Social partners sign landmark agreement on minimum wage increase

On 5 December 2006, the government and the social partners signed an agreement to increase the statutory minimum wage during the period 2007–2011 at an annual rate of about 5.3%. It is the first time in the history of social concertation in Portugal that tripartite negotiations regarding the minimum wage have resulted in an agreement. At present, the statutory minimum wage covers about 5% of the workforce. As the agreed annual increases of the minimum wage are higher than the growth rate of salaries, they will prove significant in collective bargaining,

Government starts negotiations

In October 2006, the government proposed at the Standing Committee for Social Concertation (Comissão Permanente de Concertação Social, CPCS) to start negotiations about the criteria for increasing the monthly statutory minimum wage (salário mínimo nacional, SMN) up to the end of its term of office, that is 2009. The discussion about the future SMN was facilitated because the general Law on Social Security defined a new reference (PT0608019I) for increases in social benefits, independently of the SMN.

Trends in minimum wage, 2002–2005
In the last four years, the SMN stagnated in real terms; in 2003, its purchasing power decreased by 0.8%. The minimum wage continued to depreciate in comparison with the average wage in the private sector, representing 50.1% in 2005, down from 59.4% in 1990.
  2002 2003 2004 2005
Nominal annual increase of SMN (%) 4.1 2.5 2.5 2.5
SMN (€) 348.00 356.60 365.60 374.70
Average wage in private sector (€) 688.00 708.00 729.00 748.00
SMN as % of average wage in private sector (€) 50.6 50.4 50.2 50.1
Inflation (%) 3.6 3.3 2.4 2.3
Real annual increase of SMN (%) 0.5 -0.8 0.1 0.2

Source: Instituto Nacional de Estatística (INE), Direcção-Geral de Estudos, Estatística e Planeamento (DGEEP), Banco de Portugal

Trade union demands

At present, the value of the statutory minimum wage is €385.90 per month. The government declared its intention to reach an agreement with the social partners aimed at a ‘sustained and significant increase’. Both the General Confederation of Portuguese Workers (Confederação Geral dos Trabalhadores Portugueses, CGTP) and the General Workers Union (União Geral de Trabalhadores, UGT) demanded a substantial increase, arguing that the relative losses in the SMN’s buying power during recent years should be compensated, and that the improving economy needs support from the demand side. In other words, they considered that consumers should have more money in their pockets to spend. For 2007, CGTP called for an increase in the SMN of up to €410 and UGT recommended an increase of up to €405; the initial proposal of the government was €400 per month.

Employer concerns

Meanwhile, the employer organisations argued for more modest increases, emphasising the need to contain production costs. The Confederation of Portuguese Industry (Confederação da Indústria Portuguesa, CIP) expressed concern that the SMN increase could lead to unemployment, particularly in the more precarious sectors of the economy where the average proportion of employees covered by the SMN rises to between 10% and 15%, which is well above the national average of 5.5%. Nevertheless, CIP acknowledged that a wage increase was understandable in social terms.

Agreement on five-year annual increase

In the end, the increase rate for 2007 was the most difficult issue in the negotiations. After a long debate on this issue, on 5 December 2006, an agreement was reached that the minimum wage will increase at an annual rate of 5.3% up to 2011. In 2007, the increase will be 4.4%, which is much higher than the initial proposal and well above the predicted inflation rate of 2.1%; this represents the largest real wage increase since 1992. With this agreement, the Minister of Labour and Social Solidarity, José António Vieira da Silva, has kept the promise of recovering the losses in the minimum wage in relation to productivity gains and the average wage which have been observed in recent years.

The minimum wage in 2007 will be €403 but it is estimated that the increase will be largely absorbed by the price increase of some basic goods. Nevertheless, the agreement includes a substantial wage increase over the next five years, reaching €450 in 2009 and €500 in 2011. Intermediate values will be examined by a tripartite committee, created for this purpose, which will also have the responsibility of analysing and monitoring the impact of developments in the SMN.

Implications for low wage sectors

The SMN increase up to 2011 is expected to have a considerable effect in low wage sectors with a high proportion of female workers, such as the textile, clothing and food industries. Trade unions in these sectors welcomed the agreement, emphasising that the positive effects on wages would only become visible in the medium term. However, employers in the textile and clothing industries were very critical of the planned increase and warned that it might result in a large number of factory closures.

Maria da Paz Campos Lima and Reinhard Naumann, Dinâmia

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