Long-term changes in wage inequality in Portugal and the modernization of the labor force

Wage inequality increased in Portugal for over 40 years starting in the beginning of the 1980s. The aim of this paper is to study the causes of the long-term trend in wage inequality in Portugal. Specifically, did wage inequality increase because the labor force became increasingly heterogeneous, or rather because wage differences between or within groups of workers expanded over time even if labor force heterogeneity did not change?

The empirical analysis of this research is carried out with data from Quadros de Pessoal. The findings of the paper show that the main driver of the increased wage inequality in Portugal was the continuous changes in the composition of the labor force, such as those related with the increased participation of women in the labor market and the increased average levels of new workers’ age and education. These compositional changes contributed to a more heterogeneous employment structure in the present than in the mid-1980s, which can be interpreted as the modernization of the Portuguese labor market. On the contrary and in general, the wage differences between and within groups of observably equivalent workers decreased from 1985 to 2017. This movement of decreasing wage differences had started before the beginning of the financial crises of 2008 but speeded up after that.

In summary, the upward movement of wage inequality in Portugal has its causes in the modernization of the labor market.

Click here to go to the paper by João Rodrigues Pereira.