There is a growing international concern about a slowdown in productivity growth. However, labour productivity enhancements are important if they translate into higher generalized living standards. Using administrative data of firms in Portugal, between 2010 and 2016, we analyse the relationships between productivity and wages. At odds with neoclassical theory of marginal product of labour, we find that two thirds of firms insufficiently raised wages given the growths in productivity. Employing unconditional quantile regressions, we investigate some quantifiable determinants of the productivity-wage gap, at different parts of the distributions. Most of the documented dynamics contributed not only to the divergence of productivity and wages but also to the decoupling between the two. We argue that labour market flexibilization intensified segmentation, providing incentives for non-standard contracts. Both dimensions, as well as higher board compensations, trade and training weakened the link. between productivity and wages.

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