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Perspectives

The Importance and Trajectory of the Minimum Wage in Portugal

Text: Reinhard Naumann, Maria da Paz Campos Lima

The minimum wage is a success story in Portugal and has proven to be a central element in wage-setting and in combatting in-work poverty. On the other hand, collective bargaining is in deep crisis and must be restored as a relevant factor for the redistribution of wealth. It is essential to re-establish collective bargaining as a key factor of wage regulation.

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The minimum wage in Portugal is an achievement of the 1974 Carnation Revolution that put an end to the dictatorship of the so-called Estado Novo. As the first of a set of obligations on the state in relation to labour relations, the revolutionary Constitution of the Portuguese Republic (April 1976) stipulated the ‘establishment and actualization of a national minimum wage’. This constitutional precept has remained unaltered until today, and there is a broad consensus in Portuguese society that the national minimum wage is a central element of socio-economic governance.

Convergence towards one general minimum wage for all

At the time of its creation, the national minimum wage (SMN) covered almost all workers, with some important exceptions (Decree-Law 217/74). In 1977–78, the government created lower minimum wages that applied to workers in agriculture and domestic service, who were initially excluded from the SMN. In the years thereafter, their minimum wages gradually converged with the general SMN, reaching its level in 1991 for rural workers and in 2004 for domestic workers (Naumann 2019). The universal minimum wage is now called “Guaranteed Monthly ­Minimum Wage” (Retribuição Minima Mensal ­Garantida – RMMG).

Decline and recovery in purchasing power

From the 1980s, governments kept SMN increases at a low level and the minimum wage lost purchasing power (GEP-MTSSS 2019). This trend was reversed in 2006, after all social partner organisations represented on the Standing Committee for Social Concertation (CPCS) signed a tripartite ­agreement to increase the RMMG from € 385.90 (2006) to € 500 by 2011 (CES-CPCS 2006). The recovery in the RMMG’s purchasing power was interrupted by the economic crisis and the intervention of the Troika (European Commission, European Central Bank and International Monetary Fund). The Memorandum of Understanding (European Commission 2011) forced the Portuguese government to freeze the RMMG until the end of the adjustment programme in summer 2014. In line with two tripartite agreements regarding the years 2016 and 2017, the RMMG rose again at an annual rate of five per cent, thus increasing its purchasing power (Naumann 2019).

The minimum wage today

Since 1 January, the RMMG is € 635 per month. Taking into account that the Portuguese Labour Code stipulates that 14 monthly wages must be paid each year, the RMMG corresponds to an average of € 740 per month. According to the OECD, the RMMG represented 43.9 per cent of the average wage and 61.4 per cent of the median wage in 2018, and a report by the Portuguese Ministry of Labour showed that the RMMG covers approximately 24 per­ ­­cent of private sector employees (Schulten and Lübker 2020, GEP-MTSSS 2019).

The role of tripartite negotiations

The 2006 tripartite agreement was the decisive step in starting the process of the RMMG’s recovery, namely by allowing the de-indexation of the RMMG in relation to the evolution of other welfare benefits. This averted any automatic increases in public social expenditures resulting from the evolution of the RMMG. The tripartite agreements of 2014, 2016 and 2017 linked RMMG increases to allowances for employers, thus transforming the RMMG into a kind of bargaining chip in tripartite negotiations. This kind of trade-off generated some controversy and the increases for 2019 and 2020 were set by the government after consultations with the social partners but without being subject to a tripartite agreement (Naumann 2019).

„The national minimum wage has proven to be a central element in wage-setting, namely in combatting in-work poverty. “

Minimum wage and the crisis in the wage-setting system

The extensive coverage of the RMMG (24 per cent of all employees in the private sector) underlines the persistent crisis in collective bargaining that began about two decades ago and reached dramatic proportions during the years of the financial crisis and Troika intervention (2011–2014). Many collective agreements no longer effectively govern wages, and collective bargaining is now hardly capable of playing any role as a relevant redistributive mechanism.

The national minimum wage has proven to be a central element in wage-setting, namely in combatting in-work poverty. This is an important function that is recognized by all social partners, and the RMMG has strong backing from Portuguese society as a whole. Furthermore, there are signs that the minimum wage’s upward movement stimulates wage bargaining in areas with a large proportion of employees earning the minimum wage, thus boosting the average increase in nominal wages in those sectors. The reason for this is that in many collective agreements, the positions at the bottom of the pay tables have been surpassed by the fast-growing RMMG. This raised the pressure on employers to accept trade union demands for increases in collectively agreed wages.

Nevertheless, the crisis in collective bargaining persists and it is imperative to restore it as a major factor in wage-setting, thus re-establishing the balance between mandatory and voluntary parts of the regulatory framework: between the statutory minimum wage and collectively agreed wages.

References

  • Naumann, R. (2019). Minimum Wage in Portugal – a success story of almost half a century, MLP Peer Review on “Minimum wages extending coverage in an effective manner”, Limassol Cyprus.
  • Schulten, T. and Lübker, M. (2020). WSI-Mindestlohnbericht 2020 [WSI Minimum Wage Report 2020], Wirtschafts- und Sozialwissenschaftliches Institut (WSI) der Hans-Böckler-Stiftung, Düsseldorf.
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