Social Cohesion Bulletin

Transcription

1 Social Cohesion Bulletin Wages and Labour Costs: Recent Developments and Prospects D. Karantinos (1) NATIONAL CENTRE FOR SOCIAL RESEARCH INSTITUTE OF SOCIAL POLICY (INSPO) 9 Kratinou Str. & Athinas Athens , Greece Tel.: (+30) website: inspo@ekke.gr TABLE OF CONTENTS 1. Introduction 2. Wage formation: the basic setting and recent developments 3. General and sectoral wage trends 4. The national public debate 5. Overall assessment Social Cohesion Bulletin ISSN Editorial Board Balourdos, D. (Dep. Director) Bouzas, N. Chrysakis, M. Mouriki, A. Laboratory Coordinator Balourdos, D. 1. Introduction Over the past two years, there has been significant discussion on the extent to which labour market reforms, including as regards wage setting mechanisms, should become the main tool for boosting employment prospects. This debate is motivated by the rising unemployment rates in some countries, particularly in the EU, combined with perceptions that governments are running out of fiscal space to stimulate job creation through aggregate demand stimulus measures. Labour market and wage-setting reforms are advocated in particular in Euro-zone countries which cannot use exchange rate adjustments in order to improve external competitiveness. These reforms are regarded as indispensable for achieving an internal devaluation, the main tool which would be available for promoting an export-led recovery. As the ILO has observed: With the Euro, balanced trade requires that wages in all member states grow in line with national productivity plus targeted inflation rate of the ECB. Otherwise counties with relative higher growth in unit labour costs will systematically lose market share and build up trade deficits. The case for a coordinated wage policy to avoid imbalances, beggar thy neighbor policies and a waste of potential growth is overwhelming: it is alarming that it has been ignored for so long. Those who let unit labour costs rise too fast are equally responsible for the explosion of imbalances after the abolition of the exchange rate mechanism as those who gained market shares through wage restraint (Hoffer and Spiecker 2011). Following the eruption of the global financial and economic crisis in 2008, in an attempt to boost demand, Bulletin Layout Tramountanis, A. (1) Economist, Research Director at the Institute for Social Policy, National Centre for Social Research. dkaradinos@ekke.gr Manuscript submitted on WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 1

2 many countries initially adopted fiscal stimulus packages. This policy however, has eventually shifted towards more restrictive fiscal conditions and to a reconsideration of the role of wages. Lower wages have come to be regarded as a counterpart to fiscal austerity and as a way to enhance profitability and competitiveness, thereby raising labour demand. Wage moderation was fuelled by the expectation that it would boost profits, thus making room for higher productive investment. The recent global crisis, however, proved that wage moderation has not produced the expected effects on investments and growth, and failed to redistribute the gains of productivity on workers. In fact, wage moderation has affected economic growth by reducing consumption demand, through a variety of effects. Hence, there is concern that the negative demand effects of lower wages will prevail (Torres, 2011). The purpose of this paper is to provide background material for a discussion of wage issues in the current Greek context. It is structured in three main sections. Section 2 presents briefly the system of collective bargaining in Greece and reports on recent changes in the labour law. Section 3 discusses a number of statistical indicators related to wage formation and competitiveness. The article concludes with an overall assessment of the role of wage-setting mechanisms and wage developments in Greece. 2. Wage formation: the basic setting and recent developments 2 The object of this section is to describe briefly the Greek system of wage bargaining and wage formation and to identify significant changes in the institutional context since the start of the economic crisis. The system for setting wages in Greece is different for workers in the private sector and for those in the public sector. In the private sector, collective agreements set wages at various levels (national, industrywide, enterprise-level), and where no agreement applies, either of the sides can take the initiative to request an arbitration decision, which has the character of a collective agreement and is binding. The basis for setting wages in the private sector is the National General Collective Labour Agreement (EGSSE), which usually has a term of two years and sets the overall minimum wages for white- and blue-collar workers in the private sector. The amount of minimum pay varies depending on a worker s years of service and family status. At sectoral level, the industrywide collective agreements set minimum levels for the workers that they cover. The enterpriselevel agreements set minimum wages for workers in individual enterprises. Operating on the principle of the applicability of the collective agreement with the most favourable terms, the industry-wide and enterprise-level agreements usually contain more favourable provisions than the EGSSE. Furthermore, if a new EGSSE sets minimum wages for some workers that are higher than those set by another collective agreement or arbitration decision, then these agreements cease to apply and the minimum levels set in the new EGSSE are applicable. In the public sector pay is determined by law, according to the government s annual incomes policy. Law 2738/1999, which recognizes the right to collective bargaining in the public sector, excludes pay issues from such bargaining. The main actors in the private sector are the Greek General Confederation of Labour (GSEE, representing workers, and the Hellenic Federation of Enterprises (SEV, the National Confederation of Greek Traders (ESEE, and the General Confederation of Greek Small Businesses and Trades (GSEVEE, representing employers. Although no agreements address the issue of pay in the public sector, the public servants representative WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 2

3 body, the Confederation of Public Servants (ADEDY, brings pressure to bear on the government to improve both pay and non-pay conditions for civil servants. If bargaining fails, then the two sides apply either unilaterally or jointly to the Mediation and Arbitration Service (OMED, an independent body providing mediation and arbitration services. Arbitration decisions are binding on all members, and are based, on the one hand, on the points of convergence of the parties views, and on the other, on the evidence presented during collective bargaining on their points of disagreement. Union density has been calculated at about 28%, on the basis of member participation in procedures to elect representatives. More specifically, the level of trade union membership is substantially different between the private and public sectors. In the private sector, the density does not appear to be higher than 18% or around 472,304 workers, on the basis of 2007 data. By contrast, the number of union members among public sector employees is calculated at 311,000 persons and represents about 60% of employment in the public sector. The latter number does not include unionized employees of the security forces who are not represented by the public sector trade union, nor does it include non-unionized military personnel. In certain areas of the public sector, union density verges on 90% for example, in banks and enterprises under state control. The reason for the strong difference between the private and public sectors is obvious. The private sector is dominated by small enterprises: 97% have fewer than 20 employees. This has a negative effect on workers joining trade unions, which are favored by bigger concentrations of workers, particularly when there is no possibility of union representation in the small enterprises. Two National General Collective Agreements (EGSSE) that concerned the private sector were signed since 2005 and prior to the crisis. The EGSSE provided for a 2.9% increase in minimum wages. In March 2008 a new EGSSE was signed for , providing for pay increases of 3.45% on , another 3% on and another 5.5% on Following these increases, the general minimum limits of wages were established as follows: Workers (single, no three-year periods, daily): As of 1 January As of 1 September As of 1 May Employees (single, no three-year periods, monthly) As of 1 January As of 1 September As of 1 May In the public sector, following discussions between the Ministry of Economy and Finance and ADEDY, at the beginning of each year an announcement is made on wage policy and a law is passed stipulating the increase rates applicable to the wages and bonuses for individual categories of public servants. The law governing public servants pay for 2007 was Law 3606/07, which increased public servants basic pay by 3.5%. Various levels of minimum wages are set in the public sector, depending on level of education, years of service and hierarchical grade. For 2009, owing to the financial crisis, the Government announced measures including the freezing of civil servants salaries and pensions and the provision of aid in the form of allowances to low-paid persons. Flexibility in the Greek labour market in the pre-crisis period has been somewhat reinforced by several measures, the most important of which were: the adjustment of working time and a reduction in the cost of overtime (Law 3385/2005), the expansion of part-time work in the public sector (Law 3250/2004), changes in employment status in state-run utilities and enterprises (Law 3429/2005), and modifications in social security. WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 3

