Report recommends fostering competitiveness for economic growth

The findings of the latest Economic and Employment Outlook, published by the Institute of Labour (INE) in September 2006, highlight the necessity of boosting the competitiveness of the Greek economy by stimulating investment, improving industrial relations and increasing productivity.

Background

The Institute of Labour’s (INE) 2006 Economic and Employment Outlook report – like the seven previous annual economic and employment outlooks – makes an important contribution to the public debate on labour market developments and industrial relations in Greece, as well as to the evolution of basic macroeconomic indicators such as labour productivity, wages, labour costs and investment. Researched over the course of the entire year, the report is compiled in the framework of the INE’s overall research and study activities. The results of the report were presented in early September 2006, coinciding with the opening address of Prime Minister Kostas Karamanlis at the Helexpo International Trade Fair in Thessaloniki. The findings give advance notice of the general direction of government policy in relation to the economy and employment for the coming period; they also provide a frame of reference for the new national budget.

Key findings of report

This year’s outlook report is divided into five sections, the first of which traces the evolution of macroeconomic and financial indicators. The second section refers to the employment policies implemented in the EU; the third section examines and analyses the phenomenon of company relocation and its impact on employment and industrial relations. The fourth section goes on to analyse current developments, along with the content and outcome of industrial relations policies in Greece and the EU. Finally, the fifth section deals with social security developments in Greece, in an attempt to offer a critical assessment of the objectives, the content and the results of the proposals of the International Monetary Fund.

Among its most important conclusions, the report highlights the following findings:

• The country’s rate of gross domestic product (GDP) growth is slowing down: in 2005, it increased by 3.5%, compared with 4.7% over the 2003–2004 period.

• GDP growth continues to be based on non-investment factors, more specifically on private consumption through increased bank lending, a fall in household savings, and a 2.3% rise in real wages in 2005.

• There has been a significant slowdown in labour productivity, arising from a standstill in investment in machinery and equipment. In 2005, a negative trend emerged: that year’s increase in investments was only 0.5%, compared to an annual rate of increase of 7.5% for the years 2001 to 2004.

• Average monthly gross wages in 2005 amounted to €1,440, compared with an average of €2,110 in the EU15. This means that monthly labour costs in Greece amounted to only 68% of the EU15 average, while labour productivity stood at 91% of the average in the EU15. The purchasing power of the average gross wage in Greece in 2005 was 89% of the EU15 average.

• The fall in the competitiveness of the Greek economy is not due to wage increases, but rather to revaluation of the euro and to companies’ rising profit margins. It should be noted that unit labour costs fell in comparison with competitor countries by 2% over the period 1999–2005, and by 3.2% over the period 1995–2005.

• Severe economic inequalities have been observed: the income of the wealthiest 20% of the population is regularly around six times higher than that of the poorest 20% of the population.

• The declared incomes of wage and salary earners and of pensioners have increased significantly, resulting in a strong shift of the tax burden from businesses and non-salaried earners to wage and salary earners and pensioners.

• The increase in employment by 1.2% mainly concerns the loss of part-time and temporary jobs among those with average educational and skill levels.

• In the field of industrial relations, measures have been taken and policies pursued that have contributed to weakening the role of collective bargaining and decentralising it, in turn leading to increased flexibility in industrial relations.

Commentary

The authors of the report reached the final conclusion that public investment must be increased immediately and the redistribution of income reinforced, in order to foster long-term economic growth. This is particularly important since the rise in profitability of the Greek economy as a whole can be entirely attributed to the decrease in the income share of labour. At the same time, particular emphasis is placed on the fact that the lower GDP growth rate raises the serious risk of a slowdown in the real convergence of the Greek economy with the EU average in the near future.

Lefteris Kretsos, Labour Institute of Greek General Confederation of Labour (INE-GSEE)