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In the first half of 2022, strong job creation and higher wages benefited more the bottom of the income distribution

21.10.2022

Economics in a picture: In the first half of 2022, strong job creation and higher wages benefited more the bottom of the income distribution

The Portuguese economy is suffering an overlap of economic shocks of considerable magnitude that have different impacts on household disposable income, depending on their socio-economic characteristics. 

These effects were assessed with a simulation exercise that departures from the 2020 Portuguese Household Financial and Consumption Survey. In this exercise, each of the income components varies by household, in magnitudes that reflect the changes between the first semesters of 2021 and 2022, as well as household characteristics.

According to this exercise, the year-on-year growth of disposable income in the first half of 2022 has a decreasing profile with the level of disposable income per equivalent adult (i.e, with the level of income corrected by the composition of the household). In particular, the disposable income of the first quintile (group of 20% of households with the lowest income) has a much higher growth than the income of the remaining quintiles. The real disposable income of the first quintile increases by 4.5% year-on-year in the first half of 2022, which contrasts with a stagnation or reduction in real income in the remaining quintiles. The evolution of the labor market is the crucial element that explains this heterogeneity in the evolution of income. Households with lower income levels benefit most from the strong job creation that took place in this period, as well as from the increase in the minimum wage above the average wage growth in the economy.

 

For more details, see the Special issue “Distributional effects on households of recent economic developments”, published in the Economic Bulletin of Banco de Portugal, October 2022.

 

Prepared by Sónia Costa. The analyses, opinions and findings expressed above represent the views of the author and not necessarily those of Banco de Portugal or the Eurosystem.

 

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