4 In general, in the years prior to the economic crisis ( ), the increase rates in actual wages were at the same level as those in work productivity, that is, 2.4%. Average monthly wages in 2007 amounted to 1,668 for those working on a full-time basis, compared with an average of 2,366 for the 15 EU Member States before enlargement of the EU in 2004 (EU15). Among the EU15, Greece has maintained the second last position in this regard for a number of years, ranking above Portugal only. Given that the increment in actual wage rates in Greece was fully offset by the increase rates in work productivity, labour costs remained unchanged in relation to productivity, at 2000 levels. More specifically, the rise in average actual wages in the private sector in was slower than the increase in average work productivity. In , average actual wages rose by 27%, whereas work productivity increased by 36.5%, which meant that companies benefited on the labour cost per product unit, in real terms. As a result, the unit labour cost in Greece has been the lowest in the EU15; the gap between the Greek cost and the EU15 average is about 22 percentage points (ΕU15=100, Greece=78). This development is related to the large increase rates in work productivity, which ranged between 1.7% and 2.7% in the four-year period. The unit labour cost in 2007 that is, including average gross wages and employers social security contributions amounted to 2,062, compared with an EU15 average of 2,192. The actual wage increase rates amounted to 2.2% in 2005, 3.13% in 2006, 2.41% in 2007 and was estimated at 1.9% in The effects of the global economic recession on the Greek economy reached a crisis point in early 2010, when the country was found to be on the brink of bankruptcy. Greece was granted financial aid amounting to 110 billion from the European Commission, the European Central Bank and the IMF, in exchange for which Greece agreed to implement a structural reform programme in terms of economic, fiscal, financial and labour market policy. Based on the reforms provided for by the aid agreement, a series of laws were passed in 2010 that make radical changes to employment relationships, aimed mainly at making the labour market more flexible and at minimizing labour costs. The most important of these laws were Laws 3833/2010, 3845/2010, 3863/2010 and Law 3899/2010. As regards industrial relations in the public and wider public sector encompassing public corporations and local authorities the provisions of the Law 3833/2010 specify the following: cutbacks in the earnings of all persons employed in the wider public sector that is, by 12% in entertainment expenses and all allowances and compensation, by 7% in earnings (ordinary earnings, compensation, all types of allowances) and by 30% in Christmas, Easter bonus and leave pay. However, allowances relating to marital status, career advancement, job hazards and the holding of master s degrees are exempt from these cutbacks; a ban on the stipulation of salary increases for employees in the public and wider public sector through collective agreements or individual agreements between the employee and the employer; a 30% reduction in the maximum limit of overtime afternoon hours for employees and salaried persons in the public sector, public entities and local authorities; the suspension of new jobs and appointments in the wider public sector, with the exception of those in education, health and safety; the introduction of a ratio of one hire to five departures for permanent employees WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 4

5 and for those with indefinite-term private law employment contracts although a ratio of one hire to one departure is to be established for the health, safety and education sectors. In addition to the direct charges imposed on public sector employees income, indirect taxes are to be imposed on all of Greece s salaried employees. This is to be realized mainly through increases in the value-added tax (VAT) rate for all three categories of products namely, from 19% to 21%, from 9% to 10%, and from 4% to 5%. Law 3845/2010 introduced measures affecting individual and collective employment relationships, as well as wages and pension cuts. In the field of individual employment relationships, the law introduced the so-called stage agreements for hiring unemployed persons up to 24 years of age, who are registered in the PES (OAED) lists, for a period of up to 12 months. During the term of this agreement, the gross earnings will correspond to 80% of the unskilled worker s minimum wage, as stipulated by the National General Collective Agreement that is in force at the time. The social security contributions shall be paid by OAED. At the same time, the law envisages the possibility to transform with the consensus of the unemployed person the unemployment benefit into a cheque for reintegration into the labour market. The cheque is received as a subsidy by the employer who hires an unemployed person registered in the OAED lists. After the end of the subsidy and if the employment relationship continues, the enterprise is entitled, for a certain period of time, to a subsidization of part of the social security contributions. In addition, the prohibition on placing employees in the public sector through temporary employment agencies is lifted for three years, while provision is made for OAED to subsidize temporary employment agencies in hiring unemployed persons aged years to work in the public sector. The age restriction does not apply for the placement of employees through temporary employment agencies to organizations supervised by the Ministry of Health and Social Solidarity such as welfare institutions, mental health structures and centers for prevention. In the field of wages, the law specifies that the earnings, severance pay, allowances and all kinds of remuneration of public servants and of personnel employed under a private-law employment relationship that is, in the state, in public law corporate bodies and local government organizations, in the armed forces, in the Hellenic police, the fire brigade and the coast guard are to be reduced by 8%. This is in addition to the reduction provided for by Law 3833/2010. The earnings, severance pay, allowances and all kinds of remuneration of personnel employed by private-law corporate bodies that are owned by the state, or which are regularly subsidized by the national budget, or are public enterprises, are to be reduced by 3%. This is in addition to the reduction provided for by Law 3833/2010. In terms of bonuses, the Christmas, Easter and holiday bonuses of all of the above employees which amount to two monthly salaries and are referred to as the 13th and 14th month salary are to be readjusted as follows: the Christmas bonus will now amount to 500; the Easter bonus will total 250; the holiday bonus will be amended to 250. These bonuses are to be paid only as long as the ordinary earnings, allowances and remuneration of any kind do not exceed the monthly amount of 3,000. WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 5

6 The Christmas, Easter and holiday bonuses provided for by any general or special statutory provisions or regulatory acts for pensioners and allowance beneficiaries of the wider public sector are to be paid as long as the beneficiary is older than 60 years of age and the overall pension amount paid each month does not exceed 2,500. The bonuses are to be readjusted as follows: the Christmas bonus will now total 400; the Easter bonus will amount to 200; the holiday bonus will be amended to 200. In addition, the ordinary value added tax (VAT) rate is being increased from 21% to 23% and the reduced rate from 10% to 11%. Moreover, the excise tax charged on cigarettes, spirits and energy products is being increased and a flat-rate tax is being imposed on diesel fuel used for heating oil. Following Law 3845/2010, Law 3863/2010 introduced several fundamental changes in labour relations, including the following: The notice period for terminating whitecollar workers open-ended employment agreements is significantly shortened. This amounts to an indirect reduction of whitecollar workers severance pay by 50%. The thresholds for collective dismissals are lowered considerably. Dismissals are now considered to be collective where more than six employees lose their jobs with companies which have between 20 and 150 employees, compared with the previous threshold of four employees for companies with employees. The threshold is set at 5% of staff or more than 30 employees for companies with more than 150 employees, compared with the previous level of 2% 3% of staff and 30 employees for companies with more than 200 employees. Overtime costs are reduced by between 5% and 10%. The minimum wage for workers under 25 years of age is reduced to 84% of the minimum national wage set by the National General Collective Agreement (EGSSE). The minimum wage for underage workers aged years is set at 70% of the minimum wage set by the EGSSE through the conclusion of apprenticeship agreements. Finally, Law 3899/2010, the last law concerning the labour market passed in December 2010, brought significant changes to the collective labour law that was in force until then. Until law 3899/2010 was passed, the principle of applying a regulation that is more favourable to the employee in case of concurrent collective employment agreements (CEAs) applied absolutely; there was no possibility of departing from it. Law 3899/2010 introduced a new type of company-related CEA, the special company-related CEA, which may provide for remuneration and other working terms that are less favourable than the remuneration and working terms provided for by the respective sectoral CEA. Minimum wages and minimum working conditions at national and sectoral level are still laid down by the EGSSE. Law 3899/2010 subjects the conclusion of the special companyrelated CEA, as well as its extension and renewal, to a preliminary procedure: parties interested in concluding a special companyrelated CEA submit to the Social Inspection Council of the Labour Inspectorate (SKΕΕΕ) a joint explanatory statement setting forth the reasons that justify their intention to enter into a special company-related CEA. SKEEE s opinion is not binding, however. This means that parties may proceed to conclude the special companyrelated otherwise. CEA despite the Council s opinion In addition, Law 3899/2010 introduced important regulations with respect to the institution of arbitration. More specifically, the WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 6

