The Portuguese lost 4% of their purchasing power in 2022. This year they will continue to lose, we just don’t know how much.

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If the scenario of a 5.8% inflation rate in 2023 comes true, there should be a further loss of purchasing power. The majority of employers (34%) instead expect a wage increase between 2.5% and 4.9%.

The galloping inflation felt during the past year has wiped out all the salary increases that the Portuguese received. The result was a drop in purchasing power, which, according to data from the National Statistics Institute (INE), reached 4%.

Although the monthly wage in 2022 will have reached 1,411 euros, in real terms, that is, discounting the inflation rate, this wage represents only 1,232 euros, a figure that is lower than the 2021 wage and which is also lower than the 2020 wage. In a single year, the highest inflation rate in thirty years, at 7.8%, swallowed up the increases that took place in 2020 and 2021.

For 2023, the news regarding the inflation rate is better, but still, there seems to be no doubt that purchasing power will continue to decline.

Inflation forecasts for 2023 vary, depending on the entity in question, with the Government estimating that inflation will slow down to 4%, according to the State Budget for 2023. An optimistic projection when compared to the European Commission’s winter forecasts which place this value at 5.4% in 2023 and 2.4% in 2024.

In this scenario, the expectation is for a further loss of purchasing power in 2023, although the amount of this drop is not yet certain. For economist João Borges de Assunção, this “seems to be the most likely scenario, on average,” although this may mean that, in some jobs, there may be purchasing power gains, while significant losses in others. On the other side of the coin, the economist points out that, from an international point of view, “Portugal may see gains in competitiveness.

INE’s data shows, moreover, that there were discrepancies between the average wage gains paid in the Portuguese labor market. At the end of 2022, the average wage in activities associated with agriculture, animal production, hunting, forestry and fishing was 933 euros. In the electricity, gas, steam, hot and cold water and cold air activities, on the other hand, average pay was almost four times higher, at 3,521 euros.

João Borges Assunção explains that wages are the result of average labor productivity, a factor that may vary from sector to sector. “Reproductive investment tends to increase labor productivity,” indicates the economist, so in this sense, the sectors that are more intensive in capital investment will “naturally” have higher productivity, resulting in higher wages.

The evolution of labor productivity, as well as its quality and investment intensity, will be the main factors influencing the evolution of the average wage in Portugal in the coming years. However, João Borges Assunção considers that there is “a certain atmosphere of stagnation in Portugal” and also criticizes the way in which new investments, namely those resulting from the Recovery and Resilience Plan, “should have quality” and contribute to the increase in productivity.

How much will wages increase in 2023?
The Brussels winter forecast predicts that households will not fully recover their losses in purchasing power until the end of 2024. Still, the European Commission estimates a slowdown in the loss of purchasing power over the course of this year.

According to the document, although the drop in energy inflation is good news for families, real wages are expected to continue to fall in the short term, regaining some of the purchasing power lost “only in recent quarters” as wage growth outpaces the slowdown in inflation. The European experts point out, moreover, that many of today’s wages are a reflection of agreements negotiated before the acceleration of inflation in 2022.

Data from the recruiter Hays also goes in part in line with the Brussels findings. According to the Hays Guide 2023, less than half of the employers consulted (48%) say they will have made increases between 2.5% and 9.9% in 2022. But nearly one in four employers (23%) admit to increases of up to 2.4%. Despite these increases, professionals remain “extremely dissatisfied” with the salary package, highlights Hays.

For 2023, salary expectations indicate that 31% of professionals expect their salary to increase by at least 10%. In contrast, only 7% of employers anticipate this same scenario. Most employers (34%) instead expect a salary update between 2.5% and 4.9%.

Companies willing to increase wages despite difficulties, but without incentives to do so
For Eduardo Marques Lopes, Multipessoal’s Marketing and Communication Director, salary continues to be the main factor in the decision to stay, or not, in a company, something evidenced by Multipessoal’s study, “Needs and Expectations of Company Employees in Portugal”.

In this sense, the marketing director highlights that there has been a “growing openness and willingness, on the part of companies, to respond to the rising cost of living,” so there have been “several cases” of companies increasing their entry-level salaries above the national minimum wage.

However, although the recruiter underlines and considers positive the willingness of employers to raise salaries, she points out that there may be some challenges in this process due to the “few incentives provided to companies” in this regard.

Pedro Amorim, Corporate Clients Director of ManpowerGroup and Managing Director of Experis Portugal, argues that the salary evolution in Portugal will assume two distinct realities. On the one hand, employers in general “will find it difficult to increase salaries to keep up with inflation and the rising cost of living,” as they too are being impacted in terms of “cost structures” and the demand for goods and services, requiring a greater focus on competitiveness and business sustainability.

In order to combat this issue, organizations are already trying to respond to wage loss through “extraordinary salary allocations,” or other benefits such as the fuel card.

On the other hand, in sectors where the supply of talent does not keep up with demand, and there is a shortage of professionals, “salary increases will be maintained,” and Pedro Amorim highlights the technology sector, where demand remains in the areas of “fintech, e-commerce, or others related to the digital transition.

For the Corporate Clients Director of ManpowerGroup, professionals may feel a salary increase, especially in the transition between projects. Pedro Amorim indicates that the highest turnover of professionals occurs in profiles with experience of up to 5-6 years, and it is even in these profiles where we see a higher salary increase.

In turn, this “has led to the approximation between these salaries and those of professionals with more extensive experience, who will not feel such a significant evolution,” he says.

Another aspect to take into account is also related to the impact of the redundancies in the technology sector, releasing professionals that “had hired in excess” during the pandemic. Pedro Amorim explains that these professionals can meet the talent needs of other companies that, until now, have not been able to hire technology professionals, so “the market will tend towards greater stability in terms of salaries”.

And if in the private sector this is the reality, in the public sector, the increases negotiated will not allow purchasing power gains for a significant part of the employees. The increases for the civil service vary between 8% for the lowest remuneration on the scale, which is 705 euros, and 2% for incomes starting at 2,570.82 euros.

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