Is Portugal Really so Arteriosclerotic?
Results from a Cross-Country Analysis of Labour Adjustment
John T. Addison
Department of Economics, University of South Carolina (U.S.A.), and University of Birmingham (U.K.)
Faculdade de Economia, Universidade de Coimbra (Portugal) and
Center for European Economic Research (ZEW), Mannheim, Germany.
Summary measures of the overall strictness of a country’s employment protection laws have proven popular constructs in cross-country studies of the covariation of labour market institutions and macroeconomic outcomes. Portugal occupies an unenviable position in the international rankings. We critique this reputation in two ways: first, by offering a modicum of corrective institutional detail; and, second, via a detailed analysis of the process of labour adjustment in Portugal, benchmarked to the experience of Germany, Spain, and the U.K. Our error-correction model indicates that Portugal has a very high speed of adjustment to deviations from the long-run employment output equilibrium. More in accord with received wisdom is the very smooth adjustment mechanism of the U.K.