Sharing the Burden: The Impacts of Pharmacy Sector Reforms on the Labor Market for Pharmacists in Portugal

In the depths of the 2010 financial crisis the Portuguese government enacted a series of reforms in its prescription drug reimbursement system. Over the next three years value added per pharmacist in retail pharmacies fell by a third, reflecting a rise in generic substitution and reductions in the markups allowed for prescription drugs. This massive shock led to pay cuts for incumbent pharmacists and the introduction of a two-tier pay system for new hires, with little or no reduction in the growth of employment. We use detailed longitudinal records from the Quadros de Pessoal data base, merged with information on collective bargaining settlements and firm financial records, to study the impacts of the reforms. We estimate that between 2009 and 2022 average wages of pharmacists fell by a third; most of this reduction was due to lower wages for newly entering cohorts. The implied responsiveness of wages to productivity is substantially above most estimates in the rent-sharing literature, arguably reflecting the strong attachment of workers to the sector and the steady inflow of newly graduating pharmacists. Stepping back, we then consider how wages of pharmacists have diverged relative to wages of other health care professionals in Portugal, and the decisions of recent college applicants to enter the profession.