7 new regulations still offer the possibility of being able to refer matters unilaterally to arbitration. This means arbitration is still mandatory, as arbitration proceedings may be initiated freely by only one litigant party, but result in an arbitration award which is binding on both parties. However, Law 3899/2010 provides that, should mediation be unsuccessful, not only the trade unions but also the employer may refer matters unilaterally to arbitration if the other party does not accept the mediator s proposals. In terms of the scope of arbitration proceedings, the new regulations introduce a significant restriction: arbitration awards shall, from now on, determine only minimum monthly and/or daily wages. Other terms of employment, such as benefits, bonuses, working hours, holidays and the regulation of other employment terms (such as structuring and filling job vacancies, recruitment, termination of employment, grounds for termination and termination procedures, severance pay), can no longer be regulated by arbitration awards. Along with labour market reforms, the government has instituted in 2010 severe cuts in pensions and important changes in social security regulations. The main points of the relevant law are as follows: A provision for zero increases in current pensions over the next three years. As of 1 January 2014, any increases in pensions will be in conjunction with increases in gross domestic product (GDP). A basic pension with income criteria for uninsured persons over 65 years of age. The pension amount is fixed at 360 and from 2018 it will be financed by the national budget. Support for pay-related pensions with incentives to increase the minimum term for the payment of social security contributions from 37 to 40 years of work. The requirement of years of work still typically applies without, however, giving the right to a full pension. A charge on pensions higher than 1,400 in favour of the Social Security Funds Solidarity Account (LAFKA) as of 1 August. This measure refers to the main pension and the coefficients are 3% 9%, depending on the amount. The general age limit for retirement at the 65th year of age remains intact. Gradual equalisation, through the increase of the age limits in the private sector, as from 2011, for women insured in the Social Security Fund. As of 2011 and up to 2013, an increase in the age limits for the retirement of women employed as civil servants (equalisation with men). An increase in the penalty for early pensions also as regards successive insurance from 4.5% to 6%. Integration of civil servants to the Social Security Fund (IKA-ΕΤΑΜ), the main fund for private sector employees) as of 1 January As of 1 January 2018, an individual s entire working life will gradually become the basis of calculation, with the year 2013 being considered as the base. Abrogation of voluntary termination of service. Determination of the pension amount based on life expectancy as of During the three years from 2011 to 2013, the social security contributions of employees and employers to the IKA- ETAM will be raised by three percentage points, with an equal reduction of the contributions to the PES (OAED), the Worker s Housing Organisation (OEK) and the Worker s Welfare and Recreation Centre (OEE). The latest National General Collective Agreement (EGSSE), covering the years WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 7

8 , was signed on 15 July 2010 and foresees no pay increases. More concretely, the social partners agreed that the minimum wages will be frozen until the summer of 2011 and that from then on, they will increase in line with expected European inflation (a 1.5% increase was expected in July 2011 and a further 1.7% increase was expected in July 2012). To sum-up, the policy changes imposed as a result of the crisis, radically altered the wage formation system. The wider implications of these changes are taken up below (sections 4 and 5). 3. General and sectoral wage trends The object of this section is to present comments on general and sectoral wage trends as provided in the statistical data gathered by Eurostat. In the tables and figures to follow, the data for Greece are set against the data for the average of the EU or for the Euro area countries (labeled EURO) and for Germany, the latter serving as a model for wage moderation. Tables 1a and 1b (and Figures 1a and 1b) present data on labour productivity defined both as output per person employed and as output per hour worked. Over the period , Greece recorded strong productivity growth, indicating that output increased faster than employment. Over this period, productivity (per person employed) increased by 15.6 % in all, three times more than the average for the Euro area countries and almost three times higher than productivity in Germany. Among the Euro area, only Ireland recorded higher productivity growth rates than Greece over the same period. Productivity gains in relation to the other Euro area countries appear to be less spectacular if the measure of productivity per hour worked is adopted, reflecting the low use of part-time work in Greece. Even in the case of this indicator however, productivity growth in Greece remains impressive. Productivity growth appears to slowdown in 2008 (0.8%), turning to negative territory in 2009 (-1. 3%) and in 2010 (-2.4%). It should be noted that productivity appears to have rebounded in 2010 for Germany and the Euro area, but not for Greece. Also worth mentioning is the fact that negative growth in labour productivity started a year later in Greece, in Over the period , the productivity growth was -2.9% in Greece (against -2.1% in Germany and -0.5% in the Euro area), indicating heavy output loss. During the same period, employment contracted less than the output. This might be due to labour market rigidities, given that Greece has one of the strictest employment protection legislations (EPL) to be found in the OECD area. In terms of output growth, Greece has done rather well in the pre-crisis period, as GDP grew annually by 4 per cent on average. Employment also recorded strong growth rates. In all, the employment rate increased by 4.4 per cent during the whole of the pre-crisis period ( ). On an annual base, the employment rate has grown by almost half a percentage point, on average (0.48 per cent). Economic activity in Greece has been slowing since the beginning of 2008, but the recession had not been felt until For 2009 as a whole, the Greek economy shrank by 2 percent and by another 4.5 per cent in The economy is also forecasted to remain in recession during 2011, with GDP forecasted to drop by as much as 6 per cent. Greece is forecasted to return to positive growth in 2013, but many commentators view this latter forecast with scepticism. According to the latest statistical data, the decline in employment has been smaller so far compared to what would have been expected given the size of the decline in output. In contrast, unemployment has risen sharply, as a result of the recession. WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 8

9 Table 1a: Labour productivity per person employed (Annual % change) EURO 1,5 0,4 0,2 0,4 1,4 0,7 1,4 1,0-0,3-2,3 2,2 5,1 5,6-0,5 DE 1,3 0,8 0,6 0,7 0,8 0,9 2,7 1,0-0,4-4,7 3,1 5,4 7,7-2,1 EL 4,0 4,1 1,2 4,7 1,9 1,5 1,8 2,5 0,8-1,3-2,4 15,6 19,0-2,9 Table 1b: Labour productivity per hour worked EURO 2,6 1,1 1,2 0,7 1,1 1,1 1,7 1,1-0,1-0,9 1,4 8,7 8,3 0,4 DE 2,6 1,8 1,5 1,2 0,6 1,4 3,1 1,0-0,2-2,2 1,0 9,5 11,1-1,4 EL 4,0 1,7 5,0 2,9 1,3-1,1 4,1 0,8 2,6-5,9 16,0 19,2-2,7 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 9

