ECONOMY

Low mobility means fewer jobs

The structure of the Greek labor market does not help bring down unemployment; quite the contrary. Other labor market features, however, help alleviate the cost of unemployment, according to studies by international organizations such as the Organization for Economic Cooperation and Development (OECD) as well as local ones, notably a recent comparative study by Alpha Bank. The Greek labor market is costly for employers, because they have to pay significant contributions to the pension funds but mostly because they cannot fire people easily, especially in firms employing over 50 people. There is also a lack of qualified personnel. The difficulties are compounded by the Greek work force’s limited mobility. The negative effects of unemployment are alleviated in some cases by alternate sources of income, such as rent and part-time employment, usually in the gray market that is well hidden from tax authorities. Recently, there has been much talk about which successful economic model Greece should follow. The government, specifically Economy and Finance Minister Giorgos Alogoskoufis, has held up Ireland as an example, while various opposition figures, including opposition leader George Papandreou vaunted the Scandinavian model until former economy spokesman Giorgos Floridis was sacked by Papandreou for informing the audience in a radio interview that there are no limits to layoffs in Sweden. The Alpha Bank report compares the labor market legislation, social protection systems and labor market mobility in Greece, Denmark, Sweden and Ireland. An OECD report focuses on limited mobility in the Greek labor market and on the little use made of part-time employment. Mobility creates jobs There are no big differences in the labor laws of Denmark, Ireland and Sweden. In all three countries, a flexible labor market exists in both the private and public sectors, with the addition of secure employment in the public sector. Employees can change jobs quickly and without too much cost. All three economies create jobs quickly. The Scandinavian model, specifically, has three main features: – A very flexible labor market, more so in Denmark than in Sweden. – A very generous social protection system. – Well-integrated, proactive employment policies. The system’s effectiveness is based on the fact that those eligible for social protection schemes (e.g. unemployment benefits) have an obligation to participate in retraining programs, actively seek jobs and, if not successful in finding employment on their own, to accept jobs offered by state organizations. As a result, these countries have low unemployment (4.3 percent of the work force in Denmark, 6.3 percent in Sweden in 2004), a high level of employment (72 percent of people aged 18-64 work in Sweden versus just 58.2 percent in Greece; Ireland’s employment rate is 67.1 percent) and relatively low long-term unemployment. In Sweden, 37.3 percent of the unemployed have been without jobs for over 12 months, compared with 45 percent in Denmark and 74.4 percent in Greece. In Denmark, unemployment benefits can add up to 90 percent of an unemployed person’s last salary and are provided for a period of up to four years. However, the long-term unemployed in Denmark account for just 0.8 percent of the actively employed population, compared to 5 percent in Greece. In Greece, unemployment benefits are paid for up to 12 months, but often the reintegration of the unemployed into the labor market takes a back seat to the far more costly option of early retirement. Contrary to widespread belief, the generous social protection schemes in Denmark and Sweden are neither an excessive burden on the state finances nor are they the product of »fleecing the rich» through high taxes. Both countries have budget surpluses and most of the revenue for social protection schemes comes from the value-added tax, not from direct taxes. Add to this the very «wide tax base,» meaning low tax evasion, and you have a system where everyone is eligible for social benefits but where also everyone contributes. In Ireland, the state sector is far smaller and social protection schemes much thinner; solutions are left to the private sector. In all three countries, however, economic success is the result of their ability to increase productivity and competitiveness while maintaining fiscal stability. Spending on pensions has been contained in all other three countries and has been rising in Greece. This has been achieved by cutting back on spending for pensions of the relatively wealthy. For people with an income level 2.5 times the national average, the pensioners’ income replacement levels (in terms of pensions provided by the state) are 99.9 percent in Greece, 75 percent in Sweden, 30.8 percent in Denmark and 18.3 percent in Ireland. In 2050, Greece’s spending on pensions is projected to equal 24 percent of the country’s gross domestic product (GDP) compared to 10.7 percent in Sweden, 13.3 percent in Denmark and 9 percent in Ireland. According to the OECD report, the Greek labor force’s limited mobility is the result of the high percentage of home ownership, the high cost of transport and the still tight extended family links that often cushion the impact of unemployment and are a disincentive to a more adventurous attitude.