Legislation increases national minimum wage

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A recent decree-law issued by the Government has increased the national minimum wage from 1 January 1997. The monthly rates have risen by up to 5%. We review Portugal's minimum wage system and the reactions to, and implications of, the 1997 increase.

The new minimum wage rates

Decree-Law No. 38/97 dated 4 February 1997 has updated the rates of the guaranteed national minimum wage as follows:

• PTE 56,700 for most workers; and
• PTE 51,450 for domestic workers.

These rates have been backdated to 1 January 1997. They represent percentage increases of 3.85% and 5% respectively in relation to the general minimum wage and the domestic minimum wage in force during 1996.

These increases are greater than the 2.5% inflation rate forecast in the tripartite Strategic Social Pact (Acordo de Concertação Estrategica), signed in December 1996, and also greater than the 3.5% average guideline figure recommended for wage rises in the Pact.

No other changes were made to the legislation currently governing guaranteed minimum monthly pay. These rates apply to all employees aged 18 and over but may be lower under certain specific circumstances, such as in the case of minors under 18 years of age, trainees, apprentices, workers gaining work experience, and other workers undergoing practical training, within certain strict guidelines and percentage limits.

The legislative framework

Legislation on the national minimum wage is the practical expression of a rule established in the Constitution of the Portuguese Republic, which stipulates that it is the duty of the state:

"to establish and update the national minimum wage, taking into account the needs of workers, the increase in the cost of living, the level of development of the forces of production, the requirements of economic and financial stability and the cumulative effect of these factors on development, amongst other factors."

The national minimum wage was first fixed by law in May 1974. It did not include workers in agriculture, forestry and animal husbandry, nor domestic workers. A national minimum wage was established for the former group in 1977 and for the latter group in 1978. The respective amounts were much lower than the general minimum wage covering workers in industry, the retail trade and services.

Gradually, and since 1985 in particular, the agricultural minimum wage has grown closer to the general minimum wage. In 1991, agricultural workers were awarded the same rate as workers in general. The rate for domestic workers was increased by a higher percentage with the aim of narrowing the differential between their rate and that of general workers.

Except for the years 1976 and 1982 (when the financial and economic situation deteriorated as a result of the sudden oil-price shocks), the national minimum wage has been updated annually. Generally speaking, percentage increases decreed have been higher than the consumer price index (minus housing) over the last decade, with the exception of the years 1993-4, when the Portuguese economy began to show signs of a slump.

Positions of the social partners

The Government's 1997 minimum wage increases were subject to consultation with the social partners represented on the Standing Committee for Social Dialogue (Commissao Permanente de Concertacao Social,CES).

The positions of the social partners can be summarised as follows:

• the General Confederation of Portuguese Workers (CGTP) has made no specific statement, because of its self-imposed refusal to participate on the Standing Committee in protest against the Government's failure to respond to questions about the interpretation of the legislation on the reduction and flexibility of working hours. Publicly, however, it has stated that the increases are insufficient considering that they are not enough to replace the purchasing power lost since 1974 and are still far lower than the monthly wage of the average Portuguese worker;
• theGeneral Workers' Union (UGT) considers the increases to be insufficient, but welcomes the positive but gradual erosion of the differential between the domestic minimum wage and the general minimum wage;
• theConfederation of Portuguese Industry (CIP) has repeated its opposition in principle to the existence of a national legal minimum wage, whatever its possible rate. It considers such a wage to be inappropriate to a market economy, as it encourages unemployment and has an adverse effect on the employability of young people seeking their first job;
• the Confederation of Portuguese Commerce and Services ( CCP) has raised no fundamental objections to the proposal;
• the Confederation of Portuguese Farmers (CAP) has raised no fundamental objections, drawing attention to its limited impact on agriculture, where higher basic wages are normally paid; and
• the Government believes that the increases were in accordance with International Labour Organisation Convention No. 131 and the Strategic Social Pact. It has pointed out that increases need to be kept at a reasonably low level in order to guarantee the macroeconomic context essential for the country's joining the EU's Economic and Monetary Union (EMU), and underlined the efforts that had been made to bring the agricultural minimum wage closer to the general minimum wage.

Commentary

Within the context of wage restraint arising from the Strategic Social Pact, and in view of the parameters of the Government's budgetary policy which had been approved by Parliament, it was not to be expected that the 1997 increases in the minimum wage would be significantly higher than those outlined by the Government.

The percentage of workers receiving the national minimum wage is very low, with the estimated figure being 5% (1995 data). The percentage is higher in small enterprises (employing between one and nine workers) and in the clothing, wood, cork, and hotel and catering industries. In percentage terms, there are more women than men receiving the minimum wage. It is also estimated that the differential between the general minimum wage and the basic average monthly wage is roughly 51% (1994 data).

The impact of these revisions of the national minimum wage on employment would seem to be fairly insignificant. According to the "Report on the review of the minimum wage for 1997", prepared by an interministerial working party (January 1997), the national minimum wage has not discouraged the creation of unskilled jobs, as the growth in unskilled employment has been much greater over the period 1992 to 1996 (7.2%) than the growth in overall employment (minus 2.1%).

In conclusion, the increases decreed for this year will probably not have any negative repercussions on employment, all the more so since the general economic situation has shown some positive signs of recovery since 1995. The prudence with which these increases were decided upon is explained, on the one hand, by the priority aim of guarding against their potential negative effects on employment, particularly in the 20-24 age group and in relation to certain traditional sectors of activity employing a sizable female workforce. On the other hand, the restraint shown in increasing the national minimum wage has to be seen in the context of the country's general incomes and prices policy, and therefore as part of the effort to meet the criteria of nominal convergence which are the basic condition for its joining the last phase of EMU.

It should also be remembered that increasing the national minimum wage is linked to the 3% rise that had previously been established for the civil service, as a result of the agreement signed in December 1996 between the Government and the Public Employees' Trade Union Front (FESAP, which has close links with UGT), but not signed by the National Federation of Civil Service Trade Unions (which is close to CGTP) or the Union of Public Technical Staff (STE, which is an affiliate of UGT). (Nascimento Rodrigues)