The impact of EU integration on the Portuguese distribution of employees' earnings

This paper investigates the impact of Portugal’s accession to the EU on employees’ earnings inequality using data for the years 1985 and 1991 from the Quadros de Pessoal database. The distributions of earnings for the two years are compared using distinct empirical methodologies to better clarify the nature of inequality at the aggregate level: cardinal measures of inequality and the Lorenz stochastic dominance approach (Araar and Duclos, 2007); the Relative Distribution approach; and covariate (education) decomposition. Our results indicate that during the period under analysis the median and average earnings of employees increased, pointing to a sort of honeymoon effect of EU integration on Portuguese employees’ earnings, but which was characterized by an increase in earnings inequality. Relative to 1985, in 1991 there were more employees with very low earnings but also more 1991 employees with high earnings and there were also more employees at the bottom end and at the top end of the earnings distribution. Moreover, the analysis of the relative earnings distribution by level of education reveals substantial differences for the top end of the distributions with the proportion of 1991 employees receiving the highest earnings higher than for the original 1985 cohort. These results deserve a deeper investigation since inequality may jeopardize future growth of the Portuguese economy. Similar analysis should also be carried out for recent and predictable future members of the EU.