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Unfounded Obsession With the Greek Minimum Wage

The Greek minimum wage is apparently a point of contention between the Troika (ECB/EU/IMF) and the Greek government. The NY Times cites competitiveness gains as a rationale for the minimum wage cut:

The goal of any pay cuts would be to help make Greek workers, who are generally less productive than workers elsewhere in Europe, able to compete more effectively inside the euro zone, where countries share a common currency that does not allow devaluations to help even out differences in labor costs.

Huh? See below. The going line seems to be that the Greeks are lazy. They earn minimum government-negotiated wages without actually doing a whole lot because they’re uncompetitive. This is wrong; the data do not support this view.

First, the Greek people aren’t lazy at all. In fact, Greek workers spent more hours working 2010 (in annual hours actually worked per worker) than those in Chile, Hungary, Czech Republic, Poland, Estonia, Turkey, Mexico, Slovak Republic, Italy, the US, New Zealand, Japan, Portugal, Canada, Finland, Iceland, Australia, Ireland, Slovenia, Spain, the UK, Sweden, Luxembourg, Austria, Belgium, Germany, Norway, and the Netherlands – and in that order. (You can download and view the data from the OECD 2011 Employment Outlook.) Marc Chandler also highlighted this fact back in January.

Sure, one could argue that the Greek workers work a lot of hours, but it’s for less output. Furthermore, labor costs have risen substantially relative to other Euro area countries, so the country’s worse off. That’s the uncompetitiveness route. If you care about productivity and relative wage gains, why not look at the drop in Greece’s relative unit labor costs?

The chart below illustrates the average accumulated gain/loss in nominal labor costs (labor costs per hour) across the EA 12 in the run-up to the crisis, 2005-2008, and then since the recession, 2009-Q32011 (Finland data unavailable). By this measure, Greece is certainly doing what the Troika want of it: relative devaluation in nominal labor costs. Since 2009, Greek labor costs have fallen 5.3%.

(Note: the data are constructed as the percentage gain/loss of the average 2008 quarterly labor costs over the average of 2005 labor costs versus the average of Q4 2010 to Q3 2011 labor costs over the average 2009 quarterly labor costs, all working-day adjusted.)

French and Austrian labor costs appreciated 12% and 10.7%, respectively, spanning 2005-2008, and another 5.7% and 4.0%, respectively, since 2009. In Ireland, the 1.8% average reduction in labor costs since 2009 pales in comparison to the 2005-2008 14.7% surge. Greece saw a lower accumulated gain in labor costs spanning 2005-2008 than most countries and cut labor costs since 2009. The ‘wage’ cost anger towards Greece seems to be misdirected.

Now I’m really wondering what is this obsession with the Greek minimum wage? True, the Greek minimum wage did rise 0.8% spanning 2010-2011 (you can see Eurostat data here). However, as a proportion of average monthly earnings, the 2010 minimum wage in Greece is roughly in line with other program countries, Ireland and Portugal, and lower than that in France, Luxembourg, and the Netherlands.

Only in 2011 do Greece’s policies stick out when monthly minimum wage as a proportion of average monthly earnings surged to 50.1%. However, simple calculations demonstrate that for Greece the higher 2011 ratio of minimum wage to average monthly earnings was largely a function of falling average monthly earnings, -18.7%, rather than the rise in the minimum wage, +0.8%.

Perhaps I am not understanding things clearly here – I am sure that you all will correct me if I am not – but what’s this obsession with minimum wages? It looks to me like the fiscal austerity driven recession is indeed resulting in a reduction in Greece’s relative labor costs irrespective of minimum wage policy. Isn’t that the point?

12 Responses to “Unfounded Obsession With the Greek Minimum Wage”

Viking ThorFebruary 11th, 2012 at 9:23 am

The GDP (PPP) per hour worked is in Greece 40% lower than in Germany. So it means greeks ARE lazy…..

