Is it possible to increase young people's salaries? Yes, but "band-aids" are not enough, structural reforms are needed. "For this generation there is nothing left to do"
We asked the question to several experts and their response was quite similar: measures such as IRS Jovem or support for hiring young people have a limited impact and are not enough to prevent the emigration of those who earn salaries three times higher in other countries.
The increase in wages last year was not enough to face the rise in inflation and, in real terms, the income of Portuguese workers decreased. The drop was an average of 4%, but in the case of qualified young people this reduction was even more pronounced, in the order of 6%, concluded the study "State of the Nation on Education, Employment and Skills in Portugal" by the José Neves Foundation, published in June.
The document highlights that the wage gap between young people with higher education and young people who only completed secondary education reached historic lows last year. In 2011, a qualified young person earned 50% more than a young person who had only completed secondary school, but currently this difference is just 27%. Young people with higher education who entered the job market in 2020 earned less than those who entered, under the same conditions, in 2006, another study by Banco de Portugal also showed.
Low youth wages have implications across the economy. Young people live at their parents' house until later in life or work two jobs to make ends meet. And, when they realize that their situation is unlikely to improve, they emigrate . According to a recent study , young people with higher education who leave the country to work earn three times more abroad. This is one of the reasons why the percentage of more qualified emigrants continues to rise year after year.
What can be done to increase young people's wages and prevent them from emigrating?
"Measures, such as those recently announced , aimed at young people, such as IRS Jovem or housing support , are measures that seek to act on the one hand on net salary and, on the other, on reducing living costs and can have some impact on people's disposable income, but not much. Furthermore, they are specific, short-term measures, and therefore are always limited. This is not enough, this is not what stops young people from emigrating", says economist João Cherry tree.
This is also the opinion of economist Pedro Braz Teixeira. "Measures like IRS Jovem are a façade policy, which wants to convey the idea that something is being done but the practical result is not visible", he says. "The problem is that gross salaries are very low and then there are no prospects for the future. If you start with a low salary but have the prospect of being better in 5 or 10 years, that is a stimulus for young people." But what happens with these measures is exactly the opposite: they are temporary measures, which only last a few years, and therefore, when they end, young people are most likely to see their financial conditions regress because salaries have not actually increased: "No It's attractive, that's not what prevents emigration."
"In economic policy there are two types of measures: short-term and long-term. Short-term measures are essentially those that are designed to resolve temporary issues, which have to do with the current situation (for example, the response to a inflation or the stabilization policy necessary to define emergency aid because of the war). The long-term ones are measures that aim to affect the way the Portuguese economy works, its structure - these are the ones we lack", explains the economist Pedro Brinca.
"The only way to solve the next generation's problem is to implement structural reforms now to boost the economy and create wealth that can sustain high wages in the future. But for this generation there is nothing left to do", concludes the economist. What remains are "short-term" policies that are like "band-aids", says Pedro Brinca.
Pedro Braz Teixeira agrees: "There are no short-term solutions. It is impossible to imagine that we will be able to increase salaries by 10% or 20% in the short term, it is an ant job that we have to do. We have to change economic policy and invest with quality, this is decades of work."
Are tax incentives useful or not?
"The big problem for young people when they start working is not the IRS, it's the salary itself", declares Luís Leon, a lawyer who works in the area of tax law. The measures that affect the IRS "only affect those with above-average income". "Many young people earn the national minimum wage and don't even pay taxes. Furthermore, the earnings [with these measures] are miserable, that's not what stops emigration. The problem for young people is finding a job with decent wages corresponding to their effort The problem is that we have a stagnant economy, which is unable to value its graduates."
Luís Leon has no problem stating that the only reason why these measures that affect the IRS are so talked about is because they are "a political gimmick, they are measures that give votes" because most people only think about the short term.
And if we think about incentives for employers, the problem remains. “Incentive means more taxpayer money (or more expenses or less revenue),” she says.
