Why are salaries so low in Greece?
The decision to raise the minimum wage to 830 euros a month confirms the government’s inclination for progressive measures on social issues. This is supported by both “high” and “low” policy calculations: On the one hand, concern for protecting the weak and defending social cohesion; on the other, the decision by the ruling party’s present leadership to represent the vast political space stretching from the center-left to the fringes of the far-right. There is no point in delving into the question of intentions in order to interpret the government’s social sensibilities; on a daily basis, we are all driven by mixed motives. What matters is that noble and less noble motives are aligned; this is certainly the case in the minimum wage hike.
Indeed, the government’s move buttresses the purchasing power of low-wage earners in view of inflation: The cumulative increase in the overall consumer price index over the last five years (15.9%) is significantly below the increase in the minimum wage (27.7%, from €650 per month in 2019). Of course, the purchasing power of low-wage earners is still a long way from what it was before the crisis and the bailouts, in distant 2009: Since then, the cost of living has shot up by 24.6%, while the minimum wage had gone up by half that (12.2%, from €740 a month). The drop in average mid-range salaries, in actual terms, is even greater compared to 15 years ago.
But why are salaries so low in Greece, despite governments’ intentions? Every job creates a surplus value, equal to the difference between the price of the product or service produced and all other elements of production cost except for wages and profits. How that surplus is distributed depends on the balance of power between employees and employers. This balance has tipped against employees in the last 15 years, driven by high unemployment, weaker unions and dwindling collective negotiations.
In the long term, however, the size of salaries is determined equally if not more so by the size of the surplus rather than by how it is distributed between employees and employers. In a low-tech and low-added-value economy, with jobs requiring little if any specialization, businesses that are too small to innovate or export and unskilled managers who often secure profits by keeping wages low (and breaking labor, tax, zoning and/or environmental laws), salaries will never be satisfactory; except, perhaps, for a few specific professional groups or for a short period of time, until the bubble bursts.
Despite proclamations about ‘elevating the production model’ and a few tentative steps in this direction, the country remains stuck in the doldrums
Greece’s is one such economy. Despite proclamations about “elevating the production model” and a few tentative steps in this direction, the country remains stuck in the doldrums.
Escaping will take a lot more than a minimum wage hike, no matter how welcome. It requires bigger businesses, with skilled managers and staff that produce products and services of a higher caliber, that can be sold at higher prices yet remain attractive to consumers, especially in international markets.
The big question is how we reach that point from where we are today. It is the government’s responsibility to design this transition; and it is the responsibility of everybody else to contribute to it constructively instead of preventing it.
Manos Matsaganis is a professor of public finance at the Polytechnic University of Milan, and head of the Greek and European Economy Observatory at the Hellenic Foundation for European and Foreign Policy (ELIAMEP).
