Unbalanced market with pressure from the minimum wage on the average

The average salary declared to Social Security in 2023 rose to 1,463 euros, which represents an increase of 7.2%, which represents an additional 98 euros per month. The data was released by the Ministry of Labor and Social Solidarity, and does not convince economist César das Neves. «On average it could be, but for lower incomes there were significant losses», he reveals to Nascer do SOL.

Also Paulo Rosa, economist at Banco Carregosa, argues that «taking into account that the average annual variation in the Consumer Price Index (IPC) registered an increase of 4.3%, this being the best metric to measure the increase in the cost of life, the average salary gain offset the average rise in inflation».

An increase that is seen by the president of AEP, Luís Miguel Ribeiro, as an «effort by companies to support workers, even in a period of greater financial and economic instability», highlighting the importance of average wages actually received, that is, net of imposed «in order to retain and attract talent and is essential for Portugal to face societal and productivity challenges, with emphasis on digital and climate transitions».

César das Neves also draws attention to the fact that the rise in the national minimum wage is putting pressure on average salaries. «The increase in the minimum wage has been a completely irresponsible measure for years, which is greatly unbalancing the labor market and greatly harming less productive workers» and taking into account that the averages are not decided by social consultation or, ultimately , by decree of law, the economist understands that «salaries rise with productivity and this rises with quality investment», adding that «unfortunately these two things have been lacking here lately».

Luís Miguel Ribeiro recalls that, since 2015, the national minimum wage has increased by 62.4%, while the average gross salary has increased by less than half (27.7%), which essentially penalizes workers with more qualifications, revealing to Nascer do SOL that «this reduction in the difference between the minimum and average salary tends to be harmful to the economy, as it discourages merit and productivity». Still, he admits that companies have been doing their part and, as such, understands that the incentive must come from the next Government, which must act on fiscal progressivity, which he considers to be stifling. «Businesspeople want to increase salaries, but they are suffocated by taxes, as are workers», adding that «the high tax burden is clearly a strong obstacle to national competitiveness and although the average gross monthly remuneration per worker has increased by 10.5% between 2021 and 2023, in net terms it increased by only 6.3%, that is, the State collected 40% of the increase in the worker’s average gross income, apart from the social contributions that the employer pays on the worker (23.75%). This makes it difficult to retain and attract workers».

An opinion shared by Paulo Rosa when defending a reduction in the weight of taxes on income from work as a way of increasing average values. «A decrease in the IRS is one of the ways to increase the average salary», a tool that, in his opinion, is within the reach of any Government. And he remembers that «productivity gains exist and these same productivity increases must correspond to salary increases». Otherwise, the consequences are clear. «The relocation of labor is a reality in an increasingly globalized world and focused on distance work enabled by new technologies and that the pandemic has ‘definitely opened the doors’, with the emigration of young graduates becoming increasingly a reality», highlights to our newspaper.

The Banco Carregosa economist also did the math: «The salaries earned by workers are nominal values. Thus, if the nominal GDP in Portugal rose by 12.2%, 9.6% and 7% in 2023, 2022 and 2021 respectively, having had a negative growth of 6.5% in 2020, even without any gain in productivity, the Salaries should have increased on average with the evolution of nominal GDP”, also mentioning that “it is true that by law salary cuts are not permitted. Thus, in 2020, the year of the pandemic and a strong contraction of nominal GDP by 6.5%, salaries did not fall by that percentage. However, they also did not follow the increase in nominal GDP in the following years, which recovered in 2021 and was driven by high inflation in 2022 and 2023».

And Europe?

César das Neves recognizes that Portugal was one of the most affected by the recent shocks, but recognizes that it “recovered well”. However, he admits that “it is now returning to the usual doldrums” and warns that “the situation is very volatile, but it is likely that, with a slight recession taking hold in several of the major European economies, there will not be many improvements in the next times”.

