Monday 1 March 2010

The Portuguese Dream?

   Discussing the growth (or lack thereof) of Portuguese GDP raises an important and complementary question, that of its distributive effects. Let me tell you about the working poor. What is a working poor? Firstly, it’s a poor: an individual (or household) who lives below the poverty line, i.e., the income level which is deemed enough to cater for one’s basic needs (shelter, food, health). In the European Union, the most commonly used definition of the poverty line is 60% of each country’s median income. Secondly, it’s a worker. There are obvious definition issues here, for some people do not work full time nor do they work during the whole year, but let us rely the Eurostat definition, according to which an individual is a worker if she has been working for at least six months in the previous year. Let’s go to the numbers then (unfortunately
dating back to 1999). In Portugal, the working poor amount to 10% of the employed and 28% of the self-employed. The EU-15 averages are 6 and 14%, respectively. Portugal has the highest score amongst EU-15 countries in both indicators. Looking at the composition of the poor who are part of the active population (i.e., unemployed, which means “actively seeking a job”, and employed or self-employed), in Portugal the unemployed represent only 10.4%, against an EU-15 average of 36.5%. The message is obvious: the majority of the poor out there are not jobless! What does this mean? That solving the unemployment problem does not solve the poverty one and that poverty is not necessarily associated with laziness or disabled persons. What lies behind this phenomenon? Low pay, on the one hand, and household characteristics (such as ratio of income-earners to non-income earners), on the other. There is one solution to this problem (as Luciano, I know what, but not how to do it…). It’s called education. It is a well known empirical fact that the education level is the most important determinant of the wage level. We have a potential win-win situation here: increasing education increases productivity and hence GDP growth, and it also reduces the risk of poverty.


  1. The definition of poverty provided (less than 60% of median income) refers to "relative poverty". A concept that is quite different from absolute poverty.

  2. "There is one solution to this problem ... It’s called education"
    In the long run, yes. But I believe that we should not have many ilusions: for those who are already in the job market (or about to enter it) with low education levels, "education" is not the solution any more. I would like that someone would analyse programs such as "Novas Oportunidades" to see if it is really having an impact on those workers. But that is not all. What is the real impact of other such programs on worker's income raise?