ABSTRACT
This chapter analyzes the two “strategic variables” output and the real wage and shows that the real wage is at the heart of Portugal’s experience. It discusses the concept of the “warranted” real wage and “potential” output which are the only levels consistent with equilibrium in both the labor and foreign exchange markets. The authors’ model is attractive precisely because of its simplicity in the way it presents the macroeconomic variables of wages and output and the link with employment and the current account balance. Comments on some of the specific issues which seem to be worth examining besides real wages and output in the evolution of the Portuguese economy since 1974. During the past two years and especially in 1979 the output in the economy as a whole has risen significantly although there has been little investment in new productive capacity.
