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The following OECD assessment and recommendations summarise Chapter 4 of the Economic survey of Greece, published on 30 May 2007.
How can the functioning of the labour market be improved?
The standardised unemployment rate has fallen from a peak of 12% of the labour force in 1999 to around 9% in 2006, but still remains among the highest in the OECD. High unemployment is particularly prevalent among certain vulnerable groups, particularly first-time job seekers (mainly the young) and labour market re-entrants (mainly women); at the same time the unemployment rate for prime-age males is slightly below the OECD average, while it is double for prime-age females and the young. A range of other indicators – including the high incidence of long-term unemployment, low monthly outflows from unemployment, long average job tenure, and low gross labour flows between industries – suggest that labour mobility, broadly defined, is relatively low. There is scope for policy to improve labour market flexibility, such as actions that reduce minimum labour costs and ease the relatively strict employment protection legislation, although this is not currently on the government’s reform agenda. Other important policy changes such as greater support for active labour market measures and childcare will probably have to await a further improvement in the fiscal situation. Greece will participate in the OECD school-to-work transition review, being reviewed during 2008, and this may shed further light on the appropriate policy responses to reduce the persistently high rate of unemployment among young people.
Employment rates are lagging behind
Employment as a percentage of population in the same age group, 2005
Source: OECD (2006), Database on Labour Force Statistics, October, www.oecd.org/els/employment/stats.
A recent OECD review of the available cross-country evidence suggests that, while minimum wages may sometimes play a useful supporting role in a broader anti-poverty programme, there is potential harm to job creation when minimum wage levels are high, particularly where no adequate allowance is made for youth and other vulnerable groups. For Greece, minimum wages, as a share of the median wage, are not exceptional in international comparison. However, the absence of a specific sub-minimum means that they do rank among the highest for youth. Minimum wages do differ by experience and family circumstances, but such differences do not appear to be sufficient to protect the most vulnerable groups. Any adverse effect on employment is exacerbated by relatively high social security contributions of employers which further increase the minimum cost of labour. An unusual, but not unique, feature is that legally binding minimum wages are set by the social partners and apply to the whole economy. Moreover, there is a close correlation between changes in minimum wages and average wages, suggesting that the process of setting minimum wages is closely integrated with aggregate wage determination. In setting minimum wages, the social partners should take into account high unemployment rates of youth and women. In order to reduce the minimum cost of labour, social security contributions for the low-paid should also be cut further, with this move being financed by public spending restraint. A more favourable treatment of low-income earners with families should be accomplished through the benefit system rather than through differentiated minimum wages. Given that unit labour cost increases have outstripped those in the rest of the euro area and thereby eroded competitiveness, the government should also consider ways to encourage more decentralised bargaining. This might be achieved by avoiding the administrative extension of collective agreements (at the industry or occupational level) to enterprises not represented in the negotiations. The government should continue to aim for more moderate increases in the wages of its own employees, as in 2005 and 2006, recognising that they often play a leading role in aggregate wage developments.
Employment protection legislation (EPL) across all occupations is roughly in line with the average for the other EU countries which are OECD members, but it is much stricter for white than blue collar workers, due to higher severance payments. While differentiated regulations for dismissals of white and blue collar workers are also in place in other OECD countries, this difference is much greater in Greece. This distorts the labour market, reduces labour market turnover and harms the employment prospects of groups which are most subject to entry or re-entry problems, such as the young, women and the long-term unemployed. Accordingly severance payments for white collar workers (especially those with relatively short tenure with the same employer) should be reduced and brought into line with those for blue collar workers. Consideration should also be given to bolder options, such as transforming severance pay legislation into a system of individual accounts as pioneered in Austria. Moreover, although the restrictiveness of EPL for temporary employment has decreased over the last decade, it remains among the most stringent in the OECD. Temporary employment can, however, be a first step towards career progression as it facilitates labour market entry for youth. Given the high rate of youth unemployment combined with the difficulties in entering the labour market, EPL on temporary employment should be reduced further. In addition, if temporary employment is to facilitate labour market entry, complementary reforms have to ensure that youth who start in temporary jobs move into permanent arrangements. Loosening EPL on temporary employment should hence be combined with reducing the level of protection for permanent workers.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Greece 2007 is available from:
For further information please contact the Greece Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Dave Turner, Vassiliki Koutsogeorgopoulou and Pamfili Antipa under the supervision of Peter Hoeller.