Discussions around parental rights or employment contracts are too often framed as political battles rather than rational reflections on how to make the labor market more competitive, fair, and sustainable. The result is a country that spends energy debating symptoms while avoiding the root problem: a labor framework that is excessively rigid, shaped by outdated ideological legacies, and ill-suited to today’s global and digital economy.

The labor law changes approved in 2023 tightened restrictions on fixed-term contracts and temporary work. They were presented as social advances, but they pushed Portugal further away from models that have proven more effective internationally. By privileging rigidity and uniformity, lawmakers took a defensive, non-adaptive path, the opposite of the Nordic approach. In Denmark, for example, “flexicurity” rests on three pillars: contractual freedom, generous unemployment benefits, and strong public investment in upskilling. This ensures that the market is flexible without being precarious. Portugal, by contrast, clings to rigidity that hinders business dynamism and disproportionately penalizes young people trying to enter the formal labor market.

Portugal continues to conflate flexibility with precariousness, when in fact they are very different. Excessive rigidity creates transaction costs, stifles job creation, and prevents businesses from responding to shocks. Meanwhile, countries that combine flexibility with robust social safety nets and active employment policies succeed in reconciling competitiveness with social cohesion. Portugal currently invests less than 0.5% of GDP in active labor market policies, compared to Denmark’s 2%, a gap that explains much of the difference in outcomes.

The Core of the Transformation Portugal Needs

The answer does not lie in imposing dogmas or recycling outdated formulas. It lies in learning from international experience, gathering solid data, and adapting solutions to Portugal’s reality, where SMEs dominate the economic landscape. What is needed is not a closed reform plan but a pragmatic, evidence-based debate that goes beyond political and union noise and places the real challenges at the center: demographic aging, stagnant wages, and low productivity.

This means rethinking flexibility, considering security, not as a threat but as an opportunity. It means putting merit, not seniority or acquired privilege, at the heart of career progression and pay. It means replacing the logic of confrontation with cooperation, recognizing that employers and employees share risks and goals. And it requires strengthening parental protection and work-life balance, not as luxuries, but as essential conditions for social and demographic sustainability.

Modernizing Portugal’s labor framework does not mean creating precariousness; it means building a more agile, meritocratic, and inclusive ecosystem. Flexibility, merit, and employee participation in ownership are not contradictory concepts: when combined, they allow economies to grow more competitively, generate wealth, and distribute the rewards of growth more fairly.

Portugal cannot continue to manage its labor market as if it were isolated from the world or imprisoned by outdated ideological models. In an era of global competition, demographic decline, and accelerating technological change, it is imperative to rethink labor laws based on evidence, not prejudice or entrenched corporate interests.

Flexibility, merit, participation, and work-life balance are not concessions: they are structural conditions for growth, investment, and talent retention. Countries that understood this early, like the Nordics, are reaping the benefits today. If Portugal continues to delay this shift in mindset, it will lose what is most vital: competitiveness, human capital, and ultimately, its future.

Disclaimer: This article has been written with the assistance of AI.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes