Other economic and social effects

De-linking Portugal’s minimum wage

In Portugal, social security benefits were previously set as a percentage of the minimum wage – the so-called “Guaranteed Monthly Minimum Remuneration” (RMMG). Since 2007, social security benefits, including pensions, have been separated from the RMMG. Law 53-B/2006 laid down rules for updating pensions and other social benefits and formally established a new index called the “social support index” (IAS) for adjusting social security benefits.

The minimum pension is now set as a percentage of the IAS, which is updated annually on the basis of the consumer price index (CPI) and the GDP growth rate.

The de-linking of social security and minimum wages came from two important agreements signed between the government and social partners: the agreement on social security reform and the agreement on the fixation and evolution of the RMMG. The latter aimed to progressively raise the monthly minimum wage from €403 in 2007 to €450 in 2009 and to €500 in 2011.

Given the major effects that such an increase would have had on welfare spending, it was considered necessary to de-link social security from minimum wages. This meant the minimum wage was kept for its intended purpose, namely to increase the remuneration of low-paid workers. As such, the Portuguese system now resembles the system of many other European countries, such as France, which has a minimum wage that is independent of the “minimum social” index.

Source: Luisa Guimares, ILO