This forum has documented in the past the problems associated with overly powerful public-sector unions. For a sense of how those problems can play out when public-sector unions hold even more power, consider Bloomberg Businessweek‘s recent report on Portugal.

On June 27, Portugal’s labor unions flexed their muscles. To protect benefits, including the 35-hour workweek in the public sector, the unions shut down Lisbon’s commuter train and metro system. Many Portuguese were not sympathetic. “It’s unfair for the public sector to have certain benefits that don’t exist in the private sector,” says Francisco Rodrigues, who runs a clothing store opposite the Parliament building. Portugal’s government employs 600,000.

Prime Minister Pedro Passos Coelho, whose government is at risk of falling, is trying to curb popular resentment over what opponents say is a widening gulf between private employees and public workers who have mostly stayed immune to mass job cuts. …

… In 2011 officials said they planned to cut the number of state employees by 2 percent a year from 2012 to 2014. That’s a fraction of private-sector job cuts. Former civil servants made up only 1.9 percent of the 700,000 unemployed workers in February, says Paulo Trigo Pereira, a professor at the ISEG School of Economics and Management in Lisbon.

In January the International Monetary Fund urged Prime Minister Coelho to trim spending on state workers’ wages and pensions, which together account for more than half of government expenditures that aren’t earmarked for interest payments. “It would seem impossible to generate the government’s spending reduction goals without changes in these two areas,” the IMF says in its report. The government is considering deep job cuts and a salary review for public workers. The cuts and other measures will affect about 30,000 state employees, Coelho said in a May 3 speech. One hurdle for the government is that labor law protects a large number of state workers from being terminated without disciplinary action or mutual consent, says Nuno Morgado, a lawyer in Lisbon.