Will Portugal’s Minimum Wage Increase Be Enough?

Portugal is set to raise their minimum wage in a move welcomed by workers across the country – but will it be enough to reverse long-term economic trends?

Portugal’s Socialist government intends to increase the monthly minimum wage to 635 euros come January 1st. Despite a jump of nearly 6 percent, it remains the lowest minimum wage in western Europe. After winning last month’s election, Prime Minister Antonio Costa and the Socialist party promised its workers a 25 percent hike, with the overall goal of a 750 euro monthly minimum wage by 2023, together with the intention to negotiate yearly until that target is reached.

In a proposal released earlier this month, the government asserted that a rise in wages was only the first step to achieving greater economic prosperity, noting “this trajectory contributes to the recovery of income and the improvement of social cohesion levels. The increase has coincided with significant dynamism in the economy and the labour market”. The plan is likely to be supported by Costa’s allies in government, the Communists and Left Bloc parties.

This is not the first time the country has raised the wage. The Socialists first came into power in 2015, and since then the minimum wage has had a 14 percent increase overall from its original cap of 505 euros monthly. Even still, compared to neighbouring Spain’s 1,050 euros per month, Portugal’s wage remains low and is a contributing factor to inequality – something the government explicitly recognises.

“The salary increases have not yet reached the pace of growth needed to ensure a balanced distribution of income…[Portugal] remains one of the countries with the highest income inequality rates in the European Union”, the government said.

CTGP, the country’s largest workers’ union, has called the proposed increase “insufficient” and believes the country “is in a position to go much further”. Meanwhile, job insecurity continues to weigh down the economy. Currently one in every five workers in Portugal earns a minimum wage and nearly 900,000 people are precariously employed, which is a term used to describe fluctuating employment, short-term, and contract work.

Slow Growth Ahead

Ongoing income inequality has some analysts concerned about the overall resilience of the economy. Though Portugal has recorded steady expansion over the past two decades and has had a strong recovery from the sovereign debt crisis, growth is now slowing down.

The ratings agency Moody’s has downgraded its forecast for the Portuguese economy, now calling their banking outlook “stable”, as opposed to their previous assessment of “positive”. This is partially a result from the overall decrease in growth across the eurozone; the agency expects the country’s growth to slow to 1.5 percent in 2020 and in the years to follow.

These numbers are lower than the more optimistic figures the country’s central bank reported last month, which prospected that Portugal’s economy was likely to expand 2.0 percent this year – even while pointing to a decline in exports and reduced consumption in the private sector.

Though Portuguese banks remain profitable, losses reported by Novo Banco, which arose from the remains of Banco Espirito Santo after its 2014 collapse, have “distorted” overall profitability. With Novo’s losses excluded, Portuguese banks’ return on assets were still at a low of 0.7 percent at the end of last year, and at 0.8 percent for the first half of 2019.

Moody’s did predict, however, that banks’ overall capital, profitability, and funding were expected to hold steady for the next year, and that banks were likely to be successful in “further reduc[ing] their stock of non-performing assets”, a term for bad loans that hurt their ability to perform. Even still, a reduction leaves Portuguese’s banks with a high number of “problematic assets” that impact their resilience.

According to Moody’s Senior Analyst Maria Vinuela, “Profitability will likely remain close to current low levels, with lower provisioning expenses and cost reduction initiatives broadly offsetting subdued business volumes and very low interest rates.”

Thousands of police officers marched to Portugal’s parliament last week to demand better pay and working conditions; currently officers make 789 euros a month before tax – buy comparison a similar position earns 1,309 euros in Poland and 1,309 euros in France. Copyright: franz12 /

It’s Not Just Low-Earners

Low pay affects more than just those earning minimum wage.

Last week, thousands of police officers marched to Portugal’s parliament to demand better pay and working conditions. At an estimated 10,000 attendees, it is the largest police protest since the Socialists first came to power in 2015. Current starting pay for officers stands at 789 euros a month before tax, and protesters say it simply isn’t enough. By comparison, a similar position earns 1,309 euros in Poland and 1,309 euros in France. Law enforcement is also demanding that outstanding bonuses be paid and are calling for danger pay, early retirement terms, and increased government investment for equipment.

Among the marchers were members of the grass-roots activist group Movimento Zero, which quickly gained online popularity with police workers. The movement has strong support from Portugal’s far-right party Chega, indicating that if the Socialist government doesn’t solve the issue, the far-right stands ready to take full political advantage.

“It’s a lack of dignity, of respect. This government finds money for the banks, why not for the police?” said one anonymous member of Zero. “We don’t even have handcuffs”, the protestor said, illustrating a dire need for financial support.

“It’s a huge injustice that police take home a salary so close to the minimum wage”, said Paulo Macedo, vice-president of a police union.

Sending Money Home

Reflecting a lack of sufficient opportunities at home, Portugal received more remittances than any other EU country for the second year running, according to Eurostat. The number of emigrants has also increased for the first time since 2014, further underscoring the need many feel to look for opportunities elsewhere.

In 2018, a total of 3.6 billion euros came into the country from citizens living abroad, putting them ahead of Romania, Poland, the United Kingdom, and Italy. Meanwhile, Portuguese citizens only sent 600 million euros out of the country, leaving a 3 billion euro surplus not seen since 2001. This high number is partially due to the fact that nearly 20 percent of Portugal’s citizens live abroad, according to the World Bank – approximately 860,000 people left when austerity began in 2011 as a result of the sovereign debt crisis.

The government’s attempts to lure people back home, including the creation of a Return Programme, have thus far been unsuccessful, with Portugal’s expats choosing to send money home in their place instead.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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