Youth unemployment in times of severe economic crisis: The Greek case

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2 Panos Tsakloglou Athens University of Economics and Business, Hellenic Observatory (LSE) and IZA (Bonn) Youth unemployment in times of severe economic crisis: The Greek case International Social Cohesion Days Reggio Emilia, 4-6 June 2015

3 Outline The Greek economy in the years before the crisis Labour market and social protection before the crisis Fiscal consolidation and social consequences Unemployment developments Youth unemployment Labour market reforms since the crisis The road ahead?

4 The Greek economy in the years before the crisis * From the mid-1990 s to the late 2000 s, the Greek economy was growing at a faster rate than the EU average (3.9% vs 2.4%) Growth model based on consumption and borrowing 7% GDP growth rate 6% 5,9% 5,5% 5% 4,5% 4,2% 4,4% 4% 3,6% 3,4% 3,4% 3,9% 3,4% 3,5% 3% 2% 1% 2,1% 2,5% 2,4% 1,7% 2,7% 2,9% 3,0% 2,1% 1,2% 1,3% 2,4% 2,3% 1,9% 3,1% 3,0% 0% EU15 Greece Source: Eurostat

5 The Greek economy in the years before the crisis * Typical case of twin deficits External deficit trended upwards in the period General Government Deficit, although contained before Euro accession, increased afterwards Current Accout (% GDP) General Government Balance (% GDP) ,2-2,7-3,3-3,5-3,6-5,8-6,5-6,5-7,2-7,7-7,6-11,4-11,2 2,2-9,1 3,9 3,4-6,7-5,9 4,4 4,3-3,9-3,1 3,7-3,7 2,0 0,7-4,5-4,8-0,7-5,7-2,6-7,6-1,0-5,5-5,7-1,6-2,0-6,5-4,8-9,8-10, ,6-14,9 GG balance GG primary balance -15,6-18 Source: Eurostat, Ameco

6 The Greek economy in the years before the crisis * In , public debt rose by 60 p.p. of GDP 140,0 Public Debt (% GDP) 129,7 120,0 100,0 99,2 97,2 97,0 99,4 96,6 94,5 94,0 112,9 107,5 107,2 103,4 103,7 101,7 97,4 98,9 101,2 80,0 71,7 74,0 79,1 60,0 40,0 20,0 0,0 Source: Eurostat, Ameco

7 Labour market and social protection before the crisis Greek welfare state typically Mediterranean male breadwinner model Role of pressure groups and need assessment Important role of the family Many costs of welfare shifted to firms In comparison to other EU countries, the welfare state plays a relatively limited role In the twenty years before the crisis, almost continuous increase in the share of welfare spending in GDP

8 Social expenditure in GDP (%) Labour market and social protection before the crisis EU15 Greece

9 Labour market and social protection before the crisis Increased spending mainly for pensions esp. minimum pensions, solidarity pensions and early retirement schemes + increase in public health care spending esp. pharmaceuticals No Minimum Income Guarantee Very limited targeting /means testing Very limited unemployment protection no protection for long-term unemployed Very limited spending on Active Labour Market Policies Very limited spending on Family Policies Pensions far more important in the Greek welfare state than in other EU countries Non-pension spending limited and rather ineffective in reducing poverty

10 Labour market and social protection before the crisis 40,0 Poverty and effectiveness of social policies (2007) 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Poverty rate Decline due to pensions Decline due to non-pension social transfers

11 Labour market and social protection before the crisis Product market: dominant role of SMEs Tax evasion & lax labour standards Labour market: very high share of self-employed & segmented market for employees Employment protection among the highest in the OECD Minimum to average wage among the highest in the EU Typical case of insider-outsider labour market Even in high growth years, youth unemployment rate the highest in the EU But family acted as shock absorber

12 Labour market and social protection before the crisis 25,0 Unemployment rates (2007) 20,0 15,0 10,0 5,0 0,0 Total Female Under 25

13 Fiscal consolidation and social consequences * In 2010 Greece could not tap the international markets anymore Forced to seek borrowing from Euro area countries and the IMF 245 bn Euro (largest bail-out in history) Two Programs: 2010 & largest haircut in history Massive fiscal consolidation measures amounting to 30% of GDP Since then, a spectacular turnaround in fiscal and external balances (and structural reforms) From 10.6% primary fiscal deficit to 0.8% primary surplus ( ) From 14.9% current account deficit to 0.7% surplus ( ) Leader by far in structural reforms in OECD s Going for Growth

