Strengthening Pro‑Productivity Institutions and Policymaking in Portugal

Executive summary

Productivity outcomes depend on a wide set of interconnected factors, including external conditions – such as competitive pressures, knowledge diffusion, workforce skills, and access to finance – and firm-level drivers like job-worker matching, management quality, and innovation. As these factors become more interdependent, and as ageing, digitalisation, artificial intelligence, and the green transition reshape the economy, policy effectiveness increasingly hinges on strong coordination, clear prioritisation, and sustained implementation.

Sustaining recent productivity gains to support growth and convergence

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.

Strengthening policy effectiveness through an integrated institutional framework for productivity

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.

Designing a renewed Productivity Council for effectiveness

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.

Table 1. Recommendations for the establishment of a renewed Productivity Council

Pillar	Focus	Recommendation
Pillar 1	Establish the Productivity Council as a stand-alone body and anchor its analytical independence and continuity through a strong legal framework	Recommendation 1.1. Establish the Productivity Council through a dedicated law (Lei). Create the Council as a stand-alone body through primary legislation to provide legal personality, analytical independence, and continuity across political cycles, in line with Article 161(c) of the Portuguese Constitution.
		Recommendation 1.2. Guarantee autonomy over analysis, work programme and publication. Ensure that the legal framework explicitly safeguards the Council’s independence over analytical conclusions, prioritisation of its work programme, and publication of outputs, while allowing government to suggest topics without influencing outcomes.
Pillar 2	Defining purpose and mandate for the establishment of the Productivity Council	Recommendation 2.1. Define a focused, policy‑oriented mandate. Establish the Productivity Council as a strategic analytical and advisory body focused on monitoring productivity trends, identifying structural barriers, and translating evidence into actionable policy recommendations, rather than duplicating existing diagnostic work.
		Recommendation 2.2. Prioritise impact through a selective work programme. Limit the annual work programme to a small number of priority issues (typically two to three), with a strong emphasis on policy relevance, prioritisation, and follow‑up.
Pillar 3	Building operational capacity, visibility and linkages to existing expertise	Recommendation 3.1. Appoint an expert‑based chair and board with strong expertise in productivity-related policies and appropriate safeguards. Structure the Council around a chair and a board appointed on the basis of relevant and diverse national and international expertise, including business and trade union representatives, with fixed and staggered terms and clear incompatibility rules to protect independence.
		Recommendation 3.2. Establish a small, dedicated technical secretariat. Provide the Council with a lean secretariat (around 3–5 staff) working primarily for the Council.
		Recommendation 3.3. Formalise advisory engagement with expert units. Create a structured advisory network of ministries and expert bodies (e.g. building on REPLAN) to support information exchange and policy relevance, while preserving the Council’s full independence over conclusions and recommendations.
Pillar 4	Produce policy-relevant outputs and support their dissemination and take-up	Recommendation 4.1. Produce a focused annual Productivity Report with actionable recommendations. Task the Council with producing an annual report centred on a limited number of priority challenges and clearly articulated, prioritised and actionable policy recommendations, to be published at a strategic point in the policy cycle to maximise relevance for budget and policy planning.
		Recommendation 4.2. Establish expectations for government follow‑up. Introduce a formal mechanism for government responses to the Council’s recommendations, including requirements for the government’s response within a defined timeframe, and integrate follow‑up and progress tracking into subsequent reports.
		Recommendation 4.3. Systematically engage stakeholders while preserving independence. Consult social partners, civil society, the Bank of Portugal, the National Statistical Office, and the Economic and Social Council during report preparation, using transparent procedures that inform analysis without constraining conclusions.
Pillar 5	Ensuring institutional learning and adaptation over time	Recommendation 5.1. Assess the work of the Council after the first years of operation. Undertake an assessment of the Productivity Council after an initial three‑year period, reviewing mandate relevance, governance, analytical focus, resourcing, and policy impact.
		Recommendation 5.2. Use assessment findings to adjust mandate and practices. Make results public and use them explicitly to refine the Council’s mandate, work programme, analytical approaches and operating practices, drawing on international experience.