ECONOMY

Part with old taboos

The Greek economy has managed to outgrow most of its EU peers in the last eight years or so but this has not proven enough to raise employment and cut the unemployment rate sufficiently. Less than 40 days before general elections, it may be high time for the two major parties to come up with pro-growth economy programs which also recognize the structural rigidities in the labor market and seek to remove them by adopting a comprehensive set of measures. Some of these may not be so popular with the insiders, that is, labor unions, civil servants and others. There is no question that superior GDP growth rates since the mid-1990s have had a positive effect on per capita income. Greek per capita income grew by about 3.2 percent compared to 1.8 percent in the EU 15, reversing the trend of divergence observed in the 1975-1995 period, when the local economy grew at a much lower pace than its EU partners on average. According to Eurostat, per capita income averaged 12,900 euros in Greece at end-2002, accounting for 56.1 percent of the EU average of 23,000 euros. Nevertheless, adjusting for differences in purchasing power in EU countries, per capita represented 66.1 percent of the EU 15 average. The increase in per capita income was backed up by other figures, such as the fall in the labor participation of people over 65, to show an improvement in the standard of living. However, income inequality remained one of the highest in the EU and many people continued to self-define themselves as poor in the Eurobarometer surveys. Even so, the long streak of Greece’s economic outperformance did not have a sizable effect on unemployment and employment rates. The number of unemployed as a percentage of the civilian labor force fell slowly, long-term unemployment persisted, along with high youth and female unemployment rates. The employment rate also remained one of the lowest in the EU. Based on Eurostat figures, the Greek unemployment rate fell from 11.8 percent in 1999 to 10 percent at end-2002. It went down from 8.7 percent in 1999 to 7.7 percent in 2002 in the EU 15 on average even though the Greek economy outpaced its EU peers by a wide margin. The National Statistics Service (NSS) estimates that unemployment fell to 8.9 percent in 2003 but the conservative New Democracy party argues that this estimate is based on old (1991) rather than the most recent 2001 census data. Adjusting for that would bring the unemployment rate back up to 9.6 percent. Of course, this is not the only controversy since the registered unemployment rate is even higher, exceeding 13 percent, but is adulterated by the effect of seasonal workers. The insufficient drop in the unemployment rate is exemplified by the fact that more than 54 percent of the unemployed are without a job even after a year out of work versus less than 45 percent in the EU on average. Moreover, Greece has one of the lowest employment rates in the EU, marked by a big gender gap. The employment rate stood at 56.9 percent in 2002, that is, much lower than the EU average of 64.2 percent. The male employment rate stood at 71.1 percent while the female employment rate, at 42.7 percent, battled it out with Italy and Spain for the last position in the EU. Undoubtedly, some of these numbers can be explained by demographics and the ongoing transformation of the Greek economy, to which we have referred in the past. First, more Greek women enter the labor force nowadays than in the past. This has increased female participation in the workforce and partly explains the high female unemployment rate as many women do not find work. Other figures show that the civilian population between 15 and 64 years old is shrinking but the work force is growing. The latter can also be explained by immigrant workers entering the work force. Second, fiscal consolidation, which has been taking place in the last few years, has limited the number of people hired in the public sector and along with the shedding of jobs in industrial sectors and others exposed to international competition, has aggravated the situation. Providing more part-time civil service jobs and incentives to employees for hiring the youth and the female unemployed including tax and social insurance incentives, as those suggested recently by Foreign Minister George Papandreou, may help deal with the problem temporarily but not cure it. This will become more apparent after the Summer Games, when thousands of people working for the Athens 2004 Olympics organization committee come out and start looking for a job at a time when a deterioration in public finances should be having a dampening effect on hirings. There is no question that everything should be done to ensure that the Greek economy will continue to grow fast in the next few years and disseminate the benefits of this growth to the rest of the economy and not just the construction and related sectors, as is the case today. There is also no question that little can be done about a structural transformation of the Greek economy that will be characterized by a higher degree of concentration in many sectors, which will result in the closure of small businesses. A lot, though, can be done to boost economic growth by liberalizing the trucking sector, enhance competition in the electricity sector and accelerate the liberalization of the ferry sector as well as granting lower subsidies to the agriculture sector to release public funds for more productive uses. Moreover, action should be taken to increase flexibility in the labor market by allowing the setting of minimum wages for less skilled workers to encourage employment, reduce non-wage costs in the form of social security contributions and increase flexibility in working time by taking back some legislative measures. Even more important, the country has to proceed with educational reforms to tailor education and training, both vocational and lifelong, to the needs of the labor market. It also has to increase investment in human capital and R&D and strengthen the ties between universities and enterprises. Greece has not done that well on the employment front despite exhibiting fast growth rates for years. It is therefore an opportunity for both major parties to part with old cliches and taboos and seek to remedy the problem of unemployment by adopting a comprehensive set of measures to foster growth and do away with long-standing structural rigidities in the labor market before the State runs out of degrees of freedom and options.