Disagreement over pay fuels tension between Government and unions

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The process of social dialogue has underlined the strong disagreement between the Greek Government and the employers' associations on the one side and the unions on the other regarding the impact of increases in real wages over the coming years. Because the areas for agreement are already extremely limited and because negotiations for the National General Collective Agreement are due to start imminently, the conditions are present for an escalation in tension. The Government has announced that wage increases during 1998 should not exceed inflation, while the Greek General Confederation of Labour (GSEE) has announced a 24-hour general strike for 23 October.

During the current social dialogue process (GR9704112N), the Government and the employers have claimed that labour costs in Greece must be reduced in order to increase profitability, investment and competitiveness. They also support the idea that wages have been substantially increased over the last three years: in fact average real wages in 1996 were 10% higher than in 1994.

The trade unions on the other hand have pointed out that the 1996 purchasing power of the average wage was at 1983 levels, while unit labour costs in the national currency did not exceed the 1976 levels. According to an analysis by GSEE, the real average wage in Greece has been fluctuating over the last 15 years around the purchasing power corresponding approximately to 1983 levels (see the table below). Periods of increasing real wages (1983/5, 1988/9 and 1994/6) are followed by periods (1986/7 and 1990/3) of decreasing real wages, so that in the long term, increases are counterbalanced by decreases.

Source:"Economic policy, competitiveness, unemployment". A report by GSEE submitted to the social dialogue (1997).

As the unions point out, the stability that average real wages show in the long term benefits businesses which use the increases in productivity to reduce unit labour costs and improve their profitability. Moreover, average gross hourly earnings in Greece are the lowest in the EU with the exception of Portugal.

Unit labour costs rise with exchange rates

Unit labour costs (ULC) in Greece (calculated at national currency and constant prices) fell by 11% between 1990 and 1996 and today stand at 1976 levels. The corresponding decrease for unit labour costs across the EU is 4%. They increased during the three-year period 1994/6, but this increase was small compared with the huge decreases during the years 1991/3 and 1986/7.

For comparison of unit labour costs between different countries which are of interest from the competitiveness standpoint, both the changes and the level of ULC in a common currency are significant. Based on recent OECD data, ULC in the EU member states ranges from ECU 0.6 to ECU 1.1 per purchasing power parity (PPP). The group of low labour cost countries includes Portugal, Greece, Spain and Italy. Apart from Portugal, which maintains the cheapest labour amongst the 15 member states, the three other countries have a similar ULC which is approximately ECU 0.5 per PPP.

A country which has low labour costs in national currency may present a relatively higher ULC in ECUs, if the country's currency is overvalued. Italy and Spain, through large devaluations of their currencies during the first half of the 1990s, appear to have a significantly lower ULC. Greece, on the contrary, with an overvalued currency presents an overvalued ULC.

Wages, investment and unemployment

The discussion on wages, in the context of the social dialogue, was associated with the critical subjects of competitiveness, investment and unemployment. The Government and the employers believe that the preservation of average real wages at their current level is crucial for:

• continuing to increase profitability in the private sector and hence investment;
• improving the Greek economy' s competitiveness; and
• further reducing inflation.

The unions however question the above mentioned points and claim that:

• increases in profits over the last 10 years offer companies the capability to make investments - a capability which they do not exploit adequately - and that investments in the current phase depend on changes in demand;
• the competitiveness of Greek companies has not increased despite the serious decrease in real unit labour costs due to the serious overvaluation of the Greek drachma (GRD); and finally
• the reduction of inflation depends only partly on pay increases and from now on it should be achieved by means of increases in productivity which remain extremely low.

The unions also stress that real household income has remained constant for a long period whilst at the same time living standards have converged on those of the more developed countries of the EU. This is why in Greece there is a rapid growth of the labour force, which exceeds increases in employment and results in increased unemployment.

Commentary

The social dialogue has clarified the diverse positions of the Government and the employer's associations on the one hand and the unions on the other with respect to the importance of a possible increase in real wages over the coming years.

Comparison of these divergent positions has made it clear to all sides that the margins for an agreement are extremely limited just a month before negotiations for the National General Collective Agreement begin, and perhaps for this reason conditions may herald conflict.

Tension has grown even more since the Government, anticipating an inflation rate of 3% for 1998, publicised its intention to set 1998 pay increases in the public sector at 3% (payable in two instalments from 1 January and 1 July respectively). Though this Government decision covers specifically public sector pay, it is of great importance because it also indicates guidelines for pay increases in the private sector.

GSEE has announced a 24-hour general strike for 23 October, obviously aiming to create the climate that will permit it to negotiate successfully pay increases for the National General Collective Agreement over and above the rate of inflation. (Elias Ioakimoglou, INE/GSEE)