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There is strong evidence that Greece is entering a new era of high profitability and rapid growth, according to the annual Economic and Employment Outlook from the trade union-linked Institute of Labour (INE), published in September 2002. GDP per capita and labour productivity have been converging with the EU averages since the beginning of the 1990s. However, wages remain very low when compared with other EU countries. The INE report compares average gross wages in several economic sectors and finds that differences in purchasing power parities and national productivity explain only a part of the gap between labour remuneration in Greece and the EU average. The remaining gap (around 15% ) is not justified and should be gradually reduced, concludes the report.
In September 2002, the Institute of Labour (INE) of the Greek General Confederation of Labour (GSEE) and the Confederation of Public Servants (ADEDY) released its fourth Annual economic and employment outlook (GR0109102F). The analysis presented in the publication attracted the interest of the media and fuelled public debate. Although the Outlook refers to a wide range of problems and successes of the Greek economy, the focus of the publication is on real economic convergence, real wages and their interaction.
New era of high growth rates and rising profitability
During the first half of the 1990s, the Outlook states, the restructuring and modernisation of the productive system in Greece accelerated in a context of low growth rates, slow capital accumulation, a spectacular rise in profits and high rates of unemployment. In the second half of the decade, an important change took place in the economy, and in 2002 the Greek economy is in its seventh consecutive year of prosperity. Low inflation and low interest rates, a surplus in the primary public balance, high GDP growth rates, rising investment in fixed capital (mostly in machinery) and an acceleration in labour productivity are all indicators of the good performance of the Greek economy during and since the 1990s. Profitability is rising, capital accumulation is accelerating, and technological and organisational innovations are being introduced in the labour process as a result of higher fixed capital investment. Employment is rising. Capital and labour have become cheaper, boosting profits and stimulating investment and employment.
According to INE's analysis, based on a series of indices, profitability has been rising since 1986 – although it remains at a lower level than in the 1960s. The rise in profitability is attributed, first, to a fall in the share of wages in national income, and secondly, to a rise in the productivity of fixed capital. The fall in the share of wages in national income since 1986 is seen as the outcome of: a dramatic change in economic policy (1985); confrontation between the government and trade unions (1986-9); and high unemployment and rising insecurity at work (1990-2001). The rise in capital productivity is attributed to a more efficient use of equipment due to better organisation of work, increased discipline among workers, concentration of production etc.
Hence, the study concludes there is strong evidence that the Greek economy is now at the end of its structural crisis that started in 1974, and is entering a new era of high growth and increased profitability. Real convergence indices with the rest of the EU are resuming their upward movement after a pause of almost 15 years.
Part of the wage gap 'cannot be justified'
Contrasting with these good performances, labour income is low compared to the EU average. The arguments presented in the INE Economic and Employment Outlook are based on calculations comparing real gross wages, labour remuneration and unit labour costs across the 15 EU Member States in manufacturing, wholesale and retail trade, transport, communications and public administration. In order to obtain comparable figures, current wages have been converted to purchasing power parities using Eurostat data for private consumption, and the resulting differences between countries have been adjusted for national differences in productivity.
The report finds that, even after controlling for differences in national price levels and productivity of labour, a significant part of the existing gap between wages in Greece and the EU average cannot be justified; this, it is claimed, should thus be considered as an unfair gap. According to the Outlook, in order to close this 'unfair' part of the wage gap, Greek wages should rise on average by 18% in manufacturing (13% for white-collar workers) by 17% in public administration and by 15% in wholesale and retail trade, transport and communications.
The INE Outlook disagrees with mainstream economists who argue that, in order to boost Greek competitiveness (understood exclusively as price competitiveness), it is necessary to keep wages at their present level as a percentage of the EU average, or even at a lower level. The Outlook argues – on the basis of quantitative analysis – that the competitiveness of the Greek economy can be strengthened only through improvements in structural (non-price) competitiveness; factors limiting external trade performance are linked much more to production conditions (non-price competitiveness) than to unit labour costs, which are low by European standards anyway. The economic history of the last 10 years shows, according to INE, that labour cost is not the principal source of competitiveness: real unit labour costs in Greece are now at historically low levels - almost 20% lower than in the mid-1980s - and profitability is now higher than the average of the 'golden years' between 1960 and 1974. Despite this spectacular redistribution of income - see the figure below - the trade deficit has plummeted from approximately 6% to 12% of GDP.
These facts strongly suggest that non-price competitiveness has an importance largely ignored by mainstream economists who insist on the importance of labour costs. The INE Outlook argues that improvements in non-price competitiveness can be obtained only on the basis of a highly skilled - and therefore well paid - workforce. Based on these arguments, the report proposes, first, the convergence of real wages in Greece with EU levels after controlling for national price and convergence differences and, second, the establishment of a modern industrial policy aiming at the modernisation of production and organisation of labour.
Commentary
The annual INE/GSEE-ADEDY Economic and Employment Outlook, published since 1999, constitutes the sole reference for alternative views on the macroeconomic situation in Greece contrasting with the mainstream neo-liberal views dominating the debate. Its analysis of real convergence and the wage gap between Greece and the other EU countries may constitute a barrier to a further fall in the share of wages in GDP. (Elias Ioakimoglou, INE/GSEE-ADEDY)
