Greece: Labor Market reforms and their impact on economic development.

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Dr. Periklis Gogas, Associate Professor and



Mr. Panagiotis Mitrakoulis,


Senior Economics Student, Department of Economics
Democritus University of Thrace, Greece

Greece’s debt crisis, that started in 2010, is the longest and most severe in the country’s modern economic history. Since 2010, when Georgios Papandreou as the prime minister signed the first memorandum of understanding (MoU), Greece implements important fiscal adjustment measures combined with structural reforms.

Fiscal adjustment clauses aim to achieve balanced government budgets or primary surpluses that will help reduce the debt to GDP ratio. The complimentary, in the MoU, structural reforms are designed to increase productivity and international competitiveness. It will be very interesting to justify how labor market reforms, which are among the most painful and spark more public debates in Greece, bring the economy back to the road of development.

With respect to employment, from 2010 to 2015:

a) there has been a significant reduction of public employees through maintaining the ratio of new hires to leaves at 1:10.

b) significant changes to the law for employee dismissal were introduced: the compensation for dismissal is paid in two installments.

c) an increase to the maximum percentage of collective dismissals from 2% to 5%

d) more flexible types of work are introduced such as contracts of temporary work and worker borrowing between employers.

e) The gradual replacement of collective contracts with individual contracts.

f) changes that directly impact the labor cost such as reduction of the general minimum wage by 22% and for young people under 25 years old by 32%.

g) public employees did not get any increase to their salaries.

h) a decrease in the compensation for overtime work.

i) abolishing Christmas, Easter and vacation bonuses .

All these measures had a direct or a side effect to the country’s labor cost. The decrease of the real unit labor cost according to the red line of Table 1 below will be approximately 8.09% in 2017 (since 2009) well below the EU average that is represented by the blue line. These projections are from the European Union Commission.

LaborFrom the beginning of the debt crisis the unemployment started to increase and it reached a record 27.5% in 2013. Since then, unemployment has started to fall, according to the temporary data from ELSTAT (Greek Statistic Authority). The unemployment rate for 2015 was 24.9% (Table 2).


Tables 3 and 4 may provide some preliminary evidence that Greek products has started gaining some international competiveness. The value of Greek exports according to temporary data reached 18.39 billion euro. The balance of trade looks better as well and it has been improved by 1.8% since 2011. Of course a significant other factor that helps the trade balance apart from the increase in competitiveness that results in increased exports is the reduction of imports due to the important decline in personal disposable income.



Balance of Trade





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