For ten consecutive years, the minimum wage has been rising in Portugal, resulting in an increase in its prevalence in the national labour market. According to a new bulletin from the Bank of Portugal (BdP), between 2015 and 2022, the percentage of new employment contracts that pay the guaranteed minimum wage rose, now corresponding to almost a third of new contracts.

“Updates to the national minimum wage were reflected in the number of new employment contracts signed with a base salary equal to [this value]. The incidence of the national minimum wage in new contracts increased by 1.8 percentage points between 2015 and 2022, to 31.4%”, highlights the Portuguese central bank, in the analysis based on data from the Staff Tables relating only to full-time employees (excluding agriculture and fishing).

On the other hand, between 2015 and 2022, new contracts signed with the national minimum wage grew more among workers with lower levels of education and decreased among those with complete higher education.

Among individuals with primary education or lower, the increase was 6.5 percentage points in the seven years mentioned, from 38.8% to 45.3%. In comparison, among those with secondary education, the increase was five percentage points, to 35.7%. Among those with a degree, the percentage of new links with the national minimum wage fell from 9.1% to 8.3%.

Foreign workers

By nationality, in 2022, 43% of new contracts for workers with foreign nationality included a base salary equal to the national minimum wage, which compares with 29% in the case of national workers”, adds the Bank of Portugal.

Year after year, the national minimum wage has increased more than other wages, which has led to a compression of wages in the Portuguese economy. This warning has been issued for several years and the data now released by the BdP proves it.

Looking only at 2022, 3.4% of workers who had been close to the national minimum wage in 2021 started to receive it in the new year, with the increase in the minimum wage set by the Government.

“An important dimension of increasing the national minimum wage is the effect on the wages of workers close to that threshold. Between 2015 and 2022, of the workers who remained in the same company for two consecutive years, the percentage of workers who received a base salary equal to the national minimum wage and who continued to do so fluctuated around 81%, while the percentage of workers who began to earn a base salary equal to the minimum wage as a result of the absorption of the salary range by the minimum wage update was around 4%”, observes the Bank of Portugal.

According to the bulletin released by the BdP, the percentage of Portuguese workers who earn the national minimum wage has risen to 23%, that is, almost a quarter of the workforce.

Women, younger people, workers with less education, workers with fixed-term contracts and workers of foreign nationality are most exposed to the guaranteed minimum wage, which is, moreover, more prevalent among smaller companies.

There are also relevant differences between geographic regions: in the interior, the national floor is more common. According to the analysis by the Bank of Portugal, the municipalities with the highest prevalence are Fornos de Algodres, Crato, Vinhais and Pedrógão Grande (around 60%). In contrast, Campo Maior (4.5%), Castro Verde (8.2%), Oeiras (9.2%) and Matosinhos (9.6%) occupy opposite places in this table.

By way of conclusion, the BdP leaves some notes on the setting of the national minimum wage, arguing that this should be done within a coherent framework of labour market policies, taking into account the evolution of productivity, the dynamics of inflation and the economic cycle.

“Wage dynamics, in particular the national minimum wage, can be a source of pressure on prices and on the competitiveness of an economy in a monetary union. Salary increases must take into account the dynamism of the labour market and the economy, with an emphasis on productivity gains for workers and companies,” emphasises the Portuguese central bank.