1. Summary: Key Figures for 2025
New data from the Instituto Nacional de Estatística (INE - National Statistics Institute) has been released, and the numbers leave no doubt: the Labour Cost Index (LCI) spiked at the end of 2025. The highlight goes to the Services sector, where hiring and maintaining employees has never weighed as heavily on companies' pockets as it does now.
| Indicator | Q4 2025 | 2025 Cumulative | 2024 |
|---|---|---|---|
| LCI (total) | +6.9% | +5.5% | +8.3% |
| Wage costs | +7.0% | +5.5% | +8.3% |
| Other costs (contributions) | +6.9% | +5.5% | +8.2% |
| Average cost per worker | +4.9% | +5.5% | +6.5% |
| Hours actually worked | -1.7% | +0.2% | -1.6% |
📌 The key point: The LCI rose 6.9% in Q4 2025 — a jump compared to the +4.8% of the previous quarter. But take note: this increase is due to both the rise in average costs (+4.9%) and the reduction in hours worked (-1.7%). When fewer hours are worked but more is paid per worker, the hourly cost skyrockets. In the annual cumulative total, the LCI rose 5.5% — a deceleration compared to 8.3% in 2024.
2. What is the Labour Cost Index?
The Labour Cost Index (LCI) is a quarterly indicator that measures the evolution of labour costs per hour actually worked borne by employers. It is calculated by the INE and harmonized with the Eurostat Labour Cost Index (LCI), allowing for comparisons between EU countries.
What does the LCI include?
| Component | What it includes |
|---|---|
| Wage costs | Base salary, holiday and Christmas bonuses, premiums, overtime pay |
| Other costs | Employer contributions to Social Security, work accident insurance, severance pay, conventional charges |
How is it calculated?
In practice, the calculation is simple: you take the average cost per worker and divide it by the hours they actually worked. Therefore, the index rises in two scenarios: if wages increase or if the team works fewer hours for the same amount. In 2025, we saw a bit of both happening simultaneously.
In 2025, the LCI covers information from approximately 456,000 entities with remunerations declared to Social Security and the Caixa Geral de Aposentações (CGA), corresponding to about 4.7 million workers.
3. Q4 2025: Acceleration to 6.9%
The LCI accelerated significantly in the 4th quarter of 2025, moving from +4.8% in Q3 to +6.9% in Q4. This acceleration resulted from two simultaneous factors:
| Factor | Q3 2025 | Q4 2025 | Trend |
|---|---|---|---|
| Average cost per worker | +5.2% | +4.9% | Slowed down slightly |
| Hours actually worked | +0.2% | -1.7% | Reversed to negative ❌ |
| Resulting LCI | +4.8% | +6.9% | Accelerated strongly ⚠️ |
What really "pulled" the index up was the drop in workload (-1.7%). Even with people working less time in the last quarter, fixed costs did not relent — and the result is a much steeper hourly cost for those who employ.
⚠️ Caution in interpretation: A rising LCI does not necessarily mean that wages are rising rapidly. It may reflect fewer hours worked (holidays, absenteeism, reduced hours), which makes the hourly cost more expensive even without major salary increases. Q4 2025 is a clear example: the cost per worker rose "only" 4.9%, but the LCI rose 6.9% because hours fell by 1.7%.
4. Sector Analysis: Services Skyrocket 9.7%
Sector analysis reveals huge disparities in the 4th quarter of 2025:
| Sector | LCI Q4 2025 | LCI Q3 2025 | Wage Costs | Other Costs |
|---|---|---|---|---|
| Services (G-N) | +9.7% 🔴 | +5.4% | +9.7% | +9.5% |
| Industry (B-E) | +5.8% | +6.7% | +5.8% | +5.8% |
| Construction (F) | +5.8% | +5.7% | +5.8% | +5.6% |
| Public Administration | +4.2% | +3.5% | +4.2% | +4.2% |
Services: The Big Highlight
The Services sector (which includes trade, transport, accommodation, catering, financial activities, real estate, and consultancy) recorded an increase of 9.7% in the LCI — almost double the previous quarter (+5.4%). This jump is due to:
- Average cost per worker: +4.9%
- Hours actually worked: -4.2% — the largest drop among all sectors
The combination of rising costs with a drastic reduction in hours worked explains the seemingly alarming figure of 9.7%. This sector is the largest employer in the Portuguese economy and concentrates the majority of immigrant workers, including Brazilians.
Industry and Construction: Stability
Industry and Construction recorded identical increases of 5.8%. In Construction, the average cost per worker rose 6.4% — the highest among all sectors — but hours worked increased 0.6%, mitigating the impact on the LCI. In Industry, the cost per worker rose 4.9%, but hours fell 0.8%.
