The Portuguese minimum wage

Matilda writes*

The minimum wage in Portugal has steadily increased throughout the years, to account for inflation and a rising cost of living. Yet, workers who receive the minimum wage testify that it is not a “living wage” as they often cannot afford food by the end of the month (Público, 2021).

As of 2022, the minimum wage in Portugal is €705 per month (Pordata, 2021). Prime minister Costa proposes to increase the minimum wage to €900 per month in 2026 (Público, 2021). However, accounting for a 5.3% of inflation in 2022 and projected inflation, this prediction for 2026 does not rise above the trend established in 2014, when the Financial Assistance Program — triggered by the 2008 financial crisis — ended (Pordata, 2021).

Interviews with full-time workers earning the minimum wage could not afford rent, heating, food, and medical expenses; extended family had to live together, draw on food banks and food subsidies, and still ran short by the end of the month (Público). According to the Instituto Nacional de Estatística (2020), the proportion of full-time employees earning the minimum wage has risen from 8.1% in 2009 to 25.6% in 2019. As of 2020, 9.5% of the employed population faces poverty (Pordata, 2021).

Minimum wages are supposed to lift people out of poverty, but they seem to keep people in poverty and depending on help from family (Diogo et al., 2015). An interviewee even suggested that minimum wages in Portugal are an excuse for employers to keep wages at the minimum (Público, 2021).

Under the European Comisson’s Pillar of Social Rights, minimum wages should “provide for the satisfaction of the needs of the worker and [their] family in the light of national economic and social conditions” (European Comission, 2022). Portugal does not comply with this definition.

In a study on the “impact on firms of minimum wage policies in Portugal,” Alexandre et al. (2022) suggest that an increase in the minimum wage would weed out inefficient “zombie” firms and firms that exploit workers.

An increase in the real minimum wage does not seem to be on the political agenda — Portugal dissolved its parliament in 2021 after failing to  approve the state budget — but an increase could increase standards of living, increase productivity, and weed out inefficient firms.

Bottom line: Increasing the minimum wage as a palliative measure for inflation does not protect workers from poverty and may perpetuate exploitation of workers and of inefficient industries.

* Please help my Economic Growth & Development students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Author: David Zetland

I'm a political-economist from California who now lives in Amsterdam.

2 thoughts on “The Portuguese minimum wage”

  1. Hey Matilda!

    Thank you for your interesting post. I have two thoughts:

    1-. Whenever I think about minimum wage and the problems that it may lead, I always think about the possibility of abolishing them. Nordic countries are notorious for not having strict minimum wage requirements set by law. Instead, they use collective bargaining that is aided by unions in order to set a feasible wage for both workers and producers. What would be your thoughts on this? As a result, there is to a certain extent greater wage flexibility, and the demands of the workers are also considered more.

    2-. Furthermore, I would like to again criticize a national minimum wage. This is because I believe
    that the cost of living across different municipalities is very different. The Hague is very likely to be more expensive to live in, than living in Kootwijk (a small village in the Netherlands in the middle of nowhere). Therefore, I believe this should be a task for state governments, instead of the national government. In order to adjust the wage according to the needs of their people.

  2. Hi Matilda! I really enjoyed reading your blogpost and finding out more about the minimum wage situation in Portugal. I think it is a very interesting topic, especially coming out of a COVID-induced financial crisis after only just have begun to stabilize after the 2008 financial crisis. I was also shocked to find out that the percent of workers on minimum wage had increased so drastically (25 of full-time employees seems very high!). That being said, your blogpost did leave me with a couple of questions:
    1) At one point you mention that about 10% of the population faces poverty in Portugal. For the sake of clarity in your paper, I think it is important that you define what you mean by poverty – I would imagine that the poverty line in Portugal is different to other parts of Europe, let alone in comparison to other parts of the world. Although a small detail, I think it will help your reader better imagine the purchasing power of a minimum wage in Portugal.
    2) Also, you mention that in an interview, it was mentioned that some believe the minimum wage is an excuse for employers to not increase salaries. I know it must have been difficult to provide a nuanced perspective within the word count of the blogpost, but it makes me wonder whether it is truly the minimum wage that keeps full-time employees “trapped” with such low incomes, or whether there are other factors that play a role?
    3) Furthermore, you mention that raising the minimum wage isn’t a priority for the government, but I wonder what you think the government should do in order to ensure a minimum standard of labour quality for employees? And to that end, I think it might also be useful to mention why the minimum wage in general is so important (i.e., as opposed to providing better social services, subsidies, or other measures to help people get out of poverty).
    I hope my questions were useful and I look forward to seeing your presentation soon!

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