This is also the perspective of economist Pedro Brinca. "We can create temporary benefits, to help people. Portugal has lost a lot of fiscal competitiveness in the last 20 years, mainly in payroll taxes", he says. However, he considers that "it is not serious to talk about tax cuts without saying how these cuts are paid for". "The only way to finance these tax cuts is by compromising the budget balance", he points out, highlighting that at the moment Portugal already has a huge expense with debt interest. Of course, people wanted to pay less taxes, but that money is needed by the State and most people don't think about the consequences that such a drastic measure would entail. "What are we going to sacrifice? The NHS? Social support?" The only solution, he says, it involves "a reform of the State - the State has to do the same with fewer resources". But that won't happen anytime soon.
"What matters to workers is their net salary", highlights Pedro Braz Teixeira. Whether this income is obtained through a tax incentive for the employer to increase the gross salary or through a reduction in income taxes is irrelevant. But, in any case, the economist considers that these types of measures are not the solution. "It's like giving aspirin for cancer, it doesn't change the essentials", he compares. "The gap between salaries in Portugal and other countries is so big that the gains from these measures are not enough to prevent emigration. There is support for young people that is important, but, let's not have any illusions, if we don't resolve the underlying issues we are not going to solve the problem", argues Pedro Braz Teixeira.
Creating wealth and modernizing the economy: the great challenge
"The Portuguese economy has been stagnant for 20 years, it should be converging with the European Union and it is not, unlike what is happening with eastern countries (such as Romania) and Turkey. If the economy does not grow, salaries cannot grow. Salaries represent 45% of GDP", observes Pedro Braz Teixeira.
As economist Pedro Brinca recalls, Portugal in 2000 had an income level that was around 85% of the average community income - today it is 77%. "In other words, Portugal has moved away from the European average. However, there is an aspiration in terms of lifestyle, a social convergence that is only possible if it is based on the ability to create wealth. We have to create more wealth, to be able to distribute", he explains.
Creating wealth is essential to guarantee jobs and better wages for young people, also states Rafael Rocha, general director of CIP - Confederação Empresarial de Portugal in a written response sent to CNN Portugal. "The creation of wealth is a sine qua non. In other words, the need for the country to grow more, create more wealth, be more competitive. Structural bases that will translate into more (and better) jobs available in the labor market", he argues. But this creation of wealth will only be possible "with a set of public policies that encourage, stimulate and promote youth employment". These measures "must act on the fiscal side (IRS Jovem is a good example, although there is still a way to go), on the economic side (fostering an ecosystem favorable to business activity) or on the social side (mitigating, for example, the issue of housing)."
Salaries are low because of the productivity problem, points out Pedro Braz Teixeira. According to the most recent data from Eurostat, Portugal was the 10th worst in the EU in this item, now "we have moved to the 5th worst and are on the way to being the 3rd worst in the EU", he warns. "According to Eurostat, productivity in Portugal fell from 78.4% of the EU average in 2015 to 74.8% in 2022, in clear divergence with our partners", says the economist. "We were overtaken by Latvia, Croatia, Romania, Estonia, Lithuania and Poland, we managed to perform a little better than Slovakia, but they were very close to overtaking us, as did Hungary. If we continue on this trajectory we could become the 3rd least productive country in the EU, only above Greece and Bulgaria."
"We need to think more in the long term about modernizing the Portuguese economy and increasing productivity", argues João Cerejeira. What exactly does this mean?
For example, reducing context costs, say João Cerejeira and Pedro Braz Teixeira. These are the costs incurred by companies due to being in Portugal, such as having a railway network that doesn't work, excessive bureaucracy, inefficient public administration, high taxes or, when it exists, legislative instability.
Then, fill the lack of opportunities, that is, implement "innovation and research policies in Higher Education, encouraging the participation of companies". "We have to create a more dynamic environment in the job market, enabling the emergence of new companies. We have a set of sectors that are protected, closed, where no companies have emerged in recent years, such as telecommunications. And we have other sectors that have even grown but are not supported, such as local accommodation, which is now facing public policies that lead to a setback." When there are new areas, such as in the technology, innovation or tourism sector, it is normal for young people to be interested and want to create companies.
Furthermore, experts say, the overwhelming majority of companies are "mini-nano-companies" that do not earn 100 thousand euros a year. As Pedro Braz Teixeira highlights, 45% of employment is generated by micro-enterprises (with less than ten workers) which, being small companies, have lower wages and less productive specialization.
