A more agile Labor Code for a stronger economy

Approved by the Council of Ministers, the draft revision of the Labor Code promises to revitalize the Portuguese labor market. It is an ambitious proposal that envisages the revision of over one hundred articles of the Labor Code. It is a true effort at legislative reengineering that will inevitably spark resistance. And rightly so. Changing labor laws means changing delicate balances. Still, the fundamental question remains: Is it truly possible to advance flexibility without compromising labor rights?

The answer, without disregarding other opinions, is affirmative. The path forward must be regulated flexibility, anchored in social dialogue and collective protection. And this appears to be precisely the spirit of the current draft bill. The government, aware of the structural weaknesses of the Portuguese economy, proposes to modernize the labor system, promote greater autonomy in labor relations, and, above all, increase competitiveness without sacrificing social cohesion.

This agenda of change won't please everyone. Business confederations will applaud, while trade unions, led by the CGTP, will strongly oppose it. General strikes, demonstrations, and intense awareness-raising campaigns will mark the agenda of the opposition to the government. This is to be expected when the goal is to introduce greater labor flexibility. The narrative will focus on expressions like "facilitating dismissal" and "removing labor rights." This is natural. But it's also legitimate to ask whether we can continue to live with a Labor Code that, in many ways, seems designed for a 20th-century economy.

The reform's success will depend on the balance between flexibility and security. Apparently, the announced measures are not intended to increase precariousness. On the contrary, they aim to recognize the growing diversity of professional paths, adapting the law to emerging realities. The aim is to create space for customized solutions by sector or company, without compromising workers' fundamental rights.

There are lessons to be learned from the international landscape. The US, with a markedly flexible labor market, demonstrated an impressive capacity for adaptation during the pandemic crisis. In the short term, this flexibility had social costs, but it allowed the technological transition to accelerate and economic traction to gain momentum. Europe, more rigid and protectionist, and faced with stalled economic activity, safeguarded jobs but recovered more slowly. The IMF data is clear: in 2025, the US is expected to grow 1.9%, the eurozone only 1%. The US invariably grows faster. It is true that several factors differentiate the economic performance of the United States and Europe, but the flexibility of the US labor market is one of the most important. And, of course, more productive economies tend to distribute more wealth in the form of labor income. This is a government's greatest goal: creating more wealth to, among other things, increase wages.

Portugal, therefore, has a choice to make. It can remain stuck in a static labor market vision, unfriendly to innovation and business agility. Or it can, with responsibility and dialogue, build a new model of labor relations that is more modern, more efficient, and, even so, fairer. Collective protection remains the best tool to ensure that flexibility does not turn into exploitation.

Reforming the Labor Code will always be risky. But failing to reform it, in this global context of economic decoupling and accelerated technological transformation, would be a blatant strategic error. True courage lies in accepting that the world has changed and that labor legislation must keep pace with this change.

Associate Professor and Coordinator of Economics and Management at the European University