Raising Portugal's minimum wage

The Portuguese government recently made official an increase in the Portuguese SMIC (national minimum wage) to 870 euros gross per month over 14 months, effective from January 2025. This increase corresponds to 1,015 euros over 12 months.

This decision is part of a gradual upward trajectory aimed at reaching 1020 euros by 2028. This measure, while welcomed by workers, raises questions about its economic implications and its role in combating inflation.

Raising Portugal's minimum wage: an economic and social challenge

The positive impacts of this measure

1. Improved purchasing power :

By increasing the SMNThe government's aim is to protect the most vulnerable workers from the erosion of their purchasing power due to inflation. This enables many households to maintain their consumption levels, thus stimulating the domestic economy.

1. Reducing inequality :

An increase in the SMN can reduce wage disparities and contribute to greater social cohesion, thus avoiding social tensions and conflicts.

1. Multiplier effect on the economy :

By boosting workers' incomes, this measure could generate an increase in overall demand, creating a virtuous circle for the economy in the short term.

The limits and risks of such a policy

Despite these advantages, increasing the SMN is not without risks. It could have unexpected consequences, particularly in times of inflation.

1. Second-round effect :

When wages rise to compensate for high inflation, companies may have to pass on these higher costs in their selling prices. This could fuel a price-wage loop, further exacerbating inflation.

1. Impact on company competitiveness :

If wage increases are not accompanied by a rise in productivity, they risk undermining the competitiveness of Portuguese companies, particularly on international markets. This could result in job losses or the relocation of activities.

1. Pressure on SMEs :

Small and medium-sized businesses, which often have limited margins, could be hardest hit. Some may not be able to bear the increased costs, which could lead to closures or job cuts.

Raising wages: a solution to inflation?

Wage increases can play a role in combating the effects of inflation by supporting household purchasing power. However, it must be accompanied by complementary measures to ensure that it does not contribute to an inflationary spiral. These measures include

• Targeted subsidies : Subsidies for low-income workers can supplement wage increases while limiting costs for companies.
• Reduced payroll taxes A reduction in contributions can increase workers' net income without weighing directly on employers.
• Investments in productivity Training workers and encouraging innovation can help companies absorb the costs of rising wages while remaining competitive.
  

The increase in Portugal's minimum wage reflects a determination government to meet the immediate needs of workers while pursuing a strategy of reducing inequalities. However, its success will largely depend on the ability to put in place complementary policies that support both households and businesses. The aim is to strike a balance between social justice and economic viability, to avoid this measure becoming a mere palliative in the face of inflation.