Paulo Rosa admits that the most advanced economies in central Europe have higher average salaries because they also have a higher gross domestic product (GDP) per capita. But he points to changes. «The decrease in the weight of wages in the formation of GDP from an income perspective is increasingly a reality, accentuated in the last two years of high inflation. The calculation of GDP from an income perspective is the sum of wages, interest, rent and profits, and the weight of wages has been decreasing, not only in Portugal, but also in Europe”, remembering that in 2019, before the pandemic, GDP Portugal’s nominal value was 214 billion euros and at the end of 2023 it reached 265.5 billion euros. «Salaries on average have increased by around 23% in the last four years? If wages have not kept pace with the rise in nominal GDP, then it has been rents, interest and interest that have mostly justified the increase in nominal GDP. Inflation has been fueled more by the increase in income via rents, interest and profits, than by the increase in salaries, the so-called greedflation», he highlights.

The president of AEP also considers that Portuguese salaries continue to fall far short of most European countries, particularly those with which we want to compare ourselves, arguing that «this happens because Portugal has a productivity problem, which is strongly conditioned by the complex and bureaucratic framework: administrative, legal, judicial and fiscal”, but recognizes that it is only possible for companies to pay more if they manage to achieve higher levels of productivity and competitiveness.

As a solution, Luís Miguel Ribeiro advocates a change in the culture of the Portuguese economy, which boosts productivity and innovation, namely through a simplification of the administrative, legal, judicial and fiscal framework, ensuring its predictability and strengthening cooperation between companies and entities in the scientific and technological system, in order to enable the transfer of scientific results to the productive fabric and, in this way, induce greater added value in products and services.

The person responsible also remembers that we currently live in a more controlled context in terms of inflation. «In view of the slowdown in inflation, nominal wage increases require less growth to effectively achieve the same real wage growth», however, he says that «it is important to remember that the labor market works like any other market, and the salary acts as a price in this market».

And he doesn’t hesitate: «The lack of labor felt in the European Union and, in particular, in Portuguese companies (which have even been pointing out the lack of specialized labor as the biggest obstacle to their activity , as AEP’s monthly surveys of companies attest), reveals a clear mismatch between qualifications and the real needs of companies. The high rate of youth unemployment is also a reflection of this maladjustment”, adding that “the effects of the lack of labor will prevail in the face of the decrease in inflation, and it is not likely that the country or the European Union will be at risk of a decrease in salary”.

What the parties ask for

All parties defend the increase in the national minimum wage (SMN) which, in essence, is getting closer and closer to the average. But it seems that this ‘detail’ was not forgotten by the parties either. A promise devastated by César das Neves when he argued that «on this issue the parties can only ruin, but they cannot do. Some spoil a lot, others less, some a lot, but none are good,” he reveals to Nascer do SOL.

In the case of the PS, Pedro Nuno Santos intends to review the income agreement signed in the Social Concertation by the Government of António Costa. One of the objectives is that the rise in average wages follows that of minimum wages. And, for the average salary, the PS proposes that the threshold rises to 1,725 ​​euros in 2026.

A value not very different – ​​although slightly lower – than what the Democratic Alliance led by Luís Montenegro proposes: 1,750 euros. However, it is necessary to take into account that it would take more time to get there as the AD only points to this value for 2030.

In turn, the Left Bloc wants qualified workers, starting with public administration, to have a reinforcement of 500 euros in the entry position. The values ​​must be readjusted at the following levels. The Bloc also talks about an equal meal allowance for both public and private and the minimum value must be the same as that for the public. Mariana Mortágua even defended that «all salaries should be dragged down by the minimum wage, because what has happened in Portugal is that it is important to increase the minimum wage, it is very important, but average salaries are falling behind and are being ‘eaten’ by the minimum wage».

For the PCP, the objective is a general increase in salaries, with the minimum value of the increase being 150 euros.

The PAN, which wants to increase the SMN to 1,100 euros, also defends that there are “advances” in the average family salary.

And Livre defends a «national concerted strategy for wage appreciation, at the various levels of the income scale, with particular emphasis on average wages and income from qualified work, also through indexation to inflation and performance metrics. productivity”.

AEP, instead of commenting on the measures, prefers to move forward with its proposals that it presented for the 2024 State Budget. «In this document, AEP warned of relevant measures, such as the progressive reduction of the IRC rate, to 17% by 2025, the significant reduction in the IRS rate, particularly for younger people, the updating of IRS brackets at the inflation rate and the taxation of overtime work at the same IRS rate as work during normal hours», he concluded.