Redundancies increase in construction

Kretsos, Lefteris

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Article

Redundancies increase in construction

Published: 15 March 2005

Since the completion of the works for the 2004 Olympic Games, the Greek construction industry has entered a period of decline. As a result, redundancies have started, and in early 2005 it has been reported that some 50,000 workers may lose their jobs. Concerns have also been raised about the consequences for employment conditions in the sector.

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Since the completion of the works for the 2004 Olympic Games, the Greek construction industry has entered a period of decline. As a result, redundancies have started, and in early 2005 it has been reported that some 50,000 workers may lose their jobs. Concerns have also been raised about the consequences for employment conditions in the sector.

The construction industry is of particular importance in the Greek economy, since it exerts a substantial influence on the development of basic macroeconomic indicators and employment. A trend towards fewer people being employed in building and public works following the completion of the works for the 2004 summer Olympic Games in Athens indicates that the industry has entered a period of recession, with the prospect of mass redundancies and worsening industrial relations and employment conditions in the immediate future.

Construction boom before the Olympics

In recent years, and after 1998 in particular, the construction industry has been the driving force of economic development and employment in Greece. The requirements of the efforts to hold a first-rate Olympics in 2004, in conjunction with the influx of Community funds in order to achieve this goal and also to modernise the country’s transport infrastructure, helped expand construction activity and increase the number of people employed in the building/public works sector. The expansion was also prompted by a gradual fall in interest rates and increased consumer credit, which caused the number of housing loans to rise and directly resulted in more private building activity.

Table 1 below highlights the rise in employment in building/construction during recent decades. Over 1987-2002, overall employment increased by 27% and paid employment by 21%.

**Table 1. Overall employment and paid employment in the construction industry, 1987-2002**
Year	Overall employment	Paid employment
1987	231,200	161,847
1988	231,404	155,199
1989	238,289	160,222
1990	251,858	167,201
1991	245,518	162,362
1992	245,824	154,252
1993	261,166	161,086
1994	260,729	158,120
1995	251,927	154,983
1996	251,599	152,005
1997	248,970	152,598
1998	282,315	178,734
1999	273,317	179,143
2000	276,604	177,914
2001	284,752	186,525
2002	293,871	196,230

Source: Labour Force Survey, 2nd quarter, National Statistical Service of Greece (ESYE).

According to a recent study of employment in the sector carried out by the Constructions Economy Institute (IOK), the growth of the domestic construction industry in recent years was due to:

the infrastructure works carried out in the framework of the 2004 Olympics;
funds from the third Community Support Framework; and
an increase in private construction activity

The industry's economic size rose from EUR 6.3 billion in 1997 to EUR 13.65 billion in 2003, representing around 10% of GDP. This made a vital contribution to the gradual growth of employment in construction. According to data from the National Statistical Service of Greece (ESYE), the construction industry’s share in overall employment is quite substantial, at nearly 8%. The upward course of the industry also had broader positive effects on economic growth rates and employment in related economic activities such as the plastics and building materials industries. If account is also taken of the construction industry’s indirect contribution then, based on the IOK study, the unemployment rate has fallen by 1%-3% due to increased employment in construction.

According to analysts, higher employment in construction is associated with the existence of widespread 'labour flexibility reserves' of a quantitative nature, since:

the industry absorbs many members of the labour force with low levels of training and unskilled immigrants willing to work for lower wages than those set by the relevant collective agreements;
the rate of seasonal and casual employment is higher than in other sectors of the economy;
a substantial number of engineers and other scientific staff are employed as freelancers who issue receipts for services rendered, whereas in practice the basic features of their employment relationship indicate provision of paid labour in a position of subordination;
the industry is labour-intensive, and as a result people often work longer than contractual working hours and workplace accidents occur regularly; and
there are high rates of undeclared employment, mainly among foreign economic migrants, making it difficult to record the real number of workers in the industry. This is reinforced by the fact that the length of employment contracts is often associated with the length of time taken to complete a project, the high fragmentation of occupations directly related to construction and the high mobility of the labour force.

