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In September 1999, the Institute of Labour of Greece's GSEE and the ADEDY trade union confederations issues its first Annual economic and employment outlook. Such reports have long been produced by employers, the central bank and the Ministry of National Economy. The report finds that Greece is very likely to meet the nominal convergence conditions for EMU membership on 1 January 2001, while real convergence is being achieved thanks to an effective policy of demand management. However, despite rapid economic and employment growth, the unemployment rate is rising.
On 1 September 1999, the Institute of Labour (INE) of the Greek General Confederation of Labour (GSEE) and the Confederation of Public Servants (ADEDY) releases its first-ever Annual economic and employment outlook. According to the outlook, the nominal convergence of the Greek economy with the rest of the EU continues, and it is very likely to meet the conditions for membership of Economic and Monetary Union (EMU) on 1 January 2001. Real convergence is also being achieved, thanks to an effective policy of demand management which has been pursued since 1995. However, despite the rapid growth of GDP and employment, the unemployment rate in Greece rose from 9.6% in 1997 to 10.8% in 1998.
Economy
According to the INE report, the GDP growth rate in Greece is expected to fall from 3.5% in 1998 to 3.0% in 1999 and rise to 3.5% in 2000. The recovery of the Greek economy, which began in 1995, is found to be the result of an effective domestic demand management policy. By contrast, the contribution of foreign trade to GDP has been negative ever since 1986 due to the revaluation of the drachma. Demand management resulted initially in increases in private consumption and public investment. Private consumption is dependent to a great degree on real wages, which in the four years from 1995 to 1998 rose by approximately 15%. This increase offset previous large decreases, so that the average real wage in 1999 does not exceed the average wage of the 1980s. Wage increases during the 1995-8 period led to increases in private consumption, overall demand and production. Public investment was another strong "growth engine," boosted by EU transfers (public investment is increasing at an annual rate of around 15% at constant prices).
Increases in real wages and public investment have brought about an increase in overall domestic demand and production (the "multiplier effect") which has changed expectations and has thus led to an increase in private investment (the "accelerator effect").
The INE Outlook notes that the rise in profitability during the first half of the 1990s failed to bring about anything more than a small increase in fixed non-residential investment. Instead, investment (as a percentage of added value) began to increase from the moment that an effective demand management policy was implemented, which has increased the rate of capacity utilisation, whilst ensuring that the rate of inflation does not increase.
With regard to the fall in the inflation rate, the report notes that exchange-rate policy took on the momentous task of reducing inflationary pressures, because Greece is a country which follows international prices (it is a "price-taker" economy). Contrary to mainstream economic thinking, says the report, the reduction in the inflation rate was achieved during the 1995-8 period - that is, precisely during the period when real wages and overall demand were increasing.
Employment
Despite the fact that at the beginning of the 1990s the Greek economy underwent a period of recession, employment increased by about 230,000 persons in the period between 1991 and 1998 as a result of the expansion of the service sector. The workforce increased during the same period by about 360,000 persons. Thus the number of unemployed people rose by 130,000, and the unemployment rate increased from 7.7% in 1991 to 10.8% in 1998. This increase, combined with the increase in the number of long-term unemployed people, makes unemployment a central problem of the Greek economy. As regards employment prospects in the coming years, in mid-1999 there are some uncertain but real indications that we are entering a period during which the productivity of labour will increase at a relatively high rate - first, because the Greek economy is growing at annual rates of over 3% and, second, because increased investments in industrial equipment, computers and other machinery are bringing new technologies into industrial processes. The negative impact these developments will have on employment will probably be intensified further by the restructuring of the Greek economy (such as plant closures, capital devaluation, privatisation and mergers). Moreover, the ability of the service sector to increase employment is decreasing: employment intensity in the tertiary sector fell sharply from 1994 to 1997.
According to the INE Outlook, the policy of structural change in the labour market has a minor impact on employment, while having negative macroeconomic effects. The reduction in non-wage labour costs will not lead to an increase in employment, says the report.
Proposed economic policy guidelines
The Outlook proposes maintaining the high rates of economic growth, and contends that investments, particularly in mechanical equipment, are increasing rapidly and are bringing new technologies into production processes at a fast rate, so that inflation is not expected to flare up again until after 2001. In these conditions, there is no serious reason to develop negative expectations regarding the evolution of the business cycle, or to conduct policies aimed at decelerating demand.
The report proposes policies to boost productivity without increasing social inequalities. It notes that the possibility of slow economic growth within EMU appears to be a real danger, if the basic structural characteristics of production in Greece are maintained. For this reason, there is need for a policy aimed at technological and organisational modernisation of production, increased productivity and competitiveness, and improvement of knowledge and skills of the workforce. Current preparations, which aim at achieving nominal (monetary) criteria, are not adequate, because an acceleration of the long-term trend of productivity cannot arise out of the liberalisation of markets, or out of increased spending on education and training. It is more necessary than ever to conduct an industrial policy.
The report considers that "measurement" of competitiveness on the basis of unit labour cost creates confusion, and that the definition of competitiveness must take into account the unemployment rate, as well as income inequality and poverty. Increased competitiveness which leads to income inequality, high unemployment, social inequalities and poverty does not bring about a rise in general prosperity. It thereby loses its very meaning and is perceived by large sections of the population as a policy serving the interests of particular social groups, concludes the report.
Commentary
The INE Annual economic and employment outlook, published in 1999 for the first time in the history of Greek trade unionism, reinforces the position of the trade unions in the social dialogue. Similar reports are published in Greece by the central bank, the Ministry of National Economy and the Federation of Greek Industries (SEB).
The Outlook highlights the real economy (production, investment and employment), in contrast with the other reports, which lay more emphasis on monetary variables. In particular, the Outlook analyses employment and unemployment in a more extensive way than the other reports.
The findings of the INE report differ from comparable findings in the other reports, with regard to the causes of economic growth over 1995-8, the increase in private investment and the increase in unemployment. This gives the unions the opportunity to develop their arguments independently of government and employer bodies and independently of the political parties. (Elias Ioakimoglou, INE/GSEE)