How bad is the Greek labour market?
Tied to the euro, Greece could not devalue its currency, so wages and pensions fell instead. What that did to demand and jobs.
In aspect of labour, Greece is highly un-competitive by European standards. This is something that historically Greece had dealt with by devaluing its currency in the international market.
But being tied to the Euro dictated that these external devaluations would now become painful internal devaluations. In practice, this meant that average wages and pensions went down by 25%. This decimated demand; in a country dependent on domestic consumption.
To put the labour market situation of Greece into perspective, from 1995 to 2010, Greece recorded the highest increase in hourly wages of any European country at 97%, with a productivity increase of 18% in the same period. In comparison, the average European productivity growth in the same period was almost 60%. This meant that the per unit labour cost in Greece was rising sharply, becoming highly un-competitive.
When we think about Greece, tourism is the first thing that comes to mind. This is an industry Greece seems to excel at, welcoming record numbers of tourists every year since 2011. Greece has now become the 7th most visited country in the EU and 16th in the world. The GDP share of tourism industry has grown to 25%.
But even the increase in tourist numbers cannot help the Greek economy that much. Tourism is a low value-add industry with stagnant wages. So, when this low productivity industry accounts for a quarter of the country’s GDP, stagnant wages become a wider economic reality. Also, as a seasonal industry, the unemployment rates are volatile as compared to job security provided by industrialisation.
An economy based on tourism also loses out on the other benefits that come along with proper industrialisation, like improvements in infrastructure, institutions and governance and work culture.
So, while tourism is a growing sector in the Greek economy, its high numbers cannot compensate for the structural issues that fester as a by-product.
After the financial crisis and subsequent bailouts given to Greece, Greece still remains the most un-competitive economies in the Eurozone.
First published on thekakisto.wordpress.com. Figures are as cited at the time of publication; check the linked sources for later revisions.