14 Fiscal consolidation and social consequences * GDP shrank by almost 25% Unemployment rose to 27% esp. youth (around 60%) and long-term (two thirds of unemployed) Disposable income decreased by over a third Gini index of inequality hardly moved 2007: : Relative poverty rate rose substantially 2007: 20.3% 2013: 23.1% Anchored poverty rate skyrocketed rose 2007: 19.6%; 2013: 40.0 (1995 poverty line) Very significant change in the composition of the poor Elderly + farmers vs unemployed Worsening of various other socioeconomic indicators

15 Unemployment rate ; Total and long term; Quarterly data, seasonally adjusted 30,0 25,0 20,0 15,0 EU-25 Total Greece Total EU-25 Long-term Greece Long term 10,0 5,0 0,0 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

16 Unemployment rate ; By sex; Quarterly data, seasonally adjusted 35,0 30,0 25,0 20,0 15,0 EU27-Males Greece-Males EU27-Females Greece-Females 10,0 5,0 0,0 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

17 Unemployment rate ; By nationality; Quarterly data, seasonally adjusted 45,0 40,0 35,0 30,0 25,0 20,0 EU27 Nationals Greece Nationals EU27 Foreigners Greece Foreigners 15,0 10,0 5,0 0,0 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

18 Unemployment rate ; By education level; Quarterly data, seasonally adjusted 35,0 30,0 25,0 20,0 15,0 10,0 EU27 Up to Lsec Greece Up to Lsec EU27 Upsec Greece Upsec EU27 Tert Greece Tert 5,0 0,0 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

19 Unemployment rate ; By age group; Quarterly data, seasonally adjusted 70,0 60,0 50,0 40,0 30,0 20,0 EU Greece EU Greece EU27 Total Greece Total 10,0 0,0 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1

20 Youth Unemployment A severe problem even before the crisis Seriously aggravated during the crisis Especially for youth with adverse characteristics Particularly alarming the very high rate of unemployment among those aged Even accounting for education, NEETs years old in Greece 26.7% vs 15.3% in EU28 (2014) Huge costs: Economic: Loss of Human Capital; Scarring; Brain Drain Psychological: Loss of Self-Esteem Social: Loss of Contacts; Limited Social Participation Political: Apathy High risk of social exclusion

21 Labour market reforms since the crisis Several measures affecting the labour market since the beginning of the crisis mainly aiming at liberalization and cost cutting Most important: Reform of collective agreements framework Reduction in firing costs Cuts in public sector salaries (22% on average) Substantial decline in public sector employment (almost 27%) Cut in social insurance contributions by 5pp (11% decline) Cut in minimum wage (22%, or 32% for workers aged below 24 very controversial, but...)

22 Year-to-year proportional change in employment rates for fulltime private sector workers aged and 25-29; % 40% 30% 20% 10% 00% 2010q1 2010q2 2010q3 2010q4 2011q1 2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4 2013q1 2013q2 2013q3 2013q4 2014q1 2014q2 2014q3 2014q4-10% -20% -30% -40%

23 Labour market reforms since the crisis Labour competitiveness restored But huge rise in capital costs + political uncertainty => Limited recovery so far 125 Nominal unit labour cost (relative to 37 industrial countries, 2001=100) Ireland Greece Spain Portugal EA18 (18 countries)

24 The road ahead? No solution to the problem of unemployment (incl. youth unemployment) without increase in investment Increased demand for labour Long-term goal: Move towards a successful system ( flexicurity?) Short and medium term goal: Keep as many as possible of the unemployed in touch with the labour market; Improve their qualifications

25 More specifically: The road ahead? Improve the links between the education system and the labour market Use of EU Structural Funds Youth Guarantee Scheme More important role for active labour market policies Use of EU Structural Funds Further reduction in the tax wedge Rationalization of unemployment insurance and assistance / links with MIG to be introduced Measures to reverse the brain drain Top end of qualifications distribution

26 The road ahead? Two more general and very important interventions: Product market liberalization Competitive product markets produce more output and create far more employment than restricted markets Ageing societies: Redirection of resources from pensions to education and training! Counterintuitive but true! Especially from a political economy perspective

27 Thank you very much for your attention