The Stalled Hour

Essay · economics · September 2026

Since 2013 Portugal has created jobs and grown, but an hour of Portuguese work produces almost exactly what it did then, and Poland has overtaken it. The usual suspect, tourism, explains little. The stall happened inside industries, as the economy added workers far faster than machines, in firms that are small and often run by owners with little schooling. Some of that is changing; the numbers have not yet caught up.

Reading time ≈ 8 min Level → industries → capital → firms → managers

The question

The Two-Thirds Country described a Portugal where an hour of work produces about two-thirds of the European average, and has for thirty years. The Treadmill found that since 2013 output per hour has barely grown at all: the recovery came from more hours of work, not better ones. This essay asks why, going through the explanations in turn: the move to tourism, the lack of investment, the size of firms, and the people who run them.

0.17%average yearly growth of output per hour in Portugal, 2013–2025; 1.27% in 2000–2013

67Portugal’s output per hour in 2025, EU = 100; Poland 68, Czechia 80

−17%change in capital per hour worked in Portugal, 2013–2025

42%of Portuguese business employment is in firms with fewer than ten people; EU 30%

The level

Two-thirds, and overtaken

Measured in purchasing power, an hour of Portuguese work produced 68 per cent of the EU average in 1995 and 67 per cent in 2025 (Figure 1). In between it rose slightly and fell back. The countries of central and eastern Europe that started below Portugal did not stand still: Czechia went from 63 to 80, Slovenia from 68 to 86, and Poland from 39 to 68, overtaking Portugal in 2025. Spain and Italy, which started well above, fell towards the average.[1] Portuguese workers make up part of the gap by working longer: about 1,910 hours a year per worker against 1,600 in the EU, so output per worker is closer, at about 80 per cent.[1]

Fig. 1 — GDP per hour worked in purchasing power standards, EU (27 countries) = 100: Portugal, Spain, Italy, Czechia, Slovenia and Poland, 1995–2025. Data: Eurostat, nama_10_lp_ulc; author’s calculation.

The growth rate tells the recent story more sharply. Output per hour grew by 1.3 per cent a year between 2000 and 2013, about as fast as in the EU, and by 0.17 per cent a year between 2013 and 2025, a quarter of the EU’s pace.[1] Part of the earlier growth was not a real gain: when the crisis destroyed low-productivity jobs in construction and small shops, the average rose without anyone producing more. The later stall partly reverses that. But the pattern is too long to be only an echo of the crisis.

The industries

Not mainly tourism

The popular explanation is that Portugal moved its workers into tourism, cafés and call centres, where an hour produces little. There is something in it. Between 2013 and 2023 hours of work grew fastest in administrative and support services, up by 317 million hours a year, accommodation and food, up 237 million, and construction, up 212 million, all below the average in productivity.[2]

But the arithmetic of a shift-share decomposition, which separates growth within each industry from the effect of hours moving between them, shows that this shift explains little of the stall (Figure 2). The move into low-productivity services cost about 1.4 points of productivity over the decade; the exit of 200 million hours from agriculture, the least productive sector of all, added about 2.3. Net of everything, movement between industries contributed roughly nothing. What collapsed was growth within industries: it added 16 per cent to output per hour in 2000–2013 and only 2 per cent in 2013–2023, against 8 per cent in the EU.[2]

Fig. 2 — Cumulative growth of real gross value added per hour worked, per cent of the starting level, split into growth within 18 industries (NACE sections, excluding real estate, whose output includes the imputed rent of owner-occupiers) and the net effect of hours moving between them. Data: Eurostat, nama_10_a64 and nama_10_a64_e; author’s calculation.

Within the growing industries productivity fell. In accommodation and food it declined by 1 per cent a year, in construction by 0.9. In information and communication, hours in IT services nearly tripled while output per hour stayed flat.[2] Portugal’s hotels and restaurants are, if anything, closer to the European average in productivity than the rest of its economy.[3] The problem is not where the Portuguese work, but how much each hour produces wherever they work.

