Portuguese Economy Research Report

Photo of Rui Albuquerque

Rui Albuquerque

Principal curator

This page is curated by Professor Rui Albuquerque, who is affiliated with Boston College, the European Corporate Governance Institute, and the Centre for Economic Policy Research. His main research interests are in asset pricing, corporate governance, and corporate social responsibility.

Personal website
Photo of Domingos Seward

Domingos Seward

Co-curator

LinkedIn

Visitor statistics

About this blog

This forum is dedicated to research on the Portuguese Economy. All scientific research on the Portuguese economy is welcome, namely research produced in the context of Master’s dissertations, PhD theses, or that circulates as working papers, as well as published work (articles, chapters, and books).

Minimum wage's significant role in reducing wage inequality in Portugal

April 6, 2024

In recent decades, discussions about mounting wage inequality have become central among economists and policymakers, with the potential role of minimum wage policies to address it gaining increased attention. In Portugal, a fascinating case emerges, offering insights into how minimum wage adjustments can significantly impact the wage distribution.

Wage growth between 2006 and 2019 at different points of the wage distribution. The x-axis shows wage deciles from lowest (on the left) to highest (on the right). Figure plots the actual wage growth (solid line) together with the counterfactual wage growth had the minimum wage not increased since 2006 (dashed line). The shaded area represents the part of wage growth that can be attributed to the rising minimum wage.
Caption: Wage growth between 2006 and 2019 at different points of the wage distribution. The x-axis shows wage deciles from lowest (on the left) to highest (on the right). Figure plots the actual wage growth (solid line) together with the counterfactual wage growth had the minimum wage not increased since 2006 (dashed line). The shaded area represents the part of wage growth that can be attributed to the rising minimum wage.

This paper studies the evolution of the minimum wage in Portugal over the last thirty years, and how it has shaped the wage distribution. Drawing upon rich matched employer-employee data covering the population of Portuguese employees from 1986 to 2019, the study estimates counterfactual wage distributions under different minimum wage assumptions.

After years of diminishing importance, the minimum wage began to rise steadily starting 2006. This rise coincided with a notable reduction in wage inequality. For comparison, the magnitude of reduction in wage inequality in Portugal mirrors the increase in wage inequality in the United States that has occurred there since the 1970s. The core finding of this investigation is the profound effect that the rising minimum wage has had on compressing the wage distribution and reducing inequality.

Increases in the minimum wage can account for the entire decline in wage inequality over this period. Notably, wage gains were not confined to those earning the minimum wage: the benefits spilled over significantly, influencing wages up to the 54th percentile of the wage distribution (see figure). Half of the inequality reduction can be attributed to these spillover effects. Finally, almost 40% of the Portuguese workers’ overall wage growth between 2006 and 2019 can be attributed to these adjustments in the minimum wage.

As has been demonstrated in other contexts, sound minimum wage policy has proven to be an effective tool in reducing economic inequalities. This paper contributes to this body of evidence by showcasing the significant impact of the minimum wage on the Portuguese wage distribution.

Click here to go to the paper by Carlos Oliveira.

Categories

Share this content

Categories