Wage inequality in a developing open economy: Portugal, 1944–1984

Abstract

This paper estimates and analyses wage inequality trends in Portugal, from 1944 to 1984, a period that comprises the Estado Novo dictatorship and the first decade after the transition to democracy. Wage inequality is measured by the gap between skilled and unskilled labour, and reveals a downward trend in most of the period in analysis. We provide an explanation for the observed trends by looking at the influence of domestic and international forces on changes in the relative supply and demand of skilled labour. According to our findings, the skill premium declined due to the combined influence of two major forces: an increase in the relative supply of skilled labour due to the mass emigration of unskilled labour, and the decrease in the relative demand for skills, related to trade-induced changes stemming from the country's increasing openness, which followed the country's unskilled labour comparative advantages. Our findings point to the conclusion that the impact of openness on wage inequality is related to the country's relative level of development among its major trading partners.

Measuring the Carnation Revolution: A Synthetic Control Analysis of Economic Crisis in Portugal (1974-1992)

“…This helped to pressure wages down and keep the cost of labor for firms low. However, the rise of wages in this period shows that the industrial relations framework of the regime was not entirely effective in reaching the goal of keeping wages low, as they were pushed up by the scarcity of labor deriving from economic growth, mass emigration, and mobilization to the Colonial War (Lains et al, 2013, andAmaral, 2019). As a matter of fact, real earnings of workers increased at a pace of 6.7% per year between 1960 and 1973, roughly at a par with the growth rate of the economy (Lopes, 1996, p. 202).…”