Giorgos G.February 11th, 2012 at 2:24 pm

Thanks for the informative article. I am new to terms like the ULC, so am wondering the focus is on only the numerator (costs) in this quotient?
Should the focus not be on output improvements to improve ULC? Even if necessary, wage cutting seems to be the short term solution. Does cutting wages not mean that people have less to spend? Combined with high unemployement and higher taxes (VAT, property taxes, temporary taxes, etc.) and what do you have?
Workers in Greece do work hard and are educated (though maybe not in needed areas). That output is low for a number of reasons, including outdated facilties, lack of technology and automation, re-training, etc. Not laziness.
Seems to me like the focus needs to shift to investments and creating opportunities in those areas, but would like your thoughts.

ZoltanFebruary 21st, 2012 at 11:07 pm

No. It means Germans are more "productive" – which could be down to more sophisticated machinery, or since GDP also includes wages could simply reflect higher hourly wages.

Lowering the minimum wage would reduce the GDP per hour.

GuestFebruary 24th, 2012 at 1:36 pm

This is ridiculous article. Nowhere does NY times article say greeks are lazy. They are just uncompetitive. And wages should fall in internal devaluation, thats the point. Including the minimum wage.

DimitrisFebruary 27th, 2012 at 11:49 am

The author is clueless. This article represents lousy economic journalism. The salaries have to drop so that Greece can attract FDI. It is still paying a higher minimum wage than Portugal, Spain and all of its neighbors.
And the OECD takes it a step further explaining why Greeks work longer than others. The author did not even bother to read the OECD explanation. Most Greeks do not have an office job and their entrepreneurial style typically increases the number of hours reported. Sadly for them it allows for more tax evasion…

PPPMarch 1st, 2012 at 5:21 am

It's the employers, stupid!
Greek businesses uncompetitiveness does not have to do anything with workers productivity neither with public sector bureaucracy but with those leading those businesses who are mostly ignorant and uncultivated people. They are mostly seeking to extract rents from small cartels and monopolies rather than run real businesses. That's why a Greek worker is all of a sudden more productive when you take him/her from Greece to work in a German or British company.
And the lower you keep wages in Greece, the more uncompetitive businesses become, because they can have profits with lower business standards.
Despite what Troika says, Greece has passed through a long period of wage moderation since 1996. And the result was always uncompetitive
businesses.

TobinMarch 1st, 2012 at 6:11 am

If the salaries were a major prerequisite for FDI Sudan would have attract the most FDI in the world!

Ari BermanMarch 1st, 2012 at 1:39 pm

Productivity and efficiency are NOT the same as attendance at work! And, more than that, hours at work (particularly in government jobs) are not as easily observed as the numbers suggest. The delusion that Greece's largest employer (the government) has a fully deployed workforce and that they are more laborious than all the countries listed is fallacious – unless of course you include statutory holidays, nights, vacations, work travel and paid leave as hours on the job, the information is not even close to what it suggests.

And, talking about minimum wage adjustment… it is not that the government employees earn the minimum wage. No, their pay packet is devised in multiples of the minimum wage. Unfortunately, minimum wage also effects the private sector and those who earn small multiples or no multiples at all. But, buy adjusting the minimum wage, it reduces the need to examine and re-evaluate each and every government job and negotiate individual reductions. The implementation of this and its push back would be even more disruptive than adjusting the minimum across the board.

If currency governance cannot adjust the currency value or volume on a state by state basis, you need to have a lever that accommodates the cultural differences in work ethic and real output and that can effectively gather money to start working on the huge debt. So, sour as the pill may seem, adjusting wages to reflect production reality and many years of bad management is only fair to the neighbors and trade partners who are now paying again for what they previously paid for.

That is the crux of the chatter over minimum wage.

LesleyMarch 28th, 2012 at 4:51 pm

I am an englishwoman living in Greece for the past 6 years. Its fine to compare Greece wages with Spain and Portugal, but the comparison is not even set out regarding what types of work, how much rent is paid and the price of food in the supermarkets. Also to take into account that we work mainly in the summer months, as there is only work available now if you are lucky,,,,We work damn bloody hard, try working every single day and then calculate the hourly rate of wages when you are working 8 to 10 hour days,,,what does Christine Lagarde and the other fools know about the real workers? GIve us a break
we have suffered enough now……Get the government and rich folks to take big cuts and leave the poor workers to get on with our jobs whilst we still have them!!!!

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