10 Turning to sectoral productivity growth, defined as Gross Value Added (GVA) per person employed (Tables 2.a-2.f), the productivity growth in industry was just 2.2 % in Greece, comparing unfavourably with productivity growth in both Germany (15.2%) and the EU (18.9%). Given that employment in this sector remained roughly constant for most of the decade, low productivity growth signifies low GVA growth. In 2010, against a strong come back in Germany and in the EU, productivity recorded a sharp decline in Greece (-6.1%), reflecting a sharp fall in output. The latter has to be attributed to a sharp decline in domestic demand. Employment in the sector declined modestly. In construction, Greece as well as Germany and the EU countries recorded negative productivity growth rates over the period, indicating that output decreased faster than employment. In Greece the decline in productivity growth was somewhat smaller (-2.1% in relation to -3.6% in Germany and -4.6% in the EU). The strong rise in productivity growth recorded in 2010 (8.3%) was the result of a substantial fall in employment. In distributive trades, hotels and restaurants as well as in transport activities, the data reveal strong productivity growth. The productivity growth in Greece was 43.6% over the period, outstripping by far developments in Germany (12.8%) and in the EU (9.3%). Most of the productivity increase realized however was due to developments at the beginning of the decade (in 2002, productivity went up by 12.5% and in 2003 by 11.1%). Strong productivity growth in those years was probably related to tourist related activities in view of the Athens Olympic Games (2004). In contrast, in both 2009 and 2010 productivity growth was negative (by something less than 8% in all). Productivity returned to positive grounds in 2010 in both Germany and the EU. In business services, the data reveal heavy productivity losses during the period. The productivity growth was % in Greece, against -3% in Germany and no change in the EU. This development indicates that for most of the period under consideration ( ), output increased less than employment. Productivity per person employed returned to weak positive growth during , which probably signifies that job losses were more substantial than the drop in the output. Finally, in public administration, etc, the data show modest productivity loss in Greece (-0.8% over the period) compared to modest productivity gains in Germany (1.1%) and the EU (0.3%). Table 2.a: Gross value added per person employed (Total - all NACE activities) EURO 2,4 1,0 0,9 0,9 2,0 0,9 1,6 1,4-0,3-2,5 2,4 8,6 DE 1,7 1,1 0,9 0,8 1,2 1,1 2,8 1,4-0,3-5,2 3,4 6,9 EL 3,5 1,8 5,2 2,6 1,5 0,6 2,2 1,4-0,7-3,1 15,7 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 10

11 Table 2.b: Gross value added per person employed (Industry except construction) EURO 5,6 1,1 2,1 2,5 4,3 2,4 3,2 2,6-1,6-7,4 9,1 18,9 DE 5,7 1,0 0,8 3,1 6,3 3,1 6,7 2,7-4,8-14,2 12,1 15,2 EL -3,2-0,4 6,1-0,4 10,4-5,9-0,2 0,9 2,1-6,1 2,2 Table 2.c: Gross value added per person employed (Construction) EURO 0,0-0,1 0,7 0,2-0,2-1,4-0,5-2,0-1,0-1,5 1,2-4,6 DE -0,1 0,6 2,7-0,2-0,8-1,5-0,5-1,6-0,3-2,3 0,3-3,6 EL 22,0-24,0 4,9 5,9-8,0 22,9-1,9-12,8-9,2 8,3-2,1 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 11

12 Table 2.d: Gross value added per person employed (Wholesale and retail trade; hotels and restaurants; transport) EURO 2,8 1,5 1,3 1 2,0 1,6 1,5 1,5-0,6-3,3 2,6 9,3 DE 2,1 2,3 0,2 1,0 2,0 1,8 2,8 1,8 3,4-6,2 3,4 12,8 EL 6,3 12,5 11,1 4,9 2,9 2,9 4,9 0,3-3,8-3,9 43,6 Table 2.e: Gross value added per person employed (Financial intermediation; real estate) EURO -0,5 0,3-0,4 1-0,5 0,4 0,6 0,1-0,7-0,7 0,0 0,0 DE -3,0-0,1 0,5-0,8-3,4 0,5 0,3 0,8-0,1-0,4-0,5-3,0 EL -7,4-2,2 0,1-4,3-6,6-7,8-0,6 0,1 1,7 1,0-23,6 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 12

13 Table 2.f: Gross value added per person employed (public administration and community services; activities of households) EURO 0,4 0,7 0,0-0,3 0,0-0,2-0,7 0,8 0,5-0,2-0,2 0,3 DE 0,5-0,5 0,8-0,4-0,6-0,5 0,9 0,1 1,0-0,3 0,6 1,1 EL 0,8-0,6 1,7-6,1 3,3-1,3 1,1 6,0 1,1-6,3-0,8 Nominal labour cost per hour worked (Table 3.a) increased much faster in Greece than in Germany as well as in the Euro area. The growth of nominal labour costs was 38.9%, over the period, comparing unfavourably with developments in Germany (19.4%) and in the Euro area countries (31.8%). Prior to the crisis, nominal costs increased in Greece at a pace double that of Germany (27.1% in relation to 12.6%), while the strong growth rates recorded for the early years of the decade might reflect the introduction of the Euro. In 2002, nominal labour costs went up by 13.2% and in 2003 by another 7.2%. Since the start of the crisis, nominal labour cost continued to increase in Greece (9.3% during ), faster than in Germany (6%) and in the Euro area (8.1%). WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 13

14 Table 3.a: Nominal total labour cost per hour worked (Annual % change) EURO 3,5 3,6 3,3 2,6 2,1 2,4 2,6 3,5 2,9 1,5 31,8 21,9 8,1 DE 3,2 2,6 2,5 2,8 1,2 0,6 1,4 0,9 2,7 2,3 0,9 19,4 12,6 6,0 EL 1,5 13,2 7,2 3,3-5,4 2,2 3,3 2,6 7,6-1,0 38,9 27,1 9,3 Table 3.b: Nominal wages and salaries per hour worked (Annual % change) EURO 3,6 3,3 2,9 2,5 2,4 2,6 3,1 3,7 2,7 1,4 32,0 22,3 8,0 DE 2,6 2,7 2,4 2,5 1,5 1,4 1,8 2,1 3,2 2,0 0,7 22,2 15,3 6,0 EL 1,5 11,7 5,3 5,0-4,4 2,1 3,4 2,6 6,8-0,4 38,1 26,5 9,1 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 14

15 The pattern revealed by the growth in nominal labour cost per hour worked, more or less repeats itself in the growth of nominal wages and salaries per hour worked (Table 3.b). Strong growth in 2001, 2002 and surprisingly in 2009, resulted in Greece exhibiting a growth rate of 38.1% over the period, almost double the growth rate in Germany (22.2%) and considerably higher than the growth in the Euro area (32%). As in the case of nominal total labour cost, nominal wages and salaries increased in the post-crisis period ( ) faster than in Germany and the Euro area (9.1%, compared to respectively 6% and 8%). Table 4.a: Nominal total labour cost at sectoral level Industry (except construction) EURO 3,6 3,3 3,2 2,9 2,0 3,0 2,3 3,6 3,3 1,1 32,2 DE 4,6 3,1 2,1 2,6 1,7 0,5 3,1 0,4 2,9 2,4 0,5 21,0 EL 1,0 17,5 3,6 4,7-9,2 2,9 5,7 2,3 5,6-0,9 36,1 Table 4.b: Nominal total labour cost at sectoral level Construction EURO 3,2 4,2 3,7 2,9 2,0 1,8 3,3 4,8 3,6 1,7 35,9 DE 2,8 2,1 2,5 2,4-0,1 0,9-0,7 1,4 3,7 3,2 0,5 17,0 EL 3,6 22,7 4,2 3,6-14,8 1,1 2,2 4,7 5,0 0,1 32,9 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 15

16 Table 4.c: Nominal total labour cost at sectoral level Wholesale and retail trade, EURO 3,5 3,5 3,4 2,2 2,1 1,8 2,0 3,0 2,8 1,4 28,9 DE 1,5 2,9 3,0 3,2 0,6 0,3 0,1 0,4 1,4 2,2 1,1 16,2 EL -1,0 8,7 9,2 3,0 1,1 1,7 2,0 2,2 10,2-1,8 40,4 Table 4.d: Nominal total labour cost at sectoral level Financial and insurance activities EURO 3,6 4,0 3,3 2,7 2,4 2,5 3,7 3,5 2,0 2,1 34,1 DE 3,3 1,5 2,2 3,0 1,7 1,3 0,9 2,5 3,9 1,9 1,3 22,1 EL 7,4 13,0 9,4 2,1-9,8 3,2 3,9 2,9 4,9 0,4 42,1 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 16

