Flexibility in Greek labour market widespread but inadequate, report claims

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The Greek labour market is quite flexible, but it does not meet companies' expectations and objectives. This is one of the main findings of a report from the Economic and Industrial Research Institute (IOVE), published in September 2000, based on a survey of companies in industry, services and the retail trade.

At the end of 1999, the Economic and Industrial Research Institute (IOVE) conducted a survey aimed at recording the views of Greek enterprises on the conditions prevailing in the labour market, work organisation and employment conditions. The survey, published on 20 September 2000, was conducted among companies in industry, services and the retail trade.

Theoretical background to the survey

The IOVE report recognises that current high level of unemployment (a rate of around 12%) cannot be attributed to lower employment, for the very simple reason that employment is increasing. The increase in unemployment, therefore, does not stem from the side of employment but from the side of the supply of labour (ie the labour force).

According to the IOVE report, the fact that the increase in unemployment does not arise from the demand side relates first to the rate of economic growth, and second to the employment content of growth. As regards the first factor, GDP growth rates in Greece have been relatively high (over 3% annually) since the mid-1990s. As regards the capacity of economic growth for creating jobs, this capacity obviously varies according to the conditions in different countries and different periods. The empirical method of describing this capacity is based on the "employment content of growth", a measure that compares the rate at which employment is increasing with the rate of increase in GDP. With a higher employment content of growth, a one percentage point increase in GDP creates more jobs. The IOVE report has determined that in recent years this measure has decreased in Greece.

The references in the IOVE report to the need for labour market reforms as the answer to unemployment growth start from this point, ie from the need to increase the employment content of growth as a means of combating unemployment. The questionnaire used in the survey was based on this approach.

The results of the survey

As far as the industry sector is concerned, the IOVE survey indicates that the majority of workers (70%) are designated as skilled employees working full time, many of them (14%) under fixed-term contracts. Most of the industrial companies surveyed estimate that at present there is a surplus of employees (most of them unskilled) which will be reduced by impending restructuring. However, they estimate that in the long run the introduction of new technologies and the attendant rise in demand and production will be able to reverse the downward course of employment. Of particular interest are the results of the survey regarding labour market flexibility: industrial enterprises believe that they "already have, to a substantial degree, the ability to respond in plenty of time to changes in demand by making use of the already existing possibilities for flexible use of the labour force". The fact that existing flexibility is quite extensive can also be seen in the rise in the number of operating hours in industrial plants. However, 47% of the same enterprises believe that there is a need for more flexibility, particularly in: implementing new working time arrangements; eliminating obstacles to hiring temporary staff and moving staff around within the enterprise; and overcoming reluctance to hire permanent staff (because of the high cost of recruitment and dismissals).

The services sector employs large percentages of specialised and full-time staff. Part-time employment is at low levels compared with EU averages; however, employees are more often hired under fixed-term employment contracts. Employment in this sector is expected to continue to increase rapidly, as it has in the past. According to the responses from the enterprises in the IOVE survey, lack of flexibility in working time arrangements, reluctance to hire permanent staff (due to the amount of compensation and "red tape" involved in dismissals) and the lack of skilled staff who can be moved from job to job within enterprises are the main constraints on the ability of enterprises to respond promptly to changes in demand.

The survey also devoted attention to the retail trade, a sector in which part-time employment is found to be very widespread (33%), particularly in large stores. The great majority of workers are employed under open-ended contracts. Stores' operating hours are restricted by mandatory operating rules which oblige companies to pay overtime when maximum working hours are exceeded. "However, if working hours were deregulated", states the IOVE report, "companies believe that they could significantly enhance their competitiveness and productivity by further extending their operating hours". Part-time employment, which is widespread, is the main form of flexibility used by commercial enterprises, especially the larger ones. The companies included in the survey were generally of the opinion that it would be very useful if it were possible to implement new working time arrangements.

Commentary

The theoretical starting point of the IOVE survey is the assumption that the problem of unemployment in Greece stems from labour supply side. Therefore, it is seen as self-evident that labour market reforms constitute part of the answer to unemployment growth. This theoretical view is eloquently expressed in the questions put to enterprises in industry, the services and the retail trade in the framework of the survey.

The findings show that labour market flexibility in Greece is quite widespread, refuting the commonly held view that the Greek labour market is one of the EU's most regulated and least flexible.

Another interesting finding of the survey is that the respondent enterprises clearly expressed their desire for further reform of the labour market with a view to making it more flexible. The value of these responses should be carefully weighed, because in all cases (that is, regardless of the degree of labour market flexibility), enterprises would arguably tend to make the same response to the questions put to them – in other words they would tend to state that more flexibility is required, regardless of whether it is widespread or not.

The finding that flexibility is widespread in Greece also throws doubt on the prevailing understanding of unemployment (ie that the high unemployment rate is due to labour market inflexibility). The Institute of Labour (INE) of the Greek General Confederation of Labour (GSEE) is of the view that this phenomenon should be interpreted otherwise: increases in the employment rate are high when income from labour (as a percentage of GDP) is low, and vice versa. Reduction of income from labour forces more and more members of households out to seek jobs in the labour market. When households face repeated reductions in their income, in an attempt to keep constant the level of consumption which they believe meets all their basic needs, along with the (increasing) social needs corresponding to the times we are living in, they tend to supply more labour, so that in the end the labour force increases faster than the employment rate. (Eva Soumeli, INE/GSEE-ADEDY)

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