Wages – wage setting and trade unions

  • Pedro Goulart
  • 29 January 2020

"In Portugal, after four years focusing on minimum wage, the discussion is now how to increase the average wage."

Wages fell following the 2008 great recession and their recovery is now a hot topic in Europe. As market-based wage setting delayed playing a role in their increase, governments came to the rescue. Several European countries have chosen to increase the national minimum wage, and even the European Commission is considering legislative action on this matter. In contrast, Scandinavian countries have privileged social concertation practices. In Portugal, after four years focusing on minimum wage, the discussion is now how to increase the average wage.

Historically, wage setting has assumed different procedures. Market-based practices put emphasis on employee or organizational productivity and on the balance between demand (by employers) and supply (by workers). The former secures the financial sustainability of wage increases and the latter regulates the scarcity of competences. However, other practices highlight the importance of the market power of both parties in setting the wage. Few and large employers or strong unions may artificially keep wages low or high, respectively. In labour markets where job alternatives are not plentiful and unions have largely lost their strength in the economy at large, such as in the Portuguese case, this may play a large role.

Wage minimum setting is a way to counteract an unbalanced field and its strengths and limitations have been discussed (Goulart and Rodrigues, 2016). Following successive minimum wage increases, including during the crisis, the consequent wage compression has contributed for shifting attention to average wage. However, the Portuguese government set its discussion for social concertation practices, instead of the deal with the left political parties in the recent past. Considering that to the previous difficulties (Goulart and Veiga, 2016), it is now more challenging to reach an agreement with the left, this shift can be read as a way to “build alliances when their base of party support is fragmented” (Afonso, 2013, p. 20).

However, social concertation practices have shown to be complex in Portugal. A general framework of polarization between employers and workers paved the way for centralized government interventions. In contrast, Scandinavian countries where social concertation is more prevalent present a much stronger union membership providing legitimacy of representation and strength to unions. Instead, Portugal presents the third lowest trade union density in Western Europe making difficult to level an increasingly unbalanced state of affairs. This is accentuated by a segmented labour market (Portugal and Centeno, 2001; Centeno and Novo, 2012) that leaves particularly the private sector, the precarious and the new contracts in fragile situations and without representation.

To pursue an increase in average wages is crucial to promote policies that foster, and not hinder, negotiation and cooperation between labour market actors at the sectoral and firm level. Having a more balanced framework of work relations is fundamental and could contribute to win-win situations. Cooperation matters and employee/union representatives are associated with better firm performance (Martins, 2019). New leaderships on both confederations of unions in the months to come are hopefully also an opportunity for this.

  • Pedro Goulart
  • Vice-President of the Centre for Administration and Public Policies (CAPP) and Assistant Professor at ISCP-ULisbon