Assessing the impact of the crisis on the Greek labor market: will it ultimately manage to secure its rebirth?

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Assessing the impact of the crisis on the Greek labor market: will it ultimately manage to secure its rebirth?

Since the onset of the Greek sovereign debt crisis and in the midst of non-stop negotiations with the European Commission, the European Central Bank and the IMF, Greece has been instructed to apply tight fiscal consolidation measures and implement a series of structural reforms to improve its competitiveness and boost its growth, in seek of receiving financial assistance and securing its “bail out”.

In this context, Greece has undergone extensive labor market transformations in an attempt to regain competitive edge, enhance employability and overturn the dramatic increase of unemployment rates (almost 30%) that has been reported since the outbreak of the crisis.

Market transformations include, inter alia, revising the minimum wage which was reduced by 22% to 586EUR(and by 32% to 510EUR for under 25s market entrants respectively), limiting salary adjustments and amending the employment protection regulation facilitating layoffs (reduction in notice periods, drastic cuts in severance pay entitlements). Moreover, a series of reforms have been initiated aiming to increase employment flexibility, reduce labor cost and bend the rigidity of the Greek labor market, mainly including the introduction of new recruitment facilities for employers or the possibility to transform active employment contracts in part-time employment schemes, the extension of the maximum duration of fix-term contracts to three years and the reduced protection of employees during the one year trial period. Such changes clearly mark the current trend in labor law towards flexible forms of employment.

According to the OECD data, the percentage of part-time employees involuntarily working on a part-time basis has risen from 26% in 2008 to 44% in 2012, whilst the OECD average in 2012 was 17,8%. On the other hand, the average annual hours worked per employee have also increased during the same period, scaling upto the third highest in OECD – which is 15% higher than the OECD average. Vulnerable population groups (young people, long term unemployed, women etc) are challenged with greater barriers when it comes accessing employment. In fact, in 2013, 58% of under 25s were unemployed, securing for Greece the highest unemployment rate in the EU.

Besides the changes implemented to regulatory protection, the majority of the aforementioned reforms, including but not limited to the introduction of laws reducing and freezing the minimum wage–normally established through collective bargaining agreements at the expense of sectorial ones, have undoubtedly led to the deregulation of the collective bargaining system.

The impact of such reforms on the Greek labor market has led to strong controversy amid social groups. The reforms have received fierce criticism, on one hand, for being detrimental to both social dialogue (collective bargaining) and human rights and, on the other hand, for bringing extremely poor results when it comes to creating new employment opportunities. Such criticism though not entirely groundless, fails to take into account the fact that the effects of labor reforms depend also heavily on the so called “business cycle” which is seriously affected and undermined by the implementation of strict austerity and fiscal consolidation policies as Greek recession continues.

Nonetheless, it is a fact that both the European Council and the International Labour Organization (ILO) have called on Greece to observe International Labour Conventions on fundamental human rights, such as the right to work, the freedom of association and the right to organize, highlighting the absence of social dialogue and the need to strengthen and safeguard such fundamental human rights. Furthermore, it has been stressed that Greek authorities have failed to provide the social support required in order to tackle the sharp rise in unemployment let alone protect the right to just and favorable conditions of work.

Six years since the first Memorandum was introduced in 2010 and numerous wage and pension cuts, staggering unemployment rates and a vicious circle of deficits and recession after, a much more pervasive set of measures is yet to be implemented stemming from the third Memorandum (Law 4336/2015) adopted last August. The new reforms are rumored to pertain to mass layoffs, collective bargaining, additional wage and benefit cuts (including further reduction of minimum wage, elimination of holiday and annual leave bonuses for private sector employees) and the introduction of new forms of employment, in a last effort to further encourage flexibility. The omens so far may not be good for the already traumatized Greek labor market and it remains to be seen whether it will manage to survive and, after all, head towards its rebirth.


Georgia Konstantinidou

 Partner Greece