growth of the labour force than in the average of EU countries. High unemployment rates in Spain are due, to a large extent, to slower growth of GDP than in Portugal combined with a much more rapid expansion in the labour force.