Unfounded Obsession With the Greek Minimum Wage
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?
No, I think the point is that you grab any statistic that seems to confirm your policy preferences and then you wave it in front of people who have no idea what it means.
I always though “productivity” was a measure of how much labor output was enhanced by capital (machinery) not a measure of the moral quality of the workers.
Though there are bogus changes in “productivity” created by changes in the employment level vs fixed costs during recessions and recoveries.
or maybe it’s just a measure of how much you have to pay labor per unit of profit. definitely something we don’t want to get out of hand.
As I understand labor cost it is the total expenditures paid by employers for employing workers. You say since 2009 Greek labor costs have fallen by 5.3%. But also since 2009, Greek employment has declined by 8.3%. It you have fewer workers you have less costs. But also notice that the cost declines have not kept up with the employment declines. It seems the Greek are still paying more for less.
Productivity is the relationship between the output from labour and the ost of employing labour. So it has nothing to do, at all, with working hours. It’s, as Coberly says, enhanced by adding capital to workers….or sometimes just decent management, changing working practices, all that sort of stuff.
Greek unit labour costs are falling, yes, but they are way, way out of line with the rest of Europe. Much higher.
Minimum wage: The general thought is that min wages over 45% or so of average wage cause large unemployment problems. Under 40% of avereage wages they’re not much fo a problem. As you say it’s 50% in Greece…….
Do you really think direct labor costs are out of hand?
absolutely not. that was my point.
thanks for the support.
i would iike to return the favor, but i am leery of any statistics. the question is can the Greek worker live on the minimum wage. do the greek people favor a more equitable distribution of wages– i see nothing wrong in principle with olive pickers making as much as financial planners.
of course if your olive pickers are competing with chinese organ donors for market share, you would have a problem.
lets see.. employment has declined but costs have not. does that tell you something?
i don’t think it’s the greeks who are paying more for less. i think that greek olive pickers just can’t compete with german olive pickers.
I think that’s not really right to try to judge all the nation in common and say that they are lazy.As far I know Greek people spend a lot of house working and it’s impossible to say that they do not want to work or are lazy about their jobs.But I think that euro zone crisis will make it’s negotive influence and we will see minimum wage cuts in Greece.When a country is in so deep crisis it worth do expect anything, but nothing really good, because the country drown in debts and can survive only with a help of tranches from Europe.That’s why Greece has to be ready to unexpected changes, that are not really good and minimum wage cuts is only the small thing from all the list of cuts that may happen.
Brian from CashAdvancesUS
Your assumptions are based on pure nonsense. It is not written in the stars that Greeks must have astronomical rates of unemployment. It is written implicitly in the minimum-wage laws. People who are less in demand — whether because of inexperience, lower skills, or race — are just as employable at lower pay rates as people who are in high demand are at higher pay rates. The net economic effect of minimum wage laws is to make less skilled, less experienced, or otherwise less desired workers more expensive — thereby pricing many of them out of jobs.