In an increasingly globalized world, skilled young workers are no longer bound by national borders. The rise in professional mobility, especially in tech and other high-demand sectors, has led many nations to implement policies designed to attract and retain young talent. However, despite efforts to incentivize workers to stay, many are opting for opportunities abroad due to better salaries, career growth, and tax advantages.
This article delves into how countries compete to keep skilled young workers, with a focus on Portugal’s recent tax initiatives and the challenges faced by governments trying to retain their brightest minds.
The Global Talent Exodus: Why Skilled Young Workers Are Moving Abroad
Duarte Dias, a Portuguese software engineer, made a life-changing decision when he moved to work for Microsoft in Dublin and later in Seattle. Despite his fondness for his home country’s relaxed lifestyle, Dias’s financial analysis revealed a harsh reality: staying in Portugal was financially unfeasible. With a gross income of €35,000, the tax burden in Portugal reduced his take-home pay drastically—up to 40% was claimed by the state.
Dias’s move to Ireland doubled his salary to €60,000, and his subsequent relocation to the United States brought even greater financial benefits, earning him over $160,000. His story is just one example of the growing trend where young professionals from countries like Portugal, Poland, and Croatia are seeking better opportunities abroad.
The Role of Taxes: How Tax Regimes Influence Workers’ Decisions
One of the primary factors influencing skilled young workers’ decisions to move abroad is taxation. In Portugal, the tax burden for professionals is among the highest in Europe, with a tax wedge of 42.3%, which is the 8th highest among OECD countries. This makes it difficult for young professionals to save money, especially those who are just starting their careers.
The Portuguese government’s IRS Jovem initiative, launched in 2020, sought to reduce this financial burden for young workers under the age of 30. The program, offering tax reductions, was expanded in 2022 to include workers under 35, potentially benefiting up to 400,000 individuals. However, experts argue that such measures, while helpful, are insufficient to keep young talent in the country.
As Sérgio Vasques, a professor of tax law at the Católica Lisbon School of Law, points out, Portugal’s tax system is still an obstacle for skilled workers. “This regime will not solve the problem,” he says, noting that it won’t be enough to retain professionals in a country with low salaries and limited career growth opportunities.
Comparing Tax Incentives Across Europe
To better understand how tax regimes influence young workers’ mobility, we’ll compare the different incentives offered in countries like Portugal, Poland, and Croatia.
| Country | Tax Incentive | Target Group | Salary Range | Program Duration |
|---|---|---|---|---|
| Portugal | IRS Jovem (tax reductions) | Workers under 30 or 35 | Income < €28,000 | 5-10 years |
| Poland | PIT (Personal Income Tax reductions) | Young workers under 26 | Income < PLN 85,528 | 3 years |
| Croatia | Tax cuts for young workers | Under 30, depending on sector | Income < HRK 150,000 | 5 years |
| Spain | Young worker tax benefits | Workers under 30 | Varies by region | 2-3 years |
While these countries aim to reduce the tax burden for young professionals, the impact of these measures remains limited when compared to the higher salaries and better job prospects available abroad.
The Portuguese Government’s Response: Will It Be Enough?
In an effort to retain talent, the Portuguese government introduced the IRS Jovem program, which aims to reduce taxes for younger workers. This move is part of a broader effort to reverse the growing trend of skilled professionals leaving the country. In the 2022 tax year, 73,684 workers benefitted from this initiative, but experts remain skeptical about its long-term effectiveness.
While this program is a step in the right direction, the fact remains that Portugal’s salary levels are far lower than in countries like Germany, the UK, or the US, where young professionals in fields like software engineering can earn substantially more.
A Closer Look at the Taxation Problem
The challenge of high taxation in Portugal is compounded by low wages. Antonio Almeida, a software engineer who moved from Lisbon to Berlin, notes that the gross salary in Lisbon for a junior role was just €1,300 a month, compared to €4,200 in Berlin. Even after accounting for taxes, the difference in net income was considerable.
Almeida’s experience underscores the fact that many skilled young professionals prioritize financial stability and career growth over tax incentives. He notes that although tax benefits in Portugal have improved, they do not outweigh the financial gains of working in higher-paying countries.
Solutions and Opportunities: Can Countries Keep Their Talent?
Despite the challenges, several countries are attempting to create more attractive environments for skilled workers. Offering competitive salaries, tax incentives, and career advancement opportunities are all important aspects of these initiatives.
In addition to tax cuts, governments should consider:
- Increasing salaries to be competitive with global markets.
- Providing more professional development opportunities, including job training and mentoring programs.
- Creating favorable working conditions, such as flexible hours and remote work options.
- Promoting international collaboration and opportunities for cross-border projects, allowing young workers to develop their careers without leaving home.
Countries like Germany, Belgium, and the Netherlands are already making strides in these areas, offering high salaries, lower taxes, and better work-life balance to attract skilled young professionals.
What Does the Future Hold?
As young professionals increasingly look beyond borders for opportunities, countries will need to adapt their policies to meet the demands of the modern workforce. Tax incentives, while important, may not be enough on their own to keep skilled workers at home. In countries like Portugal, the government will need to focus on improving overall career prospects, raising wages, and creating a conducive environment for professional growth to retain their best talent.
As the global job market continues to evolve, attracting and retaining skilled young workers will remain a critical challenge. Governments must think beyond short-term tax breaks and focus on building a long-term strategy that combines financial incentives, career opportunities, and a high quality of life to keep their talent from seeking opportunities abroad.
FAQs:
Q1: How do tax incentives help retain skilled young workers?
Tax incentives reduce the financial burden on young professionals, making it more financially viable for them to stay and work in their home country rather than move abroad for better opportunities.
Q2: Why are wages in Portugal lower than in other countries?
Wages in Portugal tend to be lower due to economic factors such as lower living costs, lower productivity, and the country’s reliance on lower-skill industries.
Q3: Are tax cuts alone enough to retain young workers in Portugal?
Experts believe tax cuts are a step in the right direction but are not sufficient to counter the higher wages and better career prospects available in other countries.
By addressing the broader issues of wages, career opportunities, and quality of life, countries can better position themselves to compete for the skilled talent they need to thrive in the global economy.
