The aim of this Policy paper written by António Bob Santos and Sofia Fernandes is to shed light on (i) the determinants of the unemployment trend in Portugal, (ii) the impact of the internal devaluation strategy pursued since the adoption of the macroeconomic adjustment programme in 2011 and (iii) the priorities that should be on the top of the national reform agenda to foster job creation in Portugal.

The paper is structured in three sections.

Section 1 presents a critical overview of the situation in the Portuguese labour market included in the Macroeconomic Adjustment Programme for Portugal, as well as a summary of the main reforms.

Section 2 assesses the internal devaluation strategy implemented between 2011 and 2014, which aimed at restoring competitiveness and fostering job creation. The authors outline that the assessment of the Portuguese macroeconomic adjustment programme in terms of employment is disappointing. The unemployment rate reached 17.5 per cent in the first quarter of 2013, while the macroeconomic adjustment programme signed in 2011 forecasted a peak of unemployment at 12.4 per cent in 2012. In addition to the increase in the number of unemployed people, there was in the last four years a profound change in the Portuguese labour market, with a reduction of the Portuguese workforce and of the number of employed people, an increase in the number of people who left the labour market (especially people who had stopped looking for jobs and emigrants), as well as a reduction in the wage level (in both the public and the private sector).

Finally, Section 3 calls into question the need for an internal devaluation strategy in Portugal and presents some priorities for a new strategy to ensure a job-rich recovery in Portugal. The authors conclude that, in order promote sustainable growth, consolidate public finances and create more and better jobs, Portugal needs a new medium-term strategy focused on public policies that support innovation, workforce qualification, the promotion of knowledge and changes in the specialisation profile of the economy towards higher added value activities.