ECONOMY

Employment by decree?

The planned closure of Swiss-German company Schiesser Pallas’s Athens undergarment factory, announced last week, and the loss of about 500 jobs, raised the hot question again: Who is responsible for unemployment? The closure of the plant is an unpleasant development but it reveals something even worse: In the heat of discussion, Economy Minister Nikos Christodoulakis announced the abolition of the legal provision that allowed the investment subsidization of firms planning to relocate elsewhere in the Balkans. The minister’s argument was that the government will not subsidize the creation of unemployment in Greece and that firms have the responsibility of increasing jobs. The real problem is that the provision, incredible as it seems, does exist though in practice has never been applied. Its abolition, therefore, will make no difference whatsoever. This is perhaps the the essential problem plaguing the Greek economy: Laws are passed that ministers believe are applied and will change reality. Moreover, there is even worse news. In the planned reform of the investment incentives law, the clause according to which each new investment is subsidized depending on the number of jobs it creates is certain to be kept and may even be strengthened, though it should be evident that to date every effort to «force» unemployment to rise through such methods has failed. In this high-tech age, the effectiveness of new investments mostly depends on the fact that it involves relatively fewer jobs. Requiring investment schemes to create as many jobs as possible is unrealistic; it’s like looking to invest in old technology… Otherwise, the anxiety over boosting employment is perfectly legitimate. There is no denying that the government needs to formulate a policy in this direction. However, the measures that are most considered are in the wrong direction. The flagrant failure in restricting the number of overtime hours worked is only recent. The logic behind the measure was that if enterprises were not allowed to employ their workers overtime, they would hire more people. In practice, they didn’t. Those that might have were spurred by the measure to modernize and raise productivity without overtime, while the rest simply ceased paying the workers for it. Employment did not increase and the paychecks of workers who worked overtime shrunk. But besides these empirical examples, research has also provided significant conclusions: A recent study by the European Commission concluded that hikes on salaried income taxes and social security contributions were responsible for half the increase in long-term unemployment. In other words, one in two unemployed people would have a job if taxes were lower. Boosting employment is related to the social security problem and the management of the state budget. It is a complex issue and no doubt at the heart of economic policy. But if such a policy does not lead to a rise in employment and incomes, it is useless. What everyone needs to realize is that a problem like unemployment cannot be easily solved by decree – like inflation, it cannot be abolished.