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Portugal a model for EU solution

The country on the Atlantic has a long tradition of minimum wages. The EU could now benefit from this.

Photo: Symbolic image: Portuguese fishermen at work. EC - Audiovisual Service // Patricia De Melo Moreira

Portugal has a long tradition of minimum wages. This could now also become a model for the EU initiative, says João Paolo Branco from the EZA member centre CFTL.

The monthly minimum wage is a long-established policy tool in Portugal, having been created shortly after the Democratic Revolution of 1974. The value of the minimum wage is established annually by the Government, after consultation with the social partners. In 2020, the minimum wage was set to 635€/month and, according to the Government programme, it should reach 750€/month by 2023.
As the competitiveness of the Portuguese economy has historically relied on maintaining low wages, the monthly minimum wage has played a crucial role in the regulation of the Portuguese labour market since its very creation.

Minimum wage effective and immediate impact

The minimum wage has had an effective and immediate impact in the life of workers at the base of the wage structure. But its importance has also resided in acting as yardstick for collective bargaining. It is through collective bargaining that the effects of increases in the minimum wage benefit the rest of the workers, resulting in a true multiplier effect through the entire wage structure.

The Portuguese case is a good illustration of the mechanism. Part of the Troika intervention in Portugal from 2011 to 2014 focused on weakening collective bargaining structures while at the same time freezing minimum wage. Now, the growth of the minimum wage restarted in 2015, and at a quite significant rate of 4.5% per year. However, little was done to recover collective bargaining in the same period. The result was that the multiplier effect of the minimum wage was largely lost. If, in April 2011, the proportion of Portuguese workers on the minimum wage as 9.4%, by April 2017 this proportion reached 25.7%.

Portuguese experience offers solutions

The Portuguese experience thus offers important clues for the discussion of the European minimum wage. The proposal of the European Commission for the minimum wage is focussed on the minimum wage as tool for fighting poverty. This is understandable and meets the needs of two sets of countries within the Union. For Northern European countries, with advanced welfare states and strong structures of collective bargaining, the European minimum wage can be an important tool to prevent more or less sporadic cases of extreme exploitation of workers that, by some reason, fall through the web of collective bargaining and social dialogue. For Eastern European countries, the European minimum wage can be an important contribution to improving living conditions for most workers, due to the relative weakness of their welfare states and instruments of regulation of work.

These are laudable goals. As such, the proposal of the Commission deserves our solidarity both as workers and as European citizens. At the same time though, this proposal falls short of addressing the key issue for Southern European countries: the relationship between the European minimum wage and collective bargaining. As the proposal itself recognizes, the structures of collective bargaining and social dialogue have suffered a strong – and often intentional – erosion within the Union. This erosion was particularly marked in the countries most affected by the debt crises of the last decade, such as Portugal, Spain and Greece.
This trend cannot be understated and its reversal should be at the top of the policy priority in labour relations. If we again take Portugal, the creation of European minimum wage may seem to have little impact, as the country already has a well-established analogous tool.

For countries such as Portugal, the benefit of the creation a European minimum wage would not come from setting an eventual value or formula for calculating a minimum wage based say, on poverty thresholds. Given the large prevalence of low wages in the Portuguese wage structure, such values can end up being lower than the current national minimum wage, rendering the European minimum wage irrelevant. Rather, the real benefit would come from the legislative and institutional structure which will accompany and monitor the implementation of the European minimum wage – and, above all, if such structure is able to recast collective bargaining as a central topic of public debate and of national policy-making within each member state.

Minimum wage should comprise several elements

The European minimum wage as a whole should comprise elements such as policy recommendations regarding the relationship between minimum wages and the rest of the wage structure and the setting of European goals regarding the quality and coverage of collective bargaining as well as the systematic gathering of data and information allowing for the monitoring of the evolution of the different countries regarding both these areas. If it does feature these elements prominently, the European minimum wage could become a cornerstone of the revitalization of social dialogue in Europe.

(João Paolo Branco)