17 Table 4.e: Nominal total labour cost at sectoral level Public administration,.. EURO DE 2,0 1,9 2,1 1,4 0,4-0,9-0,2 0,2 2,2 3,7 0,3 11,6 EL 6,0 13,9 5,4 5,8 5,5-6,9 7,6 10,1-11,7 0,1 38,5 The developments in the nominal total labour cost at the sectoral level (Tables 4.a-4.e), follow the pattern exhibited by the nominal total labour cost and nominal wages and salaries. In all the major sectors, Greece exhibits greater growth rates than the Euro area countries and far greater than in Germany. Nominal total labour cost jumped in 2002, something that has to be connected with the introduction of the Euro. In this year, total labour cost went up by 17.5% in industry, by 22.7% in construction, by 13% in business services and by 13.9% in public administration. The years following 2002, notably 2003 and 2004, also show strong growth implying carry over effects. In 2010, nominal total labour cost fell in industry (-0.9%), as well as in trade (-1.8%) and increased only marginally in construction (0.1%), in business services (0.4%) and in public administration (0.1%, -11.7% in 2009). WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 17

18 With respect to differences in wages between the public and the private sector relatively little is known. A recent publication by the Centre for Planning and Economic Research (KEPE) has attempted to throw some light on the issue (Kanellopoulos and Zervou, 2010). Greece is among the countries with a relatively large public sector. According to information by the Labour Force Survey (LFS), in 2008 the public sector employed 1,022 workers in all (22% of total employment). Thus, the public sector comprised approximately one third of all wage and salary earners in the country. On the basis of information on expenditure on wages and salaries (provided by the National Accounts) and on sectoral employment (again based on the National Accounts concept), the authors of the aforementioned study have attempted to estimate average wages in the public and private sector. According to findings, in 2008 the average wage in the public sector exceeded the average wage in the private sector by 38% (average wages were estimated at in the public sector and at in the private sector). Controlling for differences between the two sectors with respect to labour force composition (education, experience, family status, occupation and sector of economic activity), reduced the parity significantly. Still, even after controlling for these variables, it was found that public employees enjoyed a wage premium in relation to their counterparts in the private sector. On the base of evidence provided by the Household Budget Survey (HBS), this premium amounted to 9.9% for male employees and to 23% for female employees (2008). The government has set the objective to gradually equalize working conditions between the two sectors, including remuneration and pensions (see information on the new mediumterm fiscal strategy (MTFS) in the next section). Furthermore, some of the measures taken in 2010 are certain to have contributed to the narrowing of the gap in wages between the public and the private sector. The so-called 13th and 14th wages, providing Christmas, Easter and holiday bonuses, for example, were abolished or severely curtailed for public employees but not for the employees of the private sector. The latter were allowed to retain these bonuses in exchange for agreeing to freeze minimum wages (see information on the latest general national collective agreement in section 2). Nominal wages and labour cost are difficult to interpret without resorting to some other variable (e.g., productivity or inflation). The examination of the developments in real, rather than nominal, total labour cost and wages and salaries, i.e. nominal wages deflated by the HCPI (Tables 5.a and 5.b), reveals a somewhat different picture. Real total labour costs appear to have grown much less in Greece than in Germany or in the Euro area countries, throughout the period under examination. More concretely, real costs went up by 2.1% in the period (as against 4.4% in Germany and 4.8% in the Euro area) and by 1.9% in the period (compared to 2.9% in Germany and 4% in the Euro area. Throughout the decade, real total labour cost went up by 4%, less than in Germany (7.4%) and in the Euro area (9%). Again, 2002 stands out as the year with the highest growth rate of real total labour cost (9.8%), followed by 2009 (6.3%). Real total labour cost went down in 2010 (by 3.5%), against a modest increase in Germany and in the Euro area. WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 18

19 Table 5.a: Real total labour costs (Annual % change) EURO 1,1 1,0 1,1 0,7 0,1 0,5 0,2 1,4 1,9 0,7 9,0 4,8 4,0 DE 3,9 1,4 1,1 1,6 0,2-0,1 1,0-0,9 1,7 0,9 0,3 7,4 4,4 2,9 EL -1,6 9,8 3,3 0,4-8,2-0,9 0,2-0,7 6,3-3,5 4,0 2,1 1,9 Table 5.b: Real wages and salaries (Annual % change) EURO 1,2 1,0 0,8 0,3 0,2 0,4 1,0 0,4 2,4-0,1 7,7 4,9 2,7 DE 1,2 0,8 1,0 1,5-0,3-0,5 0,0-0,2 0,4 1,8-0,4 4,2 2,3 1,9 EL -2,2 7,8 1,9 2,0-7,9-1,2 0,4-1,6 5,5-5,0-1,4 0,1-1,5 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 19

20 Real wages and salaries on the other hand (Table 5.b) remained roughly constant throughout the pre-crisis period ( ) and actually declined in 2010 (by -5%). These trends are in clear contrast with developments in Germany and in the Euro area, where positive growth rates have been recorded. The growth of real wages and salaries for the whole period was negative in Greece (-1.4%) and positive in Germany (4.2%) as well as in the Euro area (7.7%). It should be noted that Greece was the only country in the EU that recorded a negative growth of real wages over the period, indicating that Greece was the only EU Member State experiencing a drop in the purchasing power of its households. Turning to nominal unit labour cost, i.e. nominal labour cost corrected for productivity, Table 6 shows the developments over the period. Unit labour costs, expressed in nominal terms appear to have grown much faster in Greece relative to Germany and the Euro area. The growth rate for the whole period under consideration was 37.5% in Greece, much higher than in the Euro area (20%) and several times higher than in Germany (6%). Nominal unit labour cost has declined in 2010 (for the first time since 2001), indicating adjustment after a period of significant growth. Still, in the years following the crisis ( ), unit labour cost has grown faster in Greece than in Germany and in the remaining Euro area countries. The data of Table 6 are relatively easy to interpret. Of all the Euro area countries, Greece exhibits the highest growth in nominal unit labour cost, indicating that compensation growth far exceeded productivity growth. It is also worth noting that even after the crisis ( ), nominal unit labour cost has continued to rise strongly. Lastly, the data give an indication of the wage cost-push inflation likely to have affected Greece over the last decade. Table 6: Nominal unit labour cost (% change on previous year) EURO 1,1 2,2 2,4 2,0 0,8 1,2 1,0 1,5 3,6 3,9-0,5 19,6 11,6 7,1 DE 0,6 0,8 0,8 0,8-0,4-1,0-1,6-0,1 2,4 5,2-0,9 6,0-0,7 6,8 EL -0,3 10,2 1,5 2,2 3,7 1,8 3,6 6,2 5,0-1,1 37,5 24,6 10,3 WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 20

