Rehn calls for lower labor costs

Labor cost reductions in the Greek private sector should be further extended to match salary cuts in the public sector, with a view to improving the overall competitiveness of the economy, the European Union?s Economic Affairs Commissioner Olli Rehn said Thursday.

The 6.8 percent reduction in labor costs recorded in the first quarter of the year ?is not sufficient to cover the loss of competitiveness in the previous decade,? he said.

There are two ways of reducing labor costs, Rehn said. One is through structural changes.

?A sustainable rise in productivity can only be achieved with structural reforms,? he said, citing privatizations and restructuring of public companies as examples.

The second way is a reduction in labor costs, along the lines of public salary cuts, that will make the prices of products and services more competitive with those of other countries. He made it clear, however, that the process was up to the Greek government and collective agreements.

Rehn said that according to Eurostat data, the rate at which labor costs rose in Greece in the 2000-09 period was 20 percent higher than in the rest of the eurozone.

The figure is correct, but since the crisis hit Greece, both labor costs and nominal pay in the economy as a whole have fallen substantially compared to the rest of the eurozone. Labor costs in Greece fell nearly 4 percent in the 2009-11 period, and nominal pay 4.5 percent. In the eurozone, labor costs have declined 1.9 percent and nominal pay has risen 3.9 percent on average.

The unpopular measures which the Greek government has adopted in the last two years have obviously reversed the previous trend. The economy has gradually adapted and in effect has undergone a process of internal devaluation that has increased its competitiveness.

The European Commission forecasts that in the 2000-11 period, labor costs will have risen 2.1 percent in Greece annually and fallen 1.8 percent in the eurozone.

Given the market slump, the drop in labor costs has not helped employment. The jobless rate rose to 16.3 percent in the second quarter from 15.9 percent in the first three months of the year and 11.8 percent a year earlier, according to figures from Greece?s statistics service, ELSTAT.

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