The capital

Workers without machines

Output per hour rises for two broad reasons: each worker has more capital to work with, or the economy uses its workers and capital more efficiently, which economists call multifactor productivity. Portugal’s growth before 2013 came almost entirely from the first (Figure 3). Capital per hour contributed 1.0 to 1.5 points a year to productivity growth between 1996 and 2013, partly because hours of work fell by 15 per cent in the crisis while the stock of capital kept growing. Efficiency contributed nothing on average.[4]

Fig. 3 — Portugal: average yearly contributions of capital deepening (capital services per hour) and multifactor productivity to the growth of GDP per hour worked, percentage points, by period. Data: OECD Productivity Statistics, growth accounting (archive release; later years not comparable).

After 2013 the order reversed. Efficiency improved modestly, adding about 0.4 points a year between 2014 and 2019, similar to Spain and France. But capital per hour fell. Investment dropped to 14.8 per cent of GDP in 2013 and averaged 16.6 per cent in 2014–2019, against 20.5 in the EU; the real stock of capital barely grew while hours of work rose by about 2 per cent a year. On the Commission’s figures, capital per hour worked was about 17 per cent lower in 2025 than in 2013.[5] The jobs-rich recovery was, in this sense, a recovery built on people rather than machines: labour was cheap and available, including, after 2017, a large inflow of immigrants, and capital was scarce after a decade of debt. Investment has since recovered to about 21 per cent of GDP.[5]

The firms

Small, and less productive at every size

Portuguese firms are small. In 2023, firms with fewer than ten people employed 42 per cent of workers in the business economy, against 30 per cent in the EU; firms with 250 or more employed 23 per cent, against 37 (Figure 4).[3] Small firms are less productive everywhere, and in Portugal a firm of fewer than ten produces about 38 per cent as much per worker as one of 250 or more.[3]

Fig. 4 — Share of persons employed in the business economy (industry, construction and market services) by size of enterprise, Portugal and the EU (27 countries), 2023. Data: Eurostat, structural business statistics (sbs_sc_ovw).

Yet size is not the main story either. Giving Portuguese firms the EU’s mix of sizes, with their own productivity in each class, would close only about 15 per cent of the gap with the EU in value added per worker. In every size class, Portuguese firms produce between half and two-thirds of what EU firms of the same size produce.[3] The Banco de Portugal finds that the median Portuguese firm with 20 or more workers fell further behind the EU’s best firms between 2010 and 2020, in every size class.[6] Why firms stay small matters too: the OECD notes that Portugal’s lower tax rate for small companies “encourages firm splitting”.[7]

The managers

Who runs the firms

The most consistent finding in the research is about the people in charge. In the World Management Survey, which scores how firms set targets, monitor performance and manage people, Portuguese manufacturing firms scored 2.87 on a scale of 1 to 5, against an average of 2.99 across twenty countries; its authors placed Portugal and Greece, with Brazil, China and India, “at the bottom of the rankings” among the countries surveyed, with its weakest scores in how people are managed.[8] The survey is old, from 2004 to 2010, and covers only medium and large manufacturers, but the education data point the same way.

Fig. 5 — Share of adults aged 25–64, and of managers (ISCO-08 group 1, aged 20–64), with at most lower secondary education (ISCED 0–2), Portugal and the EU, 2000–2025 (managers from 2011). Data: Eurostat, edat_lfse_03 and lfsa_egised; author’s calculation.

In 2011 half of Portuguese managers had at most nine years of schooling; in 2025, 16 per cent did, against 7 per cent in the EU (Figure 5). Among employers, the owners of firms with staff, 42 per cent had at most nine years of schooling in 2024, against 16 per cent in the EU.[9] Studies of Portuguese firms find that the education of the entrepreneur matters more for a firm’s productivity than that of its workers, and that firms founded by better-educated owners start larger and grow faster.[10] Here the change has been fast: the managers of 2025 are far better educated than those of 2011, and adults with little schooling fell from 81 per cent of the population in 2000 to 36 per cent in 2025, still twice the EU share.