According to IOK estimates, in 2003 around 84% of employees in the industry consisted of white- and blue-collar workers and auxiliary staff such as unskilled workers, technicians’ assistants, drivers and machine operators, whereas only 16% of employees had a university or technological education. The distribution of employment is shown in table 2 below.

**Table 2. Distribution of employment in the construction industry, 2003**
Categories employed	Number employed
Qualified engineers with a university education (except for consultants)	32,500
Engineers with a technological education	12,500
Administrative staff	5,000
White- and blue-collar workers	260,000
Total directly employed in the industry	310,000
Consultants	15,000
Overall total	325,000

Source: IOK estimates (2004).

Post-Olympic crisis

The construction industry has traditionally been particularly sensitive to fluctuations in the economic cycle. This fact is of special importance, since, according to a recent study of current economic conditions carried out by the Institute for Economic and Industrial Research (IOBE), around four months after the end of the Olympic Games the Greek economy entered a phase of slowdown in growth rates. As a result, many industrial enterprises believe themselves to be operating with surplus staff. These estimations are consistent with negative developments in the unemployment rate and the recruitment/dismissal balance noted by the Labour Force Employment Organisation (OAED) and ESYE (GR0501103F). As shown in table 3 below, the 'business expectation index' in the construction industry in December 2004 (59.6) was at the lowest level in recent months and much lower than that for March 2000 (164.2). The business expectation index is calculated on the basis of estimates regarding the development of turnover and forecasts regarding the course of employment.

Table 3. Business expectation index for construction (1990=100)*
Average	1998-2004		Average for year**			2004
1998-2004	Max	Min	2002	2003	2004	July	Sept	Oct	Nov	Dec
128.3	164.2 (March 2000)	59.6 (December 2004)	131.6	132.7	96.1	92.5	66.9	75.4	64.5	59.6

* Not seasonally adjusted; ** No value is taken into account for the month of August, when no Survey of Economic Conditions is carried out.

Source: ΙΟΒΕ, Surveys of Economic Conditions, December 2004.

The most pessimistic forecasts concern the public works sector. Factors associated with the negative climate for the future of the construction industry and therefore for employment in construction are the following:

the completion of infrastructure works for the Olympic Games;
lack of funding and serious delays by the state concerning works already completed;
no public works awarded to high-scale contractors until the introduction of the new system of awarding contracts to the lowest bidder, which will replace the award system based on a mathematical formula;
a recent 16.1% cut in the Public Investment Programme (from EUR 9.6 billion in 2004 to 8.05 billion in 2005); and
a lack of interest on the part of private capital in financing works, due to the great long-term and short-term loan obligations of some technical companies and the bank trusteeship system in which many contractors appear to have become trapped.

The stifling economic conditions faced by many enterprises in the industry have led to the appearance of collective redundancies and instances of non-payment of workers’ back pay. The first redundancies were seen in enterprises that carried out Olympic works and, according to newspaper reports, around 50,000 construction workers are expected to become unemployed in the coming months. The Ministry of the Economy’s declared intention to take forward a fiscal recovery programme, on the recommendation of the European Commission and Council is expected to drastically reduce the likelihood that the state will intervene in order to address the problem of the transition from employment to unemployment of thousands of construction workers. The reduction and possible abolition of the extra seasonal allowance paid to unemployed construction workers is already being discussed, in an effort to cut back government spending.

Commentary

The construction industry has entered a phase of recession, and as a result many civil engineering companies have begun to reduce drastically the number of people they employ. This development will exacerbate the problem of unemployment among unskilled white- and blue-collar workers, who still constitute the vast majority of workers in the industry, and it is also spreading to the categories of permanent skilled personnel of these companies. At the same time the unfavourable predictions regarding the future of employment in construction and the dismal economic climate will have a negative impact the content of industrial relations in the sector, which has already been affected by widespread violation of labour legislation, inadequate measures to address accidents at work and the high rates of casual and undeclared work. (Lefteris Kretsos, INE/GSEE-ADEDY)

Eurofound recommends citing this publication in the following way.

Eurofound (2005), Redundancies increase in construction, article.