A 35-hour work week can have a dire impact on competitiveness

Labor union demands for a 35-hour work week without a reduction in wages have resurfaced after five years. The Greek economy is hampered by three main structural problems: relatively high inflation, weak export competitiveness, and a large public debt. An inflation rate in excess of 3 percent compares unfavorably with the average of European partners; in my opinion, it is the result of high labor costs and private consumption, and the loss of competitiveness it causes lead to higher unemployment, despite a fast-growing economy. In Greece’s case, unemployment is not cyclical – that is, it is not due to inadequate demand – but structural, originating in an inflexible labor market (the monetarist view). From the moment productivity is unable to follow the pace at which real wages grow, it is only to be expected that competitiveness and employment will be affected; without a rise in productivity there can be no price stability or a strengthening of competitiveness. Productivity is important because it is precisely the factor that will boost the living standards through a rise in the purchasing power of Greek consumers, and drive the economy toward convergence with the rest of the EU. Another factor feeding inflationary pressures in Greece is the inequitable distribution of income and the inefficient distribution of economic resources. In fact, Greece’s distribution of income is the most inequitable in the EU. The proponents of reducing weekly work hours to 35 from 40 without a commensurate cut in wages claim it will bolster employment. But it is bound to lead to lower productivity and intensify inflationary pressures. The weaker productivity, in combination with maintaining nominal wages, will have a negative impact on the international competitiveness of the Greek economy. This will undermine the viability of a large number of Greek enterprises. It may be noted that the German government is studying the possibility of increasing work hours in order to support competitiveness and, consequently, employment, while France, which already applies the 35-hour week, is reportedly reconsidering the rationale on which it was based. A reduction in work hours would not necessarily have a negative impact on inflation and competitiveness if it was accompanied by wage restraint, the lifting of distortions in the labor market and, especially, bolstered labor productivity through investment in the modernization of production, and if the education system was reformed to include modern scientific disciplines and orientations that will cover future requirements. In other words, the weight must be placed on the labor supply side. According to a recent study by the Foundation of Economic and Industrial Research (IOBE), foreign investment in Greece in the 1980-2002 period rose 166 percent, against an EU average of 1,107 percent (Spain outperformed with 4,136 percent). Without the prerequisites outlined above, reducing work hours to 35 weekly without wage cuts would further undermine investment and productivity. (1) Yiannis Palaiologos is assistant professor at the University of Piraeus.