Public Administration: The Most Moderate
Public Administration recorded the smallest increase (4.2%), with a 4.8% growth in the cost per worker partially offset by a 0.7% increase in hours worked.
5. Costs per Worker vs. Hours Worked
To truly understand the LCI, it is essential to separate its two components:
| Sector | Average Cost/Worker | Hours Worked/Worker | Resulting LCI |
|---|---|---|---|
| Services | +4.9% | -4.2% | +9.7% |
| Construction | +6.4% | +0.6% | +5.8% |
| Industry | +4.9% | -0.8% | +5.8% |
| Public Administration | +4.8% | +0.7% | +4.2% |
| Total | +4.9% | -1.7% | +6.9% |
Reading this table is fundamental: Construction has the highest increase in costs per worker (+6.4%), but as hours worked also increased, the final LCI is moderate. Services has the same cost increase as Industry (+4.9%), but the huge drop in hours (-4.2%) inflates the LCI to 9.7%.
📊 In the 2025 cumulative total: The LCI rose 5.5%, with average costs per worker growing 5.5% and hours worked increasing marginally (+0.2%). This is a more balanced reading: throughout the year, the LCI increase essentially reflects the rise in costs, without significant distortions from hours.
6. Private Sector vs. Public Sector
The INE distinguishes between two large aggregates:
| Aggregate | CAE Sections | LCI Q4 2025 | LCI Annual 2025 | LCI 2024 |
|---|---|---|---|---|
| Private sector (mostly) | B to N | +8.3% | +5.6% | +8.2% |
| Public sector (mostly) | O to S | +4.2% | +5.3% | +8.5% |
In the 4th quarter, the private sector recorded an LCI almost double that of the public sector (8.3% vs. 4.2%). In the private sector, wage costs rose 8.4% and other costs 8.2%, with hours worked falling 2.9%. In the public sector, the increase was more contained (costs +4.8%, hours +0.7%).
However, looking at the annual cumulative total, the difference is much smaller: 5.6% vs. 5.3%. This suggests that Q4 was atypically strong in the private sector, possibly influenced by seasonal factors (payment of Christmas bonuses, productivity bonuses) and the drop in hours at the end of the year.
7. Portugal vs. European Union
The most recent European comparison available refers to Q3 2025 (data from Eurostat). Portugal recorded an LCI of +4.7% in that quarter — above the EU-27 average of 3.7%.
| Country | LCI Q3 2025 | Position |
|---|---|---|
| 🇧🇬 Bulgaria | +12.3% | Highest in the EU |
| 🇱🇹 Lithuania | — | 2nd highest |
| 🇭🇷 Croatia | — | 3rd highest |
| 🇭🇺 Hungary | — | — |
| 🇬🇷 Greece | — | — |
| 🇵🇱 Poland | — | — |
| 🇵🇹 Portugal | +4.7% | Above EU average |
| 🇩🇪 Germany | — | Above EU average |
| 🇪🇺 European Union (27) | +3.7% | Average |
| 🇪🇸 Spain | — | Below average |
| 🇫🇷 France | — | Below average |
| 🇮🇹 Italy | — | Below average |
| 🇸🇮 Slovenia | +1.6% | Lowest positive growth |
| 🇲🇹 Malta | -1.4% | Only one with a drop |
Sixteen countries, including Portugal, recorded variations higher than the EU average. Portugal positioned itself in the intermediate group — with costs rising faster than its main competitors in Southern Europe (Spain, France, Italy), but well below the Eastern European countries that continue in accelerated wage convergence.
⚠️ The danger here is competitiveness: If Portugal becomes more expensive to produce in, but productivity does not rise at the same rate, our companies start to lose ground to neighbors like Spain and Italy. It's a difficult equation to balance. As the Banco de Portugal has already warned, it is not enough to pay more; the economy must deliver more value to compensate for these costs.
8. Historical Evolution: 2018 to 2025
The evolution of the LCI in recent years reflects the major transformations of the Portuguese economy:
| Year | LCI (annual variation) | Context |
|---|---|---|
| 2018 | ~+2.5% | Moderate pre-pandemic growth |
| 2019 | ~+3.0% | Maturing economy |
| 2020 | ~+5.5% | Pandemic: costs rise with drop in hours (layoff) |
| 2021 | ~-1.0% | Recovery: hours increase, costs stabilize |
| 2022 | ~+6.0% | High inflation, wage pressure |
| 2023 | ~+7.5% | Generalized wage increases, minimum wage rises |
| 2024 | +8.3% | Highest recent increase — wage convergence + inflation |
| 2025 | +5.5% | Deceleration — normalization after years of strong rise |
The pattern is clear: after a period of exceptional increases (2022-2024), driven by high inflation and consecutive increases in the national minimum wage (from €705 in 2022 to €870 in 2025), the growth rate of labour costs is normalizing. The LCI of +5.5% in 2025 represents a significant deceleration compared to +8.3% in 2024.
