Strengthening Pro‑Productivity Institutions and Policymaking in Portugal

Over the past decade, Portugal has pursued a comprehensive set of policy reforms to raise productivity, combining incentive-based measures – such as improvements to the regulatory environment, support for R&D and technology adoption, and promotion of productive investment – with capability-oriented reforms to strengthen firms’ financial conditions, workforce skills and labour mobility. These measures have contributed to improvements of the overall policy framework for productivity growth and to some gains in productivity performance over time. Notably, the regulatory environment has become more supportive of entrepreneurship and more efficient in facilitating restructuring and firm exit, support for business innovation has reached among the highest levels in the OECD, firms’ capitalisation has improved, and deficits in adult skills have narrowed. Portugal has closed around half of the labour productivity gap with the OECD average since the early 2000s.

Despite these improvements, significant challenges remain. GDP per capita remains around 40% below the average of the top half of OECD countries, and productivity gains in recent years partly reflect cyclical recovery despite strong policy support following successive shocks. The remaining gaps in aggregate productivity and per capita income highlight the need to address deeper structural challenges to sustainably boost productivity. Large and persistent productivity differentials are visible across regions, while sectoral performance has diverged over the last decade. The root causes of these developments can be found at the firm level. Productivity dispersion is high within many industries, meaning that laggard firms neither catch up with best performers nor shrink or exit the market. At the same time, the average firm size is small in Portugal, with young, innovative firms struggling to scale up, as reflected in declining contributions of business dynamism to aggregate productivity growth. Slight improvements in productivity growth in recent years across the firm distribution will be difficult to sustain unless pro‑productivity policies further tackle challenges related to both well‑known and emerging productivity drivers, including the degree of competitive pressure in many non-tradable sectors, sluggish business investment in digital technologies, especially among small firms, and remaining deficits in adult skills, managerial practices, and educational mismatch.

While planned policies for 2026–2029 continue to address many of these challenges, the effectiveness of policy action to sustain productivity improvements will depend on a better understanding of the complementarities across policy areas and potential trade-offs due to unintended effects of support measures. Policy action needs to be guided by evidence on how to strengthen the effectiveness and efficiency of policies to promote business activity in R&D and technology adoption, unlock stronger business investment, and further strengthen workforce skills, managerial practices, and efficient job‑worker matching.

Portugal benefits from substantial analytical capacity within government, with several expert units producing high‑quality data, research, and monitoring tools related to productivity and competitiveness. However, an integrated institutional framework that connects this rich evidence and expertise and supports the translation of productivity analysis across policy areas into policymaking is currently elusive. Collaboration across expert units does occur, usually at the initiative of individual expert units but not systematically embedded across institutions. This in turn makes it difficult to research complementarities and trade-offs across policy areas and identify cross-cutting areas for policy action. Moreover, analytical outputs produced by different expert units often do not translate findings into concrete, actionable policy recommendations, and their visibility and use across government remain limited. There is currently no systematic, policy-oriented, and integrated monitoring of the sources and drivers of productivity dynamics.

The challenge of integrating productivity evidence and analysis across policy areas is not unique to Portugal. Many OECD countries have strengthened or created dedicated pro‑productivity institutions to support evidence‑based policymaking. These institutions – often referred to as national productivity councils, commissions or boards – are designed as analytical and advisory entities rather than implementing agencies. Their role is to improve the quality, coherence, and visibility of productivity‑related analysis, monitor productivity trends, identify structural bottlenecks, and help anchor productivity as a sustained policy priority across government.

Portugal established a Productivity Council in 2018, which provided an initial institutional response to the need for structured productivity analysis. While its mandate expired in 2021 and productivity-related analysis has since then continued within ministerial expert units, including those that constituted the Productivity Council, this experience offers valuable lessons for the design of future arrangements. In particular, a renewed Productivity Council could help address the current institutional and policy shortcomings by deepening the knowledge on productivity drivers and complementarities and effectively translating evidence into actionable policy recommendations.

The effectiveness of a renewed Productivity Council will depend critically on its design. Analytical independence, a clear and stable mandate, and secure access to high‑quality microdata are essential for credibility. Equally important are strong links to central decision‑making processes, ensuring that analysis and recommendations feed into policy discussions at the right moment. Finally, such a Council can act as a platform for dialogue and learning, engaging ministries, social partners, researchers, and international peers to build shared understanding and support for reform.

A pragmatic approach for renewing the Productivity Council would establish a small, independent stand-alone institution that builds on existing productivity evidence and connects sectoral analyses into a coherent framework, focusing on a limited set of priority issues to deliver clear, actionable policy recommendations. It would avoid duplication through formal collaboration with ministries’ expert units, while enhancing impact through strong visibility across government.

International experience suggests that clarity of mandate, strong analytical independence, capacity to translate robust evidence into actionable recommendations, effective coordination mechanisms, policy-relevant outputs and continuous improvements are key to ensuring that such institutions contribute meaningfully to policymaking over time and remain at the forefront of productivity analysis. Based on these principles, this report proposes a roadmap for the establishment of a renewed Productivity Council. Table 1 summarises the recommendations of the roadmap.