How the minimum wage has evolved

Printer-friendly version

Austerity measures have led to big reductions in the minimum wage in Greece. Last year it was reduced by 22%, and by 32% for workers under 25 years old. The minimum wage is likely to remain at this level until the budgetary adjustment programme that has been underway in Greece for more than two years ends. The programme of cuts has not only reduced the minimum wage but has also affected unemployment benefit, illness and maternity allowances, pensions and levels of overtime pay.

Background

The evolution of minimum earnings was examined in the most recent report on the Greek economy and employment, published in August 2012 by the union-backed Labour Institute of the Greek General Confederation of Labour (INE/GSEE). The report looked at the evolution of minimum earnings in Greece for the period between 1984 and 2012, as determined during various negotiations for the National General Collective Agreement (EGSSE). It also looked at any arbitration awards in force during each time period.

The report splits the evolution of the minimum wage in Greece into three distinct time periods, between 1984 and 1996, between 1997 and 2009, and from 2010 to 2012.

A fall in the first period

During the first period from 1984 to 1996, actual minimum earnings dropped considerably by about 20 percentage points. Taking the minimum wage in 1984 as the base level, by 1993 the minimum wage had fallen to 79.3% of the base level in real terms, and remained at around 80% of the base level until 1996.

Increases in the second period

During the second period from 1997 to 2009, annual increases consistently exceeded average inflation. During this time there was a gradual recovery of the purchasing power of the minimum wage that had been lost during the previous period. The rise in real terms was approximately 22 percentage points, with the indicator going up from 80 to 102, compared to the 1984 base level, by 2009.

The INE/GSEE report says, however, that workers receiving the minimum wage did not benefit from any increase in their productivity between 1984 and 2009.

Levels fall again

During the third period (2010–2011), there was a reduction of the minimum actual earnings level by 5.2 percentage points. It meant the minimum wage returned, in terms of purchasing power, to pre-1984 levels. The most recent changes in February 2012 brought a drastic reduction, in terms of the minimum wage’s purchasing power, reducing it, in real terms, to 77.9% of the 1984 base rate.

The most recent three-year EGSSE covered the years 2010 to 2012. It stipulated that there would be no increase in the minimum wage for 2010. It did allow for two increases, to match the rate of inflation in the euro zone as a whole as determined by its Consumer Price Index (CPI), on 1 July 2011 and on 1 July 2012.

As a result, the minimum wage dropped in real terms in 2010 and 2011. The 2011 increase in line with euro zone inflation was 1.6%, and did not match Greece’s average annual inflation of 3.3% in the same period. Inflation for lower income earners is also generally higher than the average because of the structure of consumption by low income households, and the pricing of various essential goods and services.

The 2012 rise provided for in the EGSSE would have increased the minimum wage by 2.6%, raising it from €751.39 a month to €779.92. Daily wages would have gone up to €34.44 from €33.57.

However, in February 2012 the Greek cabinet instead approved cuts to the minimum wage.

Austerity brings dramatic cuts

The Greek government made the cuts in response to a second round of austerity measures demanded by international lenders (GR1203019I). The austerity measures approved by the Cabinet of Ministers in February 2012 not only cut the minimum wage levels provided for by the EGSSE but also changed the way in which minimum levels of pay were determined. Collective bargaining between social partners to set the minimum wage was effectively abolished.

The new rules meant it was possible for the government to unilaterally reduce wages. It announced a 22% cut for the standard minimum monthly wage, and a 32% cut for those under the age of 25. The cuts were to be effective from 14 February 2012 and remain in place until the completion of the budgetary adjustment programme.

The terms were set by the European Union (EU), the International Monetary Fund (IMF), and the European Central Bank (ECB) as a condition of the euro zone’s continuing support of the Greek economy.

More specifically, the rules specified that the minimum limits were as follows:

  • daily rate of €26.18 gross (from €33.57) for unskilled, unmarried blue-collar workers;
  • monthly rate of €586.08 gross (from €751.39) for unskilled, unmarried white-collar employees.
  • young people under 25 years of age, a nominal reduction of the minimum earnings by 32% is provided for:
  • daily rate of €22.83 gross (from €33.57) for unskilled, unmarried blue-collar workers;
  • monthly rate of €510.95 gross (from €751.39) for unskilled, unmarried white-collar employees.

Commentary

INE/GSEE’s experts say that Greece is the only EU country where there has been a reduction in the minimum wage. This, coupled with the shake-up of labour relations brought about during the past two years, has led to a dramatic reduction in earnings across the entire private sector.

The minimum wage has been transformed from an instrument for the protection of the low-paid into a way of supporting the generalised reduction of wages across the economy being pursued within a framework of internal devaluation.

It has meant the role of the minimum wage has been diminished. It is now merely a factor influencing the inflation rate in Greece, or is being used to improve competitiveness. The idea that the minimum wage is a route to income redistribution has been entirely ignored.

Elena Kousta, Labour Institute of Greek General Confederation of Labour (INE/GSEE)

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment

Click to share this page to Facebook securely

Click to share this page to Twitter securely

Click to share this page to Google+ securely

Click to share this page to LinkedIn securely