Qualified emigration, a strategic error
"Low salaries, housing costs and the high tax burden" are the factors pointed out as justification by young engineers for their desire to leave the country.
As an alumnus of the Instituto Superior Técnico (IST), I am part of the mentoring program that aims to advise and guide students, both academically and in terms of professional options and challenges. This experience, which has been very enriching because it has allowed me to learn and grasp the main challenges facing this generation of future engineers, also brings me some concerns.
From the many conversations I have had with mentees over the years, there is a common and persistent idea, I would say top of mind, which is to go work abroad. The topic has become so relevant that it led me to investigate its motivations and scope. And the answers I got were unanimous: low salaries, housing costs and the high tax burden are the factors pointed out as justification for the desire to leave the country, because they make it very difficult to start an autonomous and independent life, which is what any young adult with goals and qualifications aspires to.
Pushing brains abroad
In terms of wage income, Portugal is at the bottom of Europe. Around 45% below the European average[1]. Apart from Greece, only the European eastern countries are at our level.
The salary of unskilled professionals has increased by 3.2% in the last seven years[2], because of the increase in the minimum wage, which contrasts with a growth of only 0.7% in the salary of senior managers. Knowing that inflation has always been higher, in practice graduates have seen their salaries fall every year. So, not only do we have graduates with salaries significantly below the European average, but they are also on a downward trajectory.
Looking at the tax burden, the situation is equally dramatic. According to OECD[3] data, we are one of the countries with the highest tax rates on labor income. In this specific case, we are no longer with the low-wage partners, but with the high-wage partners. In other words, we are in the worst possible scenario: low wages, high taxes. In terms of wages, we behave like a poor country, in terms of taxes like a rich country.
Bearing in mind that the lowest salaries are exempt from tax or have very low contributions, it’s easy to see that this burden falls heavily on senior managers. Another shot across the bow of young graduates.
A phenomenon with profound and damaging implications
The results of these policies are cleat to see. In 2021, 48% of the Portuguese who emigrated were university graduates[4]. Almost half of those who left. In 2014, the figure was only 29%. “Lider Magazine”[5] also points out that every year we lose 37% of new graduates. This poses serious problems in the short and medium term.
In the immediate term, the same magazine estimates losses of between 2.3 and 4.7 billion in tax revenues and social security contributions due to skilled emigration. That’s not counting the effects on the consumer economy, typically leveraged by this demographic group.
In the medium and long term, the problems are even more profound. In terms of birth rate, if these young people lived in the country, it would be enough to increase the birth rate to 8.6%, in line with the European average. In other words, the problem is not only low fertility, but also the fact that children are no longer being born in Portugal.
Then there is the decapitalization of the labor force. With such a high percentage of skilled emigration, it is possible to estimate that in 20 years’ time we will have a less skilled workforce than we have today. This takes us back to the paradigm of the 1980s of a country with unskilled and cheap labor. Is this the future we want for Portugal?
Of course, I can understand the reasons for young graduates to leave. It is up to us to change policies and create the conditions to retain them. And, for the sake of future generations, to reverse this trend of intellectual and economic impoverishment of the country.
Miguel Allen Lima
ARQUILED CEO
[1] Eurostat Data – https://ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20221219-3
[2] Pordata Data
[3] OCDE Data – https://www.oecd.org/tax/tax-policy/taxing-wages-20725124.htm
[4] Pordata Data
[5] “Lider Magazine” – https://lidermagazine.sapo.pt/todos-os-anos-20-mil-licenciados-deixam-o-pais-estas-solucoes-podem-manter-o-talento/