21 Table 7: Real effective exchange rate (% change on previous year) EURO -10,6 2,5 6,4 12,2 5,8-1,4 0,8 5,9 1,6-2,4 35,0 DE -6,3-1,5 0,5 4,6 0,5-3,2-2,8-0,6 0,3 3,3 0,8 EL -6,7-3,1 10,0 3,1 1,6 0,2-0,6 1,3 1,4 3,9 18,7 Table 7 shows the development of the real effective exchange rate (REER), i.e. the nominal unit labour cost relative to competitors in international markets, for the period up to In all, the REER increased by 18.7% in Greece, less than in the EU (35%), but much more than in relation to Germany (0.8%). Thus, at least in relation to Germany, Greece has suffered a severe deterioration of its international cost competitiveness. Note that 2002 (the year of joining the Euro) stands out as the year with the highest REER growth (10%). In relation to 2002, REER growth in the following years has been modest, whereas in the preceding year (2000 and 2001), REER growth was negative and much in line with developments in Germany. Table 8 presents data on the real unit labour cost, i.e. the labour income share, or the relation between real wages and productivity. Along with nominal unit labour cost, real unit labour cost (Table 8) has grown faster in Greece in relation to Germany and the Euro area. In fact, real unit labour cost increased in Greece during the period (2.8%, ), when during the same time period real unit labour cost fell in the Euro area countries (-1.3%) but also in Germany (-4.7%). This is an indication that the labour income share grew in Greece in contrast with Germany and the Euro area, where it fell. Again, 2002 was the year recording the highest rise in real unit labour cost (6.5%). In 2009, the growth rate in real unit labour cost was positive and the same in Greece and in Germany (3.7%), and somewhat higher in the Euro area countries (2.8%). In contrast, real unit labour cost fell in 2010, more in Greece (-3.5%) than in Germany (-1.5%) and in the Euro area (-1.3%). WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 21

22 Table 8: Real unit labour cost (% change on previous year) EURO 0,3-0,2-0,2-0,2-1,0-0,7-1,0-0,9 1,5 2,8-1,3-1,3 DE 1,3-0,4-0,6-0,3-1,4-1,6-2,0-1,9 1,3 3,7-1,5-4,7 EL -3,4 6,5-2,3-0,7 0,9-1,3 0,5 2,8 3,7-3,5 2,8 In terms of inequality in the distribution of income, Greece is among the countries with a higher degree of inequality in relation to the EU average. In 2009, the ratio of total income received by the 20% of the population with the highest income (top quintile) to that received by the 20% of the population with the lowest income (lowest quintile), was 5.5%, comparing unfavourably with the average for EU-27 (4.9%). Inequality has generally remained stable during the last decade, showing some signs of retreat during the last three years ( ). During these four years the relevant indicator decreased monotonically from 6.1% to 5.8%. During the same time period however, the dispersion of incomes, represented by the dispersion between the median and the 10% highest earners, dropped from 101.9% in 2006 to 94% in The share of temporary workers in Greece is close to the average for the EU (12.4% compared to 14% in 2010). According to evidence provided by the Structure of Earnings Survey of 2006, the wage penalty for temporary workers in Greece, i.e. the difference between average gross hourly earnings of permanent paid employees and of temporary paid employees as a percentage of average gross hourly earnings of permanent paid employees, was negative (-9.7% in relation to 14.3% in the EU). Thus it would appear that temporary workers earn on average 19% more than their permanent counterparts. This finding however must be interpreted with caution, as it is not adjusted for age, gender, education level or other possible confounding factors. Greece exhibits the highest incidence of working poor in the EU, with the exception of Romania. In 2009, the in work at-risk-ofpoverty rate was 13.8 per cent (16.1 for males and 10.1 for females) much higher than the Euro area average of 8.1 per cent (8.7 for males and 7.4 for females). Finally, the issue of gender pay gap has attracted a lot of interest in Greece during recent years and various studies have attempted WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 22

23 to analyze the impact of variables such as education, occupation and type of activity in shaping male-female wage differentials. As expected, different studies have adopted different concepts, data and methods of analysis, thus making the comparison of the findings particularly difficult. One typical study however (Papapetrou, 2007), based on information from the EU-SILC Survey of 2004 has concluded that women with a high level of education receive on average 83% of the pay of male workers while the respective percentage for women with a low level of education stands at 79%. Furthermore, as regards workers with a low level of education, the unaccounted-for portion of pay gap for the entire sample stands at 77.4%. In low income, the gap is due to unaccounted-for factors while in high income it is due to the employee production-related differences. On the contrary, as regards employees with a high level of education, the greatest portion of pay gap (58.3%) is explained by the production-related differences and a smaller portion is not accounted for (factor of discrimination). In low income, the difference is explained by the production-related differences while in high pay it is, to a large extent, not accounted for. To sum-up, over the period , Greece recorded strong productivity growth, indicating that output increased faster than employment. Over this period, productivity (per person employed) increased by 15.6 % in all, three times more than the average for the Euro area countries and almost three times higher than productivity in Germany. Productivity growth appears to slowdown in 2008 (0.8%), turning to negative territory in 2009 (-1. 3%) and in 2010 (-2.4%). Real wages and salaries on the other hand remained roughly constant throughout the pre-crisis period ( ) and actually declined in 2010 (by -5%). Greece was the only country in the EU that recorded a negative growth of real wages over the period, indicating that Greece was the only member state experiencing a drop in the purchasing power of its households. Unit labour costs, expressed in nominal terms have grown much faster in Greece relative to Germany and the Euro area. The growth rate for the whole period under consideration was 37.5% in Greece, much higher than in the Euro area (20%) and several times higher than in Germany (6%). Nominal unit labour cost has declined in 2010 (for the first time since 2001), indicating adjustment after a period of significant growth. Still, in the years following the crisis ( ), unit labour cost has grown faster in Greece than in Germany and in the remaining Euro area countries. Of all the Euro area countries, Greece exhibits the highest growth in nominal unit labour cost, indicating that compensation growth far exceeded productivity growth. The developments in the REER indicate that at least in relation to Germany, Greece has suffered a severe deterioration of its international cost competitiveness. Finally, the labour income share grew in Greece in contrast with Germany and the Euro area, where it fell. 4. The national public debate It would be hard to maintain that a national debate on wages is currently taking place in Greece. In contrast, there is a lively and sometimes, heated debate on the cumulative impact of the austerity measures (described under Section 2) on poverty and social cohesion. This debate is currently being fuelled by the continuing deterioration of the conditions in the labour market and by the adoption of new austerity measures by the government. According to the Hellenic Statistical Authority (ELSTAT), a total of 4.2 million people were employed in March 2011 (- 5.4 % on the year), while the number of unemployed amounted to roughly ( % in the same period). In the first quarter of 2011 the WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 23

