In September 2007, the Institute of Labour (INE) of the Greek General Confederation of Labour (GSEE) and the Confederation of Public Servants (ADEDY) published its annual report on the Greek economy and employment. The report examines key developments in the economy, along with industrial relations, social policy and employment. In particular, it underlines the importance of increasing the structural competitiveness of the Greek economy.
Since 1999, the Institute of Labour (INE) of the Greek General Confederation of Labour (GSEE) and the Confederation of Public Servants (Ανώτατη Διοίκηση Ενώσεων Δημοσίων Υπαλλήλων, ADEDY) has published an annual report on the Greek economy and employment. The report makes an important contribution to formulating the positions and demands of GSEE, ADEDY and other Greek trade unions.
The 2007 report highlights the urgent need to improve the structural competitiveness of the Greek economy and to move the country’s development strategy away from policies on flexibility and reduced labour costs.
Greek economy in 2006–2007
On an international scale, the gross domestic product (GDP) growth rate in Greece remains relatively high and in the medium term is stabilising at around 3.7%. Significant factors in this GDP growth for 2006–2007 have been: the increase in domestic demand, which rose by 5.4% in 2006, with an annual increase of 4% forecast for 2007–2008; the growth of the construction sector; and the significant increase in bank lending to households, which is a characteristic of the Greek economy’s development model.
Household debt in housing and consumer loans at the end of the first quarter of 2007 amounted to €9.14 billion – or 44% of GDP – which represents a 24.7% increase compared with the same period last year. Some 50% of workers in Greece aged between 31 and 47 years have taken out loans with the prospect of fully paying them back by the age of 65 years, in other words around the time they retire.
In 2006, an increase in fixed capital investments was observed, which made up for the slowdown in 2005. However, this increase related to homes and buildings, rather than the most crucial part – investment in machinery and equipment. These developments show that fixed capital investments have been more oriented towards the public construction industry and private housing market and less towards technological upgrading and change, including the transformation of the industrial infrastructure aimed at reviving the industrial sector.
Increase in labour productivity and drop in labour costs
During 2006, labour productivity increased by 2.8%, with the country ranking second after Finland in this respect. The increase in other EU15 convergence countries was minor in comparison, at 1.6% for Ireland and 0.8% in both Portugal and Spain.
Greece’s increase in labour productivity in 2006, combined with a 2.4% rise in average real wages, has led to a 0.4% decrease in real unit labour costs. This downward trend in unit labour costs – which in 2006 reached 8.1% of the EU15 average and thus represented the lowest unit labour costs – is not reflected in the lower level of prices and improvement in the competitiveness of the Greek economy. In fact, the competitiveness of the country’s economy fell by 13% during the last six years, due to the revaluation of the euro and the increase in profit margins.
It should be noted that, in 2004, Greece ranked first among the current EU27 Member States in its share of profits in the business sector, which amounted to 56.1% compared with an average of 37.9% in the eurozone and 36.3% in the EU27. Companies in Greece tend to base the increase in the price of their products more on the evolution of labour costs, thus increasing their profit margins and contributing to a rise in inflationary pressures.
Taxation and redistribution of income
An analysis of the real tax burden in the EU Member States leads to the conclusion that indirect taxation remains essentially unchanged in Greece, at 17% of GDP in 2005. Conversely, the proportion of labour tax has increased from 34.1% of GDP in 1995 to 38% in 2005, while capital tax rose from 11.8% of GDP in 1995 to 15.4% in 2004, the last year for which data are available. These developments in the tax burden on Greek taxpayers demonstrate how far-ranging and profound the inequality in taxation is, largely at the expense of employees and pensioners.
Employment and unemployment
In the second quarter of 2006, the size of the Greek labour force stood at 4,880,000 people, the equivalent of 68.2% of the working population aged 15–64 years. This represents an increase of 0.65% in 2006 compared with the previous year. The level of employment reached 4,453,000 people, or 63.2% of the working age population in the same period, representing an increase of 1.6% – or twice the increase in the labour force (70,890 compared with 31,450 more people respectively). As a result, there were 39,440 fewer unemployed people in Greece and the unemployment rate declined from 9.8% in 2005 to 8.9% in 2006. However, 70% of the increase in the number of employed people involved flexible forms of employment, 20% of which related to part-time employment and 50% to fixed-term employment.
Conclusions
The INE/GSEE-ADEDY annual report underlines the fact that – in order to maintain the purchasing power of employed earners’ average nominal wages and to avoid the redistribution of income at the expense of labour – increases in nominal pay should be equal to the sum of inflation and labour productivity. This conclusion – in conjunction with the high borrowing of households, which finances private consumption – points to other factors of uncertainty in the Greek economy, which involve the future of workers’ jobs and incomes. It is estimated that the increase in domestic demand, on which the upturn in the economy during the 1996–2007 period has been based, is likely to slow down in the coming years, since the lending rate to households will gradually decrease. This observation means that the increase in real per capita income cannot be supported by private consumption, which is mainly financed by borrowing, but by an increased volume of exports, productive investments, improved productivity and more generally by a strategy of ‘intelligent development’.
The report also observes the greater orientation of fixed capital investments towards public construction and less towards technological upgrading – together with the change and transformation of the industrial infrastructure aimed at reviving the industrial sector. The study warns that this overall situation entails the risk of a severe slowdown in the country’s growth rate in the event of a recession in the construction and housing market combined with an industrial decline. Thus, the INE recommends that public investment should take on the role of furthering GDP growth and private investment in the direction of the regional, innovative and industrial re-establishment of the country’s economic structure.
Sofia Lampousaki, Labour Institute of Greek General Confederation of Labour (INE/GSEE)