What is a universal minimum wage

The importance and development of the minimum wage in Portugal

The minimum wage in Portugal is an achievement of the Carnation Revolution of 1974, which put an end to the dictatorship of the so-called Estado Novo. The revolutionary constitution of the Portuguese Republic (April 1976) provided for the "introduction and adjustment of a national minimum wage" as the first of a series of obligations of the state in relation to industrial relations. This constitutional postulate has remained untouched to this day and there is a broad consensus in Portuguese society that the national minimum wage is a central element of socio-economic regulation.

Moving towards a general minimum wage for all

At the time of its introduction, the national minimum wage (SMN) applied to almost all employees, with a few important exceptions (Legislative Decree 217/74). In 1977 and 1978 the government set lower minimum wages for agricultural workers and domestic workers who were previously excluded from the national minimum wage. During the following years, their minimum wages gradually approached the general minimum wage reached in 1991 for agricultural workers and 2004 for domestic workers (Naumann, 2019). The generally applicable minimum wage is now called the “Guaranteed Monthly Minimum Wage” (Retribuição Minima Mensal Garantida - RMMG).

Decline and recovery in purchasing power

Since the 1980s, governments have kept increases in the national minimum wage at a low level, causing it to lose purchasing power (GEP-MTSSS 2019). This trend was reversed after 2006, when all social partner organizations represented in the Standing Committee for Social Concertation (CPCS) signed a tripartite agreement to increase the RMMG from 385.90 euros (2006) to 500 euros by 2011 (CES-CPCS 2006). The recovery of the purchasing power of the RMMG was interrupted by the economic crisis and the intervention of the Troika (European Commission, European Central Bank and International Monetary Fund). A memorandum of understanding (European Commission 2011) obliged the Portuguese government to freeze the guaranteed monthly minimum wage until the end of the adjustment program in summer 2014. On the basis of two tripartite agreements for 2016 and 2017, the minimum wage rose again by five percent annually, thereby increasing its purchasing power (Naumann, 2019).

The minimum wage today

Since January 1st, the RMMG has been 635 euros. If you take into account that the Portuguese labor law requires the payment of 14 months' wages, the guaranteed monthly minimum wage is on average 740 euros. According to the OECD, the guaranteed monthly minimum wage in 2018 was 43.9 percent of the average wage and 61.4 percent of the median wage. A report by the Portuguese Ministry of Labor showed that the RMMG is used by around 24 percent of employees in the private sector (Schulten and Lübker, 2020, GEP-MTSSS, 2019).

The role of tripartite negotiations

The 2006 tripartite agreement was a critical step in initiating the RMMG's recovery process by enabling de-indexing in relation to the development of other benefits. This avoided an automatic increase in public social spending due to the increase in the guaranteed monthly minimum wage. The tripartite agreements of 2014, 2016 and 2017 linked the increases in the RMMG with subsidies for employers and thus made it a bargaining chip. This type of barter caused controversy and the increases in 2019 and 2020 were set by the government after consultations with the social partners, but without being the subject of a tripartite agreement (Naumann, 2019).

"The national minimum wage has proven to be a central element in wage setting, particularly in the fight against in-work poverty."

The minimum wage and the crisis in the wage setting system

The wide reach of the RMMG (24 percent of all employees in the private sector) shows the ongoing crisis in the area of ​​collective bargaining. This crisis began about two decades ago and has assumed dramatic proportions during the crisis years and the years of Troika interventions (2011–2014). Numerous collective agreements can no longer regulate wages effectively and collective bargaining is no longer able to fulfill its role as an important redistributive mechanism.

"It is imperative to re-establish the collective bargaining partnership as a key factor in wage regulation and thus restore the balance [...] between the statutory minimum wage and collectively agreed wages."

The national minimum wage has proven to be a key element in wage setting, particularly in the fight against in-work poverty. This important role is recognized by all social partners and the RMMG enjoys broad support among the Portuguese population. In addition, there are indications that the rise in the minimum wage is stimulating wage negotiations in areas with a high proportion of minimum wage earners and thus promoting the average rise in nominal wages in these sectors. The reason for this is that in many collective agreements the lowest wages contained in the wage tables have been exceeded by the rapidly increasing RMMG. This increased the pressure on employers to give in to union demands to increase collectively agreed wages. Nevertheless, the crisis in collective bargaining continues and it is imperative to re-establish collective bargaining as a key factor in wage regulation, thus re-establishing the balance between the mandatory and voluntary parts of the legal framework, namely 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 M. Lübker. (2020). WSI Minimum Wage Report 2020. Düsseldorf: Institute for Economic and Social Sciences (WSI) of the Hans Böckler Foundation.