24 number of employed people reported by ELSTAT fell by 2.4 % compared with the previous quarter, and by 5.2 % compared with the first quarter of 2010, to reach 4.2 million people. In the same period, the unemployment rate was 15.9 % (i.e people), compared with 14.2 % in the previous quarter and 11.7 % in the corresponding quarter of The unemployment rate for females (19.5 %) is considerably higher than for males (13.3 %). Looking at the unemployment rate for different age groups, according to Eurostat's LFS data, the youth unemployment rate broke a new record in the fourth quarter of 2010, at 36.1 % in seasonally-adjusted terms, up 2.6 pps on the previous quarter and up 8.2 pps on the fourth quarter of For young females, the unemployment rate is even higher, at 42.8 %. Long-term unemployment reached 46.6 %. The short-term prospects of the Greek labour market are rather grim. Employment is forecasted to fall further and unemployment to rise. Reduced employment opportunities in the private sector, along with the recruitment freeze and cuts in short-term contracts in the public sector, are expected to push the unemployment rate up well above its current level in Weakening labour demand, combined with declining wages, translates into a drop of disposable incomes, which in turn reduces real demand. At the time this report was being drafted (July 2011), the government had just adopted a new medium-term fiscal strategy (MTFS), with the aim to ensure the durability of fiscal consolidation between 2011 and The MTFS particularly aims to reduce overstaffing of the public sector, improve financial performance of state-owned enterprises and streamline social transfers. Expenditure measures include cuts in the public sector wage bill, operational expenditure, defense expenditure and investment; savings in state-owned enterprises; cost-cutting initiatives in healthcare expenditure, pensions and other social benefits while protecting the most vulnerable. The cuts in the public sector wage bill will be achieved by eliminating most allowances in the context of a comprehensive wage grid reform and an increase in working hours. The attrition rule of 1 recruitment for 5 exits is now made stricter for 2011 and extended into The attrition rule, a reduction in temporary contracts, and the abolition in elected positions following the recently implemented local government reform are expected to reduce the number of government staff by 20 percent from 2010 to Moreover, excess staff is expected to be moved to a labour reserve at reduced wages. Revenue measures entail increases in a number of tax rates, some new taxes, abolition of several exemptions and measures to improve tax compliance. Against this background, the austerity measures have met the fierce resistance of the trade unions, for bringing about a dramatic reduction in the level of workers protection and depriving them of their employment rights. The trade unions have repeatedly organized protests and strikes that sometimes ended in clashes with the police. On the issue of minimum wages, the workers side (notably GSEE) insists on its longheld view that that the minimum wage, which is earned by a large proportion of workers, must be increased to converge with the mean wage. Thus the percentage of poor workers will be reduced, whereas in terms of social cohesion, increasing minimum wages is a much more important policy than granting any other benefits. Although the employers side has recognized the severity of the problem of poverty, employers believe it is more important to increase employment and boost competitiveness. Thus, in the past, the employers have proposed that the minimum levels of pay should not be applicable in areas with high unemployment, so that they can hire workers in such areas without running the risk WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 24

25 of relocation. This proposal has not yet been acceptable to the workers, who insist on the need for a system for determining minimum levels of pay. As a response to the crisis, GSEE has recommended measures to aid employment, prohibit enterprises dismissing employees from receiving state aid, raise the period during which the unemployment benefit is paid from one to two years, and provide low-income households with aid. The unions have also proposed an increase of public investments as a means to inhibit the development difficulties of the Greek economy. On the opposite side, the largest employer organization, the Hellenic Federation of Enterprises (SEV), recommended privatizations and opening the market (mainly of the energy market) to international competition, tax exemptions for enterprises retraining dismissed persons and direct or indirect financial aid for enterprises hiring young unemployed persons in order to help them gain work experience. As regards the wider public, a number of surveys on views regarding the new measures have been presented in the media during the last twelve months. The surveys show that the vast majority of the respondents dismiss the austerity measures as socially unjust, while a sizeable segment of the respondents go as far as to challenge the reliability of the entire political system. Most of the respondents agree that there must be an effective safety net for the unemployed, for youth who are struggling to find jobs and for people over 55 years of age who are at risk of losing their jobs and their pension rights. Furthermore, of the various measures suggested as the most appropriate way to address the crisis, the most popular were: criminalization of major tax evasion, criminalization of corruption in the public sector, taxation of the church, a bipartite agreement with Turkey on joint military spending cuts and a drastic reduction in armaments programmes. The need to protect the unemployed and, more generally, vulnerable groups appears to be an urgent need given that the Greek system of benefits appears to be one of the least generous and inequitable systems in the OECD area. As noted in the previous section, Greece exhibits the highest incidence of working poor in the EU, with the exception of Romania. In 2009, the in work at-risk-of-poverty rate was 13.8 % (16.1 for males and 10.1 for females) much higher than the Euro area average of 8.1 % (8.7 for males and 7.4 for females). It should be noted that Greece does not have a well-developed benefit system and hence the only instrument currently available to tackle in-work poverty is the setting of an adequate minimum wage. Furthermore, since the start of the crisis, the number of unemployed has practically doubled, with the number of long-term unemployed experiencing an increase in excess of 60 per cent. In spite of this development, the number of unemployment benefits recipients increased only marginally (by 1-2 per cent). This paradox is explained by the fact that eligibility for benefits expires after twelve months in Greece, and most of the unemployed by drifting into long-term unemployment became ineligible for benefits. In short, the existing benefit system has failed to match the pace of growth of unemployment. Admittedly, the overall protection of the unemployed depends on a number of other policies, apart from the unemployment compensation system. Measures adopted (or not adopted) on severance pay, extraordinary cash benefits and more importantly, measures strengthening the ALMPs provide a similar insurance to involuntary job losers as unemployment benefits. Following reform in 2010, severance payments have been practically cut in half. Prior to the reform, the severance pay system was relatively generous, judging by European standards. One of the reasons responsible for having set severance payments at a high level WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 25

26 were inadequacies in unemployment benefit provision. Lowering severance costs therefore should in principle take into account the necessity to improve the coverage, level and duration of unemployment benefits. In the area of ALMPs, the government has stepped up expenditure in 2010, announcing a jobs package of almost 2.6 billion to combat rising unemployment, aiming to help create or retain jobs. It should be noted however that participation in active labour market programmes is neither obligatory nor guaranteed for all. In addition, none of the activation programmes available in Greece has been the object of a thorough evaluation so far and even data on participants outcomes upon programme completion are rarely available. In general, there is currently a lack of a safety net for the vast majority of the long-term unemployed, as well as for those who do not qualify for unemployment insurance. 5. Overall assessment The nature of the Greek economy largely influences and shapes the industrial relations system. There is a relatively low proportion of salaried work, and conversely a high proportion of self-employed workers (employers and own account workers). Furthermore, the labour market is dominated by the existence of hundreds of thousands of micro enterprises, which are often run by members of the same family. On top of these features, there is widespread undeclared work and large segments of the GDP go undetected. Under these circumstances, the regulation and implementation of the provisions concerning industrial relations, presents those involved with a difficult task. Up until the start of the crisis, Greece was confronted with a rather rigid wage formation system, which has contributed to unfavorable matching of wage growth with productivity growth and to loss of competitiveness, in particular relative to the remaining countries of the Euro area. Although there are no studies to substantiate it, it is also possible that this wage setting and bargaining system has contributed to high unemployment rates among the socalled outsiders (women and young people) as well as to high long-term unemployment rates. Greece belongs to the group of Mediterranean countries with relatively low security/income protection. Greece does not provide any financial support to the unemployed who exhaust their unemployment benefits after twelve months and their net replacement rates drop to zero. Due to the absence of social assistance, long-term unemployed persons remain practically without any income and have to rely on family support. As the long-term unemployment rate is very high, the absence of a social safety net implies high at-poverty-risk rates. In addition, the strong output gains realized over the period, were unevenly distributed and did not contribute to the eradication of poverty. Faced with an unprecedented financial crisis and on the verge of default, the Greek government took severe austerity measures in May 2010, to slash the public deficit from 15 % of GDP in 2009 to under 3 % by 2014, in exchange for a three-year 110 billion package of emergency loans from the EU and the IMF. The austerity measures included cutting the pay of more than civil servants, freezing pensions, raising State revenue by increasing taxes, including VAT, and overhauling pension and employment rules. In private sector labour relations, the austerity measures envisaged various policy reforms including a drastic revision, impacting on minimum salaries, mass layoff limits, collective bargaining arbitration and severance pay cuts. In this frame, the government has been committed to make private sector wages become more flexible to allow cost moderation for an extended period of WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 26

