Bruegel: Is Greece’s labour market bouncing back?

15 June 2017
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The Greek economy has suffered greatly since the 2008 crisis, but one bright spot in the Greek economy is the rebound of the labour market. This resurgence is touching many sectors.
Although employment in Greece shrunk by an astonishing 19 percent from late 2008 to early 2014, employment figures now show signs of recovery.

Figure 1 below shows the number of persons employed relative to the first quarter of 2014. Employment started to expand in 2014, with a short-lived setback in the first quarter of 2015, when the Syriza government came to power and discussions with official creditors stalled. However, since the second quarter of 2015, employment has been expanding again in many sectors of the economy.

The largest sector – trade, transport and tourism – recorded 7.5% more employees in the first quarter of 2017 than three years earlier. This is a remarkably positive development. Industry, professional services, and information and communication services also recorded substantial job gains.

Therefore, the rebound is especially strong in the so-called tradeable sector, which brings revenues to Greece from abroad. This is especially important, given that Greece has a large external debt, because a strong performance of the tradeable sector would help to reduce this debt.

Employment is also expanding in the public sector, despite all the talks of massive layoffs.

The sectors with the weakest job records are financial and insurance activities (most likely due to the inevitable restructuring of the banking sector) and agriculture.

And what about wages? The pre-crisis wage growth continued till early 2010, after which hourly wages fell by 24% (in nominal terms) till mid-2015, an extraordinarily large fall. However, as Figure 2 indicates, since the third quarter of 2015 hourly wages are increasing in most sectors (note that quarterly data is somewhat volatile).
Certainly, after a dramatic collapse, the Greek labour market shows clear signs of a broad-based recovery. This might signal some improved business optimism and might be followed by a stronger economic recovery too. Such an expectation is supported by the changes in the Greek economy towards a new growth model, as I argued two years ago here.

How can Greece’s partners support these positive developments? Well, clarity about Greek public debt (a topic to be discussed by the Eurogroup on Thursday) and the possible inclusion of Greek bonds in the ECB’s asset purchase programme would promote positive sentiment. Doing so could help unleash growth in Greece, furthering these welcome trends in the labour market.

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