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Portugal Wages and the Distribution of Income
Two approaches are used to determine how income is
divided
among citizens of a country. The first approach, involving
the
size of distribution of income, compares the household
income
shares received by the richest 20 percent of the
population, the
poorest 20 percent, and the three quintiles between these
extremes. This approach yields an income concentration, or
Gini
ratio: the higher the ratio, the greater the degree of
inequality. Gini ratios can be useful in comparing the
degree of
income inequality within a country over time or among
countries
during the same time frame. The International Labour
Organisation
estimates for Portugal indicate that the Gini ratio
changed
little between 1967-68 (0.423) and 1973-74 (0.431),
corresponding
to the end of the Salazar and Caetano administrations,
respectively. By comparison, in the early 1970s, France's
Gini
ratio was 0.416, Germany's 0.376, and Sweden's 0.346. It
may also
be useful to compare the household income share received
by the
poorest 40 percent of the population with the share
received by
the richest 20 percent. According to this indicator
(richest 20
percent and poorest 40 percent), Portugal's income
distribution
profile at the end of the Caetano period (3.5) reveals by
comparison relatively greater equality in Spain (2.4) and
Italy
(3.0) but greater relative inequality in Costa Rica (4.6),
Mexico
(5.3), and Brazil (9.5). Portugal's income concentration
profile,
on the other hand, was similar to that of France (3.3) and
Argentina (3.6) during the early 1970s.
The second, or functional, approach to income
distribution
measures the shares going to the various productive
factors--entrepreneurship, land, capital, and labor. Wages
and
salaries or compensation of employees are concepts that
normally
show the proportion of national income or national product
going
to labor. In the aftermath of the 1974 military coup, the
newly
formed labor unions within the General Confederation of
Portuguese Workers-National Intersindical (Confederação
Geral dos
Trabalhadores Portugueses-Intersindical Nacional--CGTP-IN)
greatly increased their strength from mid-1974 to November
1975.
The unions focused on expansion of the public sector,
employment
guarantees, and income redistribution. In response to
labor's
demands, the government instituted income-leveling
policies that
included a large increase in the minimum wage for a
substantial
proportion of the work force, a freeze on rents, a highly
graduated income tax, and a ceiling on salaries. As a
consequence
of official measures affecting wages and salaries
(including the
US$800 a month ceiling on the maximum salary), the average
pay
gap between unskilled workers and managers shrank from 1:7
in
1973 to 1:4 in 1975. To protect increases in nominal
wages,
prices of essential commodities, particularly food, were
fixed at
below market levels. Real wages increased 25 percent
between 1973
and 1975, and the share of the wage bill in national
income rose
explosively from 52 percent in 1973 to 69 percent in 1975.
At the
same time, the proportion of national income flowing to
capital
and entrepreneurship (including income of artisans and
other
self-employed workers) was sharply eroded.
Official policies were also reflected in the
distribution of
income. Average wage income of the lowest quintile almost
doubled
in real terms between 1972 and 1976; the second and third
quintiles obtained an increase of 59 percent and 45
percent,
respectively; but the real remuneration of the top 5
percent
declined by 19 percent from 1972 to 1976.
In January 1979, the General Union of Workers (União
Geral
dos Trabalhadores--UGT) was organized. The UGT was viewed
as a
viable, democratic alternative to the CGTP-IN, which, as
of the
beginning of the 1990s, continued to be communist
dominated, as
it had been since its formation. By 1990 these two union
confederations were roughly equal in size, and 30 percent
of the
labor force was unionized.
How had the working class fared since the revolution?
Following the short-lived, government-induced wage
explosion in
1975-76, the share of employee compensation in national
income
(52.9 percent in 1979) was again much the same as in 1973
(51.6
percent), and from 1979 to 1989 that share was on a
downward
trend. Real wages per capita increased only 10 percent
between
1973 and 1989, a reflection both of slow labor
productivity
growth (20 percent) during this sixteen-year
postrevolutionary
period and the widening "tax wedge," i.e., the higher
social
security taxes contributed by both the employer and the
employee.
Real wages per capita moved on a downward trend between
their
peak level in 1976 to their lowest point (below their
level in
1973) in 1984. From 1984 to 1990, real wages rose each
year in
response to the brisk demand for labor associated with
Portugal's
economic recovery. The rate of unemployment fell to 4.7
percent
in 1990, the lowest level since the mid-1970s. This rate
brought
the cumulative decline since the unemployment peak of 1985
(8.5
percent) to 3.8 percentage points. An estimated 250,000
new jobs
were added between 1985 and 1990.
The Portuguese government submitted legislation in 1988
to
abolish the restrictive individual and collective
dismissal
regulations that had been in effect since 1976. Although
approved
by parliament, the law was declared unconstitutional by
the
courts. In the following year, however, the government
gained
court approval of less sweeping labor reforms: dismissal
procedures were simplified and the conditions eased
regarding
both the termination of individual contracts and
collective
layoffs. Under this law, older unemployed workers were
permitted
reduction of the early retirement age from sixty-two to
sixty.
Until the 1989 labor reform, unemployment rigidity was
coupled
with a high degree of real wage flexibility. Consequently,
adjustment to external shocks, such as the sudden price
explosion
of imported oil between 1979 and 1980, was effected by
reducing
real wages rather than the numbers of employed.
As a result of its EC membership, Portugal received
transfers
from the European Social Fund in support of training
programs
managed by private firms. The fund's contribution to the
Portuguese labor market amounted to 1 percent of GDP in
both 1987
and 1988, of which two-thirds was invested in training an
estimated 160,000 young persons.
Data as of January 1993
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