27 time. New legislation provides for a reduction in pay rates for overtime work and enhanced flexibility in the management of working time. Changes now allow for the formation of local territorial pacts setting wage growth below sectoral agreements and introduce variable pay to link wages to productivity performance at the firm level. The arbitration system has also changed, so that both parties can now resort to arbitration if they disagree with the proposal of the mediator. The government has also adopted legislation on minimum wages introducing subminima for groups at risk such as the young and long-term unemployed, and has put measures in place to guarantee that current minimum wages remain fixed in nominal terms for three years. New rules have extended the probationary period for new jobs to one year, reduced the overall level of severance payments and ensured that the same severance payment conditions apply to blue- and white-collar workers. These reforms are expected to exert a positive influence on the labour market. First, the reform of the legal framework for wage bargaining and arbitration in the private sector will prevent situations in which an arbitration body chosen only by the trade unions could decide for wage increases that businesses can not afford. Second, the introduction of entrylevel wages for the young long-term unemployed workers below the current statutory minimum wage and the agreement in 2010 that the minimum wage will be frozen until summer 2012, will assist young workers to enter the labour market and improve their employment prospects thereafter. Third, employment protection legislation has been substantially rationalized, with a drastic reduction of severance pay, so as to facilitate entry and exit in the labour market. Fourth, overtime pay rates were substantially reduced, thus providing businesses with a better opportunity to effectively manage their labour force, improve employment, labour productivity and, in coordination with the already applied restrictive wage policy, international competitiveness. Fifth, the special firm-level collective agreements (SFLCAs) were instituted, which are considered as an important step towards making the wage setting system in the country more compatible with each firm s economic conditions. This system is expected to contribute to a substantial improvement of the wage setting process for relatively big firms with firm-level labour unions. Finally, the placing of the public and private sectors of the economy on a more equal footing, by introducing wage cuts and hiring restrictions in the public sector can also help restore a more healthy balance between the sectors, thus promoting competitiveness. Against this background, Greece s GDP has not recovered yet. On the contrary the Greek economy is forecasted to remain in recession for at least 2012, and international institutes such as the European Commission and the Organization for Economic Co-operation and Development (OECD) expect that the Greek economy will recover slower than many other European economies. By now, most social commentators agree that the economic difficulties Greece faces go deeper than the direct effects of the recent crisis and that addressing these difficulties requires policy action on a broad front. Greece has, over the past several years, gradually but persistently lost international cost competitiveness, resulting in widening current account deficits, a deteriorating international investment position, and a poor record of inward foreign direct investment (OECD, 2010). Returning to economic growth, increased job growth and rising living standards requires immediate and longer-terms actions. The immediate action that is needed is fiscal consolidation, which will stabilize public finances and restore credibility in international markets. The longer term actions needed involve structural reforms to WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 27

28 raise productivity and restore competitiveness. These reforms should encompass most policy areas, from the tax system to the way in which the budget is prepared and from competition policy to modernizing the public sector. Indispensable elements of these structural reforms are strategies to raise labour market flexibility, to tackle poverty and to raise the efficiency and effectiveness of the education system. It can be safely expected that the labour market reforms instituted by the government will lead to more efficient functioning of the labour market in the medium term. In particular, wage settlements and unit labour costs are currently moderating thanks to these reforms, leading to improved competitiveness. The system is already moving towards correcting imbalances, thus reducing the need for further policy interventions. In the short-run however, it is unlikely that the new measures will suffice in preventing unemployment from escalating further, and in restoring employment. Declining wages lead to (disposable) income losses, pressing private consumption to contract, and this can be expected to lead to a further weakening of the labour demand. The recruitment freeze and cuts in short-term contracts in the public sector, are also currently contributing towards the same direction. The social cost of the reform measures cannot be ignored. As noted earlier, Greece exhibits the highest incidence of working poor in the EU and there is concrete evidence that the social situation is markedly deteriorating. In effect, with the labour market conditions expected to deteriorate further in the foreseeable future, the need to protect the unemployed and the more vulnerable becomes apparent and a pressing priority. Notes 1. This article is based on input provided for a European conference on wages. The conference was held in Brussels in September The presentations made at the conference are available at: 2. This section draws heavily on several articles provided by the European Industrial Relations Observatory (EIRO). These articles are available at: country/greece.htm. References Hoffer F., Spiecker F., 2011, Change or Lose Europe: ILO Global Job Crisis Observatory, Geneva: International Labour Office. Kanellopoulos K., Zervou F., 2010, Wages, pensions and working conditions in the public and the private sector, Report No.64, KEPE, Athens. OECD, 2010, Greece at a Glance, Policies for a Sustainable Recovery, Paris. Papapetrou Ev., 2007, Education, labour market and pay gap in Greece, Financial Bulletin of the Bank of Greece No 28, February Torres R., Tobin S., Escudero V., Lopez E., Macculi I., 2011, Wages and the Global Crisis: Evidence and Policy Issues, International Institute for Labour Studies. Geneva: International Labour Office. WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 28

29 Institute of Social Policy Laboratory for Monitoring Social Cohesion Policies Laboratory Management: Balourdos, D., INSPO Dep. Director The Laboratory for Monitoring Social Cohesion Policies was established in May 2004 and was further developed within the framework of the research project Developing infrastructures for the Establishment of a Social Data Pole in the Areas of Social Inequality and Social Exclusion ( ), funded by the O.P. Competitiveness. The project s aim was to set up the infrastructure for the support and enrichment of the knowledge base in specific subject areas, in view of becoming a reference point for the evolvement of research focused on social integration and social cohesion in Greece and Europe. For this purpose a number of databases were designed in the following fields: Labour Market; Social and Economic Inequalities; Modernisation of Mental Health & De-institutionalisation; Individuals with Disabilities; Demographic Developments; Immigration; Social Economy. Currently, the Laboratory forms a consolidated INSPO project and functions as its Institutional Digital Repository; all Institute research staff are members of the Laboratory and contribute to its content. Thus, it is the collection point of the institute s research production, consisting of microdata, metadata, macrodata, publications by INSPO researchers and reference material. In particular, the databases are enriched with statistics, variable definitions, indicators, commented bibliography, web links, research results, questionnaires, working papers, reports, conference proceedings, etc. The Laboratory s technical infrastructure is located at INSPO where a physical working environment is offered to EKKE and visitor researchers for the analysis of microdata and the use of research produced at INSPO, while cooperative projects with University Departments are initiated and promoted for training and further research by young researchers. The Laboratory s databases can be accessed through the EKKE intranet; laboratory material is also publicised to the research community through a series of activities as, workgroups, themefocused seminars, working papers, policy application reports, etc. In addition, a series of datasets are disseminated to EKKE researchers through the EKKE intranet facilities; these datasets currently refer to: the labour market, demographic trends and income distribution, whilst new ones are under way, on the socio-professional reintegration of disabled people, the social economy, and particular aspects of the welfare state in Greece. At a later stage there is provision for dissemination of datasets to the wide research community through the EKKE Social Data Bank Infrastructure. Social Cohesion Bulletin Back Issues Volume 2/2011 Wages and Labour Costs: Recent Developments and Prospects, Dimitris Karantinos Volume 1/2011 Outsourcing Employment Services: Lessons from OECD countries, Dimitris Karantinos Volume 2/2009 Inequalities in Access to Tertiary Education in Greece: An Approach Based on the Official Statistics ( ), Manolis Chrysakis, Dionisis Balourdos, Antoinetta Capella Volume 1/2009 An Inquiry into the Correlates of Informal Economy and Undeclared Work, Elias Kikilias Volume 2/2007 The Case for Flexicurity and Greek Labour Market Policy, Dimitris Karantinos Volume 1/2007 The Demographic Situation in Greece, Dionisis Balourdos Volume 1/2005 Regional Aspects of Poverty in Greece Elias Kikilias, Eric Gazon The Laboratory produces 2 electronic publications: a) Contemporary Issues (in Greek); b) Social Cohesion Bulletin (in English) WAGES AND LABOUR COSTS: RECENT DEVELOPMENTS AND PROSPECTS PAGE 29