"In Portugal, investment - whether public or private - is very dependent on European funds and their public financing, which undermines longer-term measures", says economist João Cerejeira.
“We are investing insufficiently”, confirms Pedro Braz Teixeira. "For example, at the moment public investment is below what it was during the troika period - with visible effects on public services."
Finally pay attention to this: in the 1st half of 2023, foreign direct investment fell 57% to 2002 million euros. Portugal is not being able to take advantage of the European reindustrialization movement, greatly reinforced by the pandemic and fears of dependence on China, states the economic note published at the beginning of September by the Forum for Competitiveness.
"We need foreign investment", says João Cerejeira. When branches of foreign companies set up in Portugal, they bring with them not only higher salaries but also a different business culture, which will become attractive to young people and will also stimulate competition. Pedro Braz Teixeira agrees: "We have to make direct investment attractive to bring companies to Portugal with better management methods, with more demands, with a different culture. This can be a great substitute for emigration."
The next step: improving working conditions
More than 70% of jobs lost in 2020 were held by young people under 30, many of them precarious despite higher education qualifications. According to data from the White Paper – More and Better Jobs for Young People, published in December last year, "Portugal has shown levels of youth unemployment higher than the European Union average".
"Youth unemployment must necessarily concern us, it must necessarily lead us to reflect and it necessarily requires very concrete actions, as it is unacceptable to periodically hear that Portugal today is not a country for young people. Our country has a responsibility as nation of, and after training the 'most qualified generation ever', retain this immense talent offering young Portuguese all the conditions to build a life project between doors", says Rafael Rocha, general director of CIP - Confederation Portuguese Business.
Measures to encourage the hiring of young people already exist in the PRR - Recovery and Resilience Plan , recalls economist João Cerejeira. "They are interesting because they allow improving contractual conditions, for example with regard to open-ended contracts. But then the State also has to set an example: in health, education, in other public areas", he says.
In 2021, Pedro Brinca was one of the authors of the study " From made in to created in", from the Francisco Manuel dos Santos Foundation, which looked at the Portuguese economy in a holistic way, diagnosing problems and presenting proposals to solve them. One of the problems identified was, precisely, the retention of young qualified workers in Portugal. Speaking to CNN Portugal, the economist explains that several problems have been identified that "prevent the country from creating value". In the case of employment, and just to give an example, Portugal is the 3rd country in the EU in terms of employment protection measures. employment but it is also the 3rd with the most fixed-term contracts." In other words, we have legislation to protect work but it is inefficient, it does not protect work. We can say that we are paying the price of inefficiency", he concludes.
"The retention of skilled workers and the return of those who migrated during the last crisis is also essential to ensure adequate supply of skills in a country facing an enormous demographic challenge due to the rapid aging of the population," say the authors. "New work models, including teleworking and platform work, combined with the country's natural assets, bring new opportunities to attract qualified foreign professionals and, if managed appropriately, can also help attract workers to so-called jobs. traditional. Migration policy is also decisive — it is necessary to ensure that it is designed to attract (and integrate) people with the qualifications that the economy needs."
"Remuneration is obviously a fundamental element – and it is true that the salaries of younger workers are lower than the average. However, it is important to note that salary increases for young workers have been more pronounced. It is true that currently the younger generations The new ones simultaneously value other issues related to emotional wages, such as teleworking, increased vacation days and other benefits in terms of work flexibility", explains Rafael Rocha, from CIP.
"The last 50 years reflect an extraordinary leap in terms of education in Portugal. Today we have many more doctorates, graduates and people with the 12th year completed. However, it is essential that training seeks to respond in a timely manner to the needs of the economy real so that there is an effective match between supply and demand. CVs have to be reviewed, rethought and restructured – and this work has to be done with the participation of companies that are very interested in being able to collaborate by sharing the valuable capital information they have in this area", says Rafael Rocha. "The country needs graduates, doctorates and masters, yes, but Portugal also lacks trained professionals in other areas. Industry, for example, needs people with the appropriate technical training. Unfortunately, Professional education is, as a rule, undervalued in our country, being seen as a lesser choice. However, when we look at the German example we immediately see its importance for the country's economy, competitiveness and companies. But also to open a path of professional progression to thousands of young people every year, putting them on the path to a different, more valued and better paid profession."
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