At a time when concern is growing about the effectiveness of social policies, it is important to look at a decisive question: to what extent does the tax and social benefit system encourage — or discourage — a return to the job market? In particular, is it financially attractive to take a job after a period of unemployment, especially for low-income workers?
The data shows that Portugal is among the developed countries where this financial incentive is lowest. Considering workers who earn up to two thirds of the national median gross hourly wage, Portugal appears in 2nd place among 31 countries analyzed with the least incentive to return to work.
This indicator measures the percentage of additional gross income that the worker is effectively able to retain when they return to work, after taking into account the increase in taxes and the loss of social benefits. In other words, it assesses how much of the gross gain translates, in practice, into available net income. The lower this percentage, the lower the financial premium associated with returning to the job market.
In Portugal, this value is just 2%. In practice, this means that a low-income worker who leaves unemployment for a job with a similar salary level hardly sees his net income increase. The difference between being unemployed and going back to work is, from a financial point of view, practically zero.
This result highlights a structural problem in the design of public policies. When the tax and social support system absorbs almost all the additional income generated by work, it creates a strong disincentive to accept job offers. Instead of facilitating reintegration into the job market, the system may be contributing to its stagnation.
At the bottom of the table, with less incentive to return to work, are Lithuania, with -2%, Portugal, with 2%, and Malta, with 8%. At the opposite extreme, the countries where it is most worth returning to work are Greece, with 56%, Romania, with 50%, and Ireland, with 47%.
More than a technical detail, this is a clear sign that the current model needs to be rethought. An effective social system must protect those who lose their jobs, but also ensure that working clearly pays off.
- Facts viewed through a magnifying glass by André Pinção Lucas e Juliano Ventura – A partnership between POSTAL and the Institute
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