9. What This Means in Practice
For Companies
- Labour costs continue to rise, although at a more moderate pace than in 2023-2024
- The Services sector is the most pressured (+9.7% in Q4), affecting hospitality, catering, trade, and business services
- Construction faces the highest increase in cost per worker (+6.4%), reflecting the shortage of skilled labour
- Portugal's cost-competitiveness is deteriorating compared to Spain, France, and Italy
For Workers
- Wage costs rose 5.5% in 2025, indicating real increases in labour income
- The national minimum wage rose to €870 in 2025 (it was €820 in 2024), driving costs at the base of the wage pyramid
- The average gross remuneration reached €1,694 in December 2025
For Brazilians in Portugal
- The increase in labour costs reflects a tight labour market — there is more demand than supply of workers, which benefits job seekers
- The sectors with the highest cost growth (Services and Construction) are precisely those that employ the most Brazilian immigrants
- For those planning to work in Portugal, the data confirms that wages are effectively rising — not just the minimum, but across the entire economy
- If you are considering Portugal, learn about the options for visas for Portugal and Portuguese citizenship
For Entrepreneurs
- If you intend to open a business in Portugal, it is essential to consider that labour costs grow 5-7% per year
- Employer charges (Social Security: 23.75%) are a significant component — and are also rising
- The D2 visa for entrepreneurs is a pathway to the Portuguese and European markets
💡 At the end of the day: This increase in costs is a typical double-edged sword scenario. While the worker sees their salary grow and gains breathing room, the entrepreneur must work harder to keep the business profitable with increasingly tight margins. Portugal's big challenge now is to be able to pay decent wages at the European level without leaving companies behind.
10. Frequently Asked Questions
How much did the cost of labour rise in Portugal in 2025?
The Labour Cost Index (LCI) rose 5.5% in 2025 (annual cumulative), decelerating from 8.3% in 2024. In the 4th quarter alone, the increase was 6.9%.
Which sector had the highest increase in labour costs?
Services (trade, transport, accommodation, catering, business services) recorded the highest increase: +9.7% in Q4 2025, driven by a 4.2% drop in hours worked.
Is Portugal above or below the European average?
Above. In Q3 2025, Portugal recorded +4.7%, against +3.7% for the EU-27 average. Sixteen countries were above the average, including Portugal.
What explains the LCI increase in the 4th quarter?
Two factors: the 4.9% increase in the average cost per worker and the 1.7% reduction in hours worked. Fewer hours with higher costs = significantly higher hourly cost.
Are wages really rising?
Yes. Hourly wage costs rose 7.0% in Q4 and 5.5% for the year. The average gross remuneration reached €1,694 in December 2025 and the minimum wage is €870.
Is the cost of labour in Construction rising a lot?
Construction recorded the highest increase in cost per worker (+6.4%), reflecting the labour shortage. The final LCI was +5.8% because hours worked also increased (+0.6%).
Does this affect Portugal's competitiveness?
Potentially, yes. With costs rising faster than in Spain, France, and Italy, Portugal needs productivity gains to maintain competitiveness. Otherwise, unit labour costs increase and companies lose margin.
How does this impact Brazilian immigrants?
Positively: rising labour costs reflect a tight labour market with demand for labour, especially in Services and Construction — sectors that employ many Brazilians. Wages are effectively rising across the entire economy.
📚 Read Also
- Salaries in Portugal 2025: Gross Remuneration Rises 5.6% to Reach €1,694 — Official INE Data
- Tourism in Portugal 2025: 82 Million Overnight Stays and 7.2 Billion in Revenue
- Portugal's Airports Hit Record in 2025: 73.7 Million Passengers (+4.7%)
- The People 2024: A Statistical Portrait of Portugal with 10.7 Million Inhabitants
Article updated in February 2026 with official data from the INE — Labour Cost Index, 4th Quarter 2025. Original INE publication: February 13, 2026. Complementary sources: Eurostat — Labour Cost Index, Banco de Portugal — Economic Bulletin, DGERT — Weighted Average Variation of Remunerations.
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