Portugal’s economy is being revitalized by immigration
Why this story matters: Immigration can be an easy target for public frustration, often used as a scapegoat for Portugal's economic issues. But no matter how you slice it, that simply isn't true. Contrary to mainstream narratives, new migrants to Portugal aren't causing a rise in housing costs or inflation. According to data, the economic issues Portugal has faced in the past can easily be attributed to a unique combination of factors, including construction shortages and internal policies. Years of underinvestment in new housing and global issues like rising energy prices are bigger reasons than immigration.
Like many countries, Portugal was affected by the global recession triggered by the collapse of major financial institutions in 2008. The economy contracted, unemployment rose, and the country faced a period of stagnation. Portugal was particularly hit hard during the Eurozone sovereign debt crisis in 2010.
Thankfully, Portugal has undergone a striking economic transformation since then, bouncing back from the financial crises. The country built a more competitive economy through strategic reforms in labour laws, taxation, and public services.
Tourism, renewable energy, and technology sectors have led the charge, alongside smart government policies and foreign investments, driving growth in GDP and a steady drop in unemployment.
A major, often underappreciated, factor in this success story is immigration. With an ageing population and shrinking birth rates, Portugal faces significant demographic challenges.
Immigrants have become vital to filling labour gaps across industries like healthcare, technology, agriculture, and construction. Beyond strengthening the workforce, they also contribute to stabilizing the pension system, offsetting the financial strain caused by an ageing society.
The healthcare sector particularly benefits, as foreign workers meet the increasing demand for care services in an ageing population. This support ensures Portugal’s essential systems remain functional and sustainable in the long run.
While immigration sometimes raises concerns about housing shortages and inflation, data points elsewhere. Housing issues largely stem from over-tourism and insufficient new housing development. Similarly, inflation trends are tied to global issues like energy prices and supply chain challenges, not the presence of immigrants.
In reality, immigration is a solution rather than a burden, helping Portugal tackle its workforce gaps, stabilize its economy, and meet long-term structural needs. It’s an essential driver of Portugal’s ongoing recovery and sustainable growth.
Decline in Unemployment
At the height of the Eurozone debt crisis in 2013, Portugal’s unemployment rate was a whopping 17.2 percent. The strategic reforms in labour laws thereafter saw a year-on-year decline, reducing the unemployment rate to just 6.49 percent in 2023.
“The labour market reforms particularly, which aimed to improve flexibility and competitiveness, played a key role in this turnaround. These changes made it easier for businesses to hire and reduced the rigidity that had previously slowed down job creation, leading to a more dynamic employment landscape,” explains Laura Madrid Sartoretto, PhD , the Research Lead of Global Citizen Solution’s Global Intelligence Unit.
She further notes that immigration has been critical in filling labour gaps during this period.
“With an increasing need for a skilled and unskilled workforce, the influx of foreign workers helped sustain economic activity across various sectors. From 2018 to 2023, as immigration policies were refined to meet the growing demand for labor, migrants became a vital component in addressing shortages in industries such as healthcare, construction, and technology.”
Additionally, migrants and expatriates are not just taking up existing roles; they are actively driving job creation across various industries. International entrepreneurs and investors have played a key role in expanding the technology, real estate, and tourism sectors. This has fostered a positive cycle where migrants integrate into the workforce while simultaneously contributing to economic growth.
Contrary to concerns that migration might harm domestic employment, evidence indicates that immigration has strengthened Portugal's labour market and supported broader economic progress.
Contribution to Public Finances
The fiscal effects of migration are widely debated in Europe, including in Portugal, where concerns often focus on the strain new migrants might place on public services. However, migration also strengthens the welfare system by expanding the tax base.
Economically active migrants contribute significantly to public revenues, which help finance pensions, healthcare, and other essential services. This balance - between resource demands and fiscal sustainability - remains a key point in policy discussions.
Again, data shows that immigrants, particularly those of working age (20 to 64 years), are vital for sustaining public services.
A 2023 report from the Portuguese government found that immigrants generate around €1.1 billion in taxes annually, accounting for roughly 2.5 percent of Portugal’s total tax revenue.
Additionally, foreign workers stabilize the social security system by increasing the number of contributors - an essential factor for maintaining pension payments as the population ages.
Notably, foreign residents in Portugal have a more favourable ratio of taxpayers to total residents compared to the overall population and fewer social protection recipients per taxpayer than nationals. This highlights their significant contributory role, making them critical for the long-term sustainability of Portugal’s social security system.
These findings directly challenge the misconception that migrants burden public resources. On the contrary, they are integral to supporting and balancing the country’s welfare finances.
“However, like many other social issues, the relationship between immigration and social inclusion is often surrounded by myths that distort reality. Misperceptions are common and tend to skew the understanding of the true impact of immigration, leading to a narrative that doesn't align with the facts,” Madrid explains.
By simply looking at the data, it becomes evident that migrants to Portugal are “a critical pillar of Portugal’s economic and social development,” bolstering the country’s economy across all sectors including healthcare, construction, and tourism.