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Severe Pain But No Gain: Labor Market Reforms in the Greek Crisis

0 Comments 🕔08.Aug 2016

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This article is part of our feature Policy-Making Under the Troika.

by Andreas Kornelakis

In 2016 the Greek economy entered its ninth consecutive year in recession, and commentators have described it as the longest-running recession in history. Greece has lost more than a quarter of its GDP since 2008, while the unemployment rate stubbornly stands at about 25 percent. Against this backdrop, the content of labor market reforms that are part of the bailout conditions includes the usual neoliberal menu: decentralizing collective bargaining, relaxing employment protection legislation (such as dismissals limits), reducing the level of minimum wages to restore cost-competitiveness, reforming arbitration and mediation processes to the favor of the employers, increasing working time flexibility, and much more.

Ironically, the intensity and depth of the labor market deregulation required is much greater than the “Hartz reforms” that Germany itself implemented in the past decade. For instance, hiring and firing became easier and much less costly for employers after the Memoranda reforms. According to data from the OECD for 2013, and particularly the legislation regarding individual and collective dismissals for regular contracts, Greece is now the sixth most flexible EU-15 country (after the UK, Ireland, Denmark, Finland, and Spain). This is a complete reversal of the situation before the crisis. Despite this deregulatory impetus, there is no positive change in terms of jobs or economic growth.

The position of different actors vis-à-vis this policy mix is not surprising. The peak trade unions, GSEE and ADEDY, rejected the reforms on the whole. Their strategic reaction entailed organizing national strikes and protests, almost as a knee-jerk response, without any tangible results. Evidence suggests a split in the employers’ camp.[1] On the one hand, SEV (which is the peak representative association of large export-led enterprises) was generally supportive of the direction of the institutional changes in the labor market, since they were in line with their long-standing agenda for greater labor market flexibility. On the other hand, the peak employers’ associations ESEE and GSEVEE (representing SMEs and inward-looking commercial firms) were largely critical of austerity measures as the SMEs are likely to suffer from tax increases and lower consumption levels, which are part and parcel of the austerity measures.

The newly elected coalition government led by the Left party Syriza, initially rejected the austerity and labor market deregulation measures, seeking to reverse the institutional framework to the pre-memoranda reality. However, the prolonged negotiation with Germany in 2015, which culminated to the shutting down of the banking system and the imposition of capital controls, did not move the position of Germany and the creditors. Faced with the dilemma of exiting the Eurozone (the so-called Grexit) or signing up to yet another harsh bailout program, the Syriza-led government reluctantly opted for the second. As part of the new bailout package, the re-elected Syriza-led coalition has had to concede to other demands by the Troika, such as moving forward with the privatizations in major transport hubs infrastructure (ports and airports). This has resulted in the paradox of a Left government being in direct confrontation with the trade unions, while several voices from within the Syriza party suggest that political instability is looming.

Despite broader criticisms from internationally known academics such as Joseph Stiglitz and Paul Krugman that austerity and deregulatory policies do not work, the German government and the Troika remained immovable in the content of the bailout conditions. The elephant in the room is that this policy mix could favor a productive model that is based on export-led growth.[2] However, the production model in Greece has several idiosyncrasies that make the policy mix unsuitable, most likely pushing the country towards a dysfunctional Liberal Market Economy.[3] Greece’s growth model has been exceptionally inward looking and predominantly consumption-led. Hence, the collapse of domestic demand due to austerity has proved fatal for the Greek economy. It is now trapped in a death spiral of a contracting economy that limits domestic demand and further reduces tax revenues, which perpetuate the debt-deficit trap and require even more painful austerity until the vicious circle starts all over again. One way to break this circle is to write off some of the debt, which is a prospect that the Germans (and other Europeans) most vigorously reject.

All in all, the direction of institutional change in labor market reforms follows a standard neoliberal mix that has failed to produce any positive results as yet. With the exception of SEV, there is no coalition of actors that supports the reforms. Instead, the agenda is driven by IMF-type of conditionality, and reforms have to be implemented so that the lifeline of credit is maintained. The creditors represented by the Troika of ECB-EC-IMF suggest that it’s the government’s fault that reforms are not working. They accuse the Greek government that it pays lip service to the reforms but does nothing to implement them. The recurring argument is that “not enough has been done.” Even so, it is not clear “how much” is “enough.” The future prospects look depressingly bleak. Austerity and labor market deregulation have caused a lot of pain without any gain.

 

Andreas Kornelakis is Senior Lecturer in International Management at King’s College London.

This