FIGURE 8 CHANGES IN REAL WAGES AND IN THE EXCHANGE RATE AND THE RATE OF UNEMPLOYMENT (%)
There have been three main explanations for the low rigidity of real wages in Portugal. First, inflation was high and variable from 1975 to the early 1990s, and in several years it generated large differences between the inflationary expectations of workers and other economic agents and the actual changes in the aggregate price level. Second, actual wages have frequently exceeded the wages agreed upon in collective agreements; in
periods of high or increasing unemployment, the excesses can be reduced quite easily, and actual real wages may fall or increase less than contractual wages. Third, there have been big fears among workers of losing their jobs when unemployment is high or increasing.