Eurostat, the European Union’s statistical office, recently published its 2025 productivity data for the EU. In Portugal, this sparked considerable debate over the country’s poor ranking and the reasons behind it. The poor quality of that debate offers a useful clue as to the answer.
Many people were troubled by the fact that, after four years of convergence with the European average, 2025 showed a setback. Yet it is perfectly normal for a sustained upward trend to be followed by a slight correction. Had the opposite occurred, with four years of decline followed by an improvement last year, that would indeed have been alarming. Productivity is a structural variable, making small short-term fluctuations largely irrelevant. Four years of progress are meaningful; one year of decline is not.
Moreover, it is worth remembering that the indicator in question measures our productivity as a percentage of the average across the EU’s 27 member states. This means that the apparent decline does not necessarily imply that our productivity actually fell; it may simply indicate that it grew more slowly than the European average. In other words, there has been a great deal of commotion over very little.
The second topic of discussion was the fact that Portugal ranks as the fourth least productive country in the European Union, ahead of only Latvia, Bulgaria, and Greece. This is indeed a serious concern, but it is hardly new. Anyone paying even moderate attention knows that this has been Portugal’s position for quite some time. Because it is a structural issue, even if we were to begin addressing it seriously today, it would take many years before meaningful results became visible.
The debate went off track when this indicator was combined with the fact that the Portuguese work considerably more hours per week than the European average. Some argued that this made the problem even worse, since productivity remains low despite employees working so many hours. Others concluded that workers cannot be blamed for low productivity precisely because they work so hard.
Both arguments overlook one of the most basic principles of economics: the law of diminishing marginal productivity, which is simply a sophisticated way of expressing an obvious reality. The more hours people work, the less productive each additional hour becomes. Wealthier countries work fewer hours and therefore make use only of the most productive part of the working week. It is precisely because the Portuguese work so many hours that their productivity is so low. Conversely, because Portuguese workers are less productive, they are forced to work longer hours.
Low wages were also brought into the discussion, as though they were a separate issue, rather than the other side of the same coin. The only sustainable way to increase wages is by raising labor productivity. As long as productivity remains low, earnings cannot rise significantly.
In short, as so often happens, much was said while missing the real issue entirely. When the diagnosis is wrong, the treatment will inevitably be ineffective. So why has Portugal struggled for so long with such low productivity, failing to catch up with its European partners? It is worth emphasizing that this has been the central issue facing the Portuguese economy for decades. We have been distracted by other matters, from budget deficits to pensions and regionalization, yet this is the one challenge that, if resolved, would help solve many of the others. So, for once, however briefly, public debate focused on something that truly matters, even if it did so rather clumsily.
The causes are numerous, as is the case with any deep-rooted problem. There is little point in assigning blame exclusively to workers, business owners, politicians, bureaucrats, public services, or labor legislation, even though all bear some degree of responsibility. The criticism directed at each group contains elements of truth, but none of them, on their own, explains the problem. This allows commentators to defend whichever narrative suits them best, criticizing their preferred targets while reaching conclusions that may be completely opposite to those of others, yet all containing some measure of truth.
Even so, one factor lies at the heart of the discussion: the lack of capital, including human capital. We are all born with fairly similar physical abilities. What makes Swiss workers more productive than Portuguese workers, and Portuguese workers more productive than Mexican workers, is the quality of the tools, infrastructure, and knowledge available to them. This also explains both the truth and the emptiness of one of Portugal’s favorite clichés: “Our workers are excellent because they perform extremely well when they move abroad.” That statement is about as insightful as saying, “I’m late, but if I had a car, I’d arrive on time.”
The problem lies with capital because, fundamentally, we do not like capital. Portugal has low savings, high levels of debt, and insufficient investment in workforce training. Public opinion routinely attacks “big capital,” is suspicious of business owners, and views finance with distrust. Obstacles to investment continue to multiply, while producers face an endless stream of inspections, regulations, ordinances, and administrative burdens.
The reason productivity remains low is simple: we do not genuinely want to increase it. Anyone who proposes measures capable of raising productivity is often criticized by the very same people who have spent the past few days lamenting Portugal’s poor productivity performance.
João César das Neves, Professor at Católica-Lisbon SBE