Until recently Portugal was able to retain
its comparative advantage on the basis of low cost and low productivity activities.
However, the increasing competition from developing and/or the newly industrialized
countries, where labour costs are lower and technological innovation is strong, creates
severe difficulties to Portuguese labour intensive industries. Moreover, the on-going
des-industrialization process creates a labour surplus that cannot be integrally absorbed
by other productive activities in the service sector, and is aggravated by the low
level of skills and qualifications of Portuguese workers12.