Labor productivity in state-owned enterprises

June 2, 2020

As a measure of austerity in the aftermath of the Global and Financial Crisis (GFC), the Portuguese government revoked four holidays for both public and private employees: two civilian (Republic Day and Restoration of Independence) and two religious (Corpus Christi and All Saints Day) holidays. A plausible motivation for canceling the two holidays was to increase the number of working days and thereby lowering labor costs. The move was effective starting in 2013 and was presented as a measure to increase productivity among public employees. The four holidays were restored by the government in January 2016.

Did the revocation have any effect on labor productivity in State-Owned Enterprises (SOEs) in Portugal? Moreover, were there differences between SOEs managed by the Central Government (CG) or those managed by the Local and Regional Governments (LRG)? These questions are motivated by the heterogeneity of institutions, differences in local norms and number of staff, the flux in the economic vitality of regions and differences in practices between central and regional government that can systematically lead to differences in labor productivity differentials from the revocation of holidays between SOEs managed by the CG versus the LRG.

The results show that revocation of the holidays did not influence labor productivity for either CG or LRG managed SOEs. Though revocation of holidays espoused to improve productivity, the policy seems to have served little economic purpose and been no more than a ceremonial gesture.

The lack of economic benefits does not imply that the policy was a failure. Policymakers adopt policies for social, psychological and institutional reasons, in addition to the economic benefit. Perhaps the holiday revocation was one such non-economic policy being a precursor to inducing more discipline among SOE employees in the long-term and impact work culture in such firms. Our data do not allow us to discern these effects. However, our findings do make an economic case for the (short term) lack of efficacy of this policy during that period.

Click here to go to the paper by António Afonso, Maria João Guedes, and Pankaj C. Patel.