Portugal in 11th place in EU wage ranking

 In EU Convergence, News, Production and productvity, Wages

Portugal comes in 11th place out of all the EU Member States on salaries according to its statistics organisation Eurostat, with a gross minimum wage of €957 per month.

Immediately ahead of it were Poland (€978), Cyprus (€1000), Slovenia (€1254), and Spain (€1323).

Lagging behind Portugal were Malta (€925), Lithuania (€924), Greece (€910), Croatia (€840), Estonia (€820), Czechia (€764, and Slovakia (€750).

Minimum wages for EU countries vary widely, with gross monthly minimum wages currently ranging from €477 in Bulgaria to €2,571 per month in Luxembourg.

The minimum wage is more than €2,000 in Luxembourg, Ireland, the Netherlands and Germany while the figure for France is €1,767 and €1,323 for Spain.

The minimum wage is below €1,000 in 14 out of the 22 member states where there is a national minimum wage.

The figure ranges from €360 in North Macedonia to €613 in Turkey among the candidate and potential candidate countries.

Bulgaria (€477) has a lower minimum wage than Turkey, Serbia and Montenegro, all of which are candidate countries.

Variations in minimum wages are considerably smaller in purchasing power standard (PPS), which provides a fairer comparison.

PPS is a Eurostat-defined “artificial currency unit” based on price level differences between countries. One unit of PPS can theoretically buy the same amount of goods and services in each country.

The minimum wage, adjusted for PPS, currently ranges from €542 in Albania to €1,883 in Germany.

Besides Germany, this figure was above €1,250 in Luxembourg, the Netherlands, Belgium, France, Ireland, Poland, Slovenia and Spain.

Huge tax burden on companies and employees

One of the reasons why Portuguese wages are so low is the amount of taxes both employees and company bosses have to fork out.

Social security 23.75 % or €3,325 per year, meal allowances per day of €4.77 x 22 days a month = €104.94, multiplied by 11 months are €1,154,34.

Occupational safety costs of €140 per year per employees, and hygiene and safety at the workplace another €100 euros per year. Average training fees cost a further €350.

This means that the average employee costs companies €19,069.34 in the year or €1,589.11 per month.

Then there is the question of holiday pay twice a year with 14 monthly salaries for 11 months of work.

This means bosses pay Christmas bonus (one salary), holiday pay (one salary) and holidays of 24 days a year – 11 months of work and 14 months of salary.

As a result, an average worker in Portugal costs €19,069.34 in the year or €1,589.11 per month.

Persistent low productivity

Then, you have to factor is Portugal’s relatively low productivity compared to many of its peer EU countries. Low productivity is usually correlated with low wages.

Also, Portugal had experienced a larger slowdown of productivity growth than in advanced economies, or rather it has not grown sufficiently to close the gap.

Among the many explanations are: The creation of innovative firms able to deal with higher regulatory complexity and thrive is still sluggish according to the OECD; Insufficient investment in infrastructures (this is set to change with monies from the EU and Portugal RRP), equipment, R&D and information and communication technology (ICT) and weak aggregate demand; Slower technology diffusion; Non-competitive product markets and capital misallocation. Rigid labour markets and rapid ageing of the population in Portugal have led to skills and labour mismatches and insufficient knowledge-based and human capital accumulation, and an overall brain drain as highly qualified young people seek better paid jobs overseas, as well as the shift in manufacturing to the Far East and Eastern Europe over the past decade.

Elusive dream of convergence

When Portugal joined the EU, a greater and deeper integration of the Portuguese economy in global markets was expected to lead to a convergence in productivity in line with the most developed countries.

Paradoxically, this still has not happened. After 50 years of democracy and economic integration Portugal still has almost a similar gap in productivity and it is facing a decreasing and diverging trend in aggregate productivity growth.

Another reason is that there are an insufficient number of firms able to grow and become large. And instead of allocating the lion’s share of Portugal’s €16Bn EU economic grants and loans in the Recovery and Resilience programme (RRP) to help private sector companies, the government allocated a significant percentage to the public sector.

Things looking up?

That said, after 20 years of poor growth and sluggish productivity, things are now beginning to change for the better. Productivity reached an all time high of 111.94 points in the fourth quarter of 2023 from 109.50 points in the third quarter of 2023. Productivity in Portugal averaged 94.63 points from 1995 until 2023. Its record low was 78.03 points in the second quarter of 1995. (Source: EUROSTAT)