The system

Where the money went

The official diagnoses add a history of misallocation. Portugal’s Productivity Council concluded in 2019 that the credit boom before the crisis had sent capital disproportionately to sheltered sectors, such as real estate, trade and construction, and cited a study finding that in 2013, 44 per cent of the stock of bank credit was lent to firms of very low productivity. Weak firms kept afloat by banks, “zombies”, slowed the movement of workers and capital to better ones, though insolvency reforms after 2012 helped.[11] The OECD adds cumbersome regulation in some services, lists faster courts among the reforms it models, and notes a business R&D effort that has grown fast but, at 1.1 per cent of GDP, is still below the EU’s 1.5.[7][12]

The balance

Why the hour stalled

Put together, the evidence suggests a simple sequence. Before 2013, Portuguese productivity grew mostly by adding capital, much of it into construction and sheltered sectors, while efficiency stood still. After 2013, the economy recovered by adding workers much faster than it added capital, in industries and firms where productivity was already low and in many cases falling. Tourism was part of the scenery, not the cause. The deeper constraints are older: small firms that stay small, a management class that until recently had little schooling, and capital that went for years to the wrong places.

Some of that is now moving. Investment has recovered, managers are far better educated than a decade ago, and business R&D has risen. Whether it shows up in output per hour is the question on which Portugal’s convergence with Europe depends, and, as The Treadmill showed, much else: wages, pensions and the debt all run on it.

On method and tools

This piece was written collaboratively with Claude Opus 5.5 (Anthropic): human specification, editorial direction and critical review; machine data research, analysis and drafting. The figures and derived numbers are computed by scripts/productivity.py from Eurostat, the OECD and AMECO. The shift-share decomposition uses 18 industries and excludes real estate, whose output includes the imputed rent of owner-occupiers and would distort the result; it cannot see movements between firms within an industry. Firm-size comparisons are in nominal euros for 2023, the only complete Portuguese year, so part of the gap with the EU reflects lower prices. The OECD growth-accounting series ends in 2019 for comparable data. The management survey dates from 2004–2010. Results are in docs/productivity-results.json and the figures in docs/productivity-figures.html; the downloaded sources, with a table or page reference for every number, are kept with the script’s data.

The cover photograph is Beiralã, Seia, a textile factory, by Hipersyl; CC BY 4.0, via Wikimedia Commons, cropped.

Authored by: Luis Matos Ferreira — Physicist, Developer, Writer

Related essays on this blog

1. The Two-Thirds Country — Portugal’s productivity, hours, wages and housing.
2. The Treadmill — why jobs, debts and pensions depend on growth.
3. Who Gets the Profits — where Portugal’s operating surplus goes.

Sources

1. Eurostat, labour productivity and unit labour costs (nama_10_lp_ulc): real productivity per hour, nominal productivity per hour and per person in PPS, hours per worker; author’s growth rates.
2. Eurostat, national accounts by industry (nama_10_a64, nama_10_a64_e): chain-linked value added and hours worked; author’s shift-share decomposition, 2000–2013 and 2013–2023.
3. Eurostat, structural business statistics by size class (sbs_sc_ovw), 2023; author’s calculation.
4. OECD, Productivity Statistics, growth accounting (DSD_PDB@DF_PDB_GR), Portugal and comparators, 1996–2019.
5. European Commission, AMECO database (spring 2026): gross fixed capital formation, net capital stock, hours worked; author’s calculation.
6. J. Amador and G. Nogueira, “Inputs e resultados das empresas portuguesas: uma comparação micro-agregada com a UE”, Banco de Portugal, Revista de Estudos Económicos XI(4), October 2025, abstract and section 4.4.
7. OECD, OECD Economic Surveys: Portugal 2026, pp. 42–43 and 47–50.
8. N. Bloom, C. Genakos, R. Sadun and J. Van Reenen, “Management Practices Across Firms and Countries”, NBER Working Paper 17850, 2012, p. 9 and Table 2.
9. Eurostat, Labour Force Survey: population by educational attainment (edat_lfse_03), employment by occupation and education (lfsa_egised) and by professional status and education (lfsa_esgaed); author’s shares.
10. Conselho para a Produtividade, First Report, 2019, pp. 57–58, citing F. Queiró (2018); F. Queiró, “Entrepreneurial Human Capital and Firm Dynamics”, Review of Economic Studies 89(4), 2022, abstract.
11. Conselho para a Produtividade, First Report, 2019, pp. 2, 50, 71 and 76; PlanAPP, A produtividade das empresas em Portugal, 2023, p. 16.
12. Eurostat, R&D expenditure by sector of performance (rd_e_gerdtot), 2024.