Portugal's government, representatives of labour unions and employers have reached a deal to raise the country's minimum monthly wage by 4% from next month to €505 after a four-year freeze.
Employment and Social Security Minister Pedro Mota Soares said the deal, sealed late last night, was a good compromise that would help workers.
It would also protect gains in economic competitiveness made during Portugal's three-year international bailout programme that ended in May.
He said the €20 increase had become possible thanks to the return of economic growth and productivity.
Portugal is expected to post its first full year of growth in 2014 after a three-year recession that has been its worst since the 1970s.
"With prudence, it is now possible to share this economic growth," Mota Soares said.
He said the parties had also agreed that all future minimum wage adjustments would be linked to the country's productivity and competitiveness levels. Portugal's minimum wage, which is paid 14 times a year, is one of the lowest in western Europe, well below neighbouring Spain's €645.
The unions have long demanded an increase in the minimum wage but the tough terms of the bailout, which imposed painful austerity measures, prevented the government from accepting it.
The increase will benefit some 375,000 workers in the private sector and 75,000 public sector employees.
Mota Soares said the government would cut social security contributions for companies with workers receiving the minimum wage this year by 0.75 percentage points to 23% to help support employment.
The combination of the measure with the wage increase should have an overall positive effect for state coffers, he said.
Portugal's jobless rate has been falling steadily from a record high of nearly 18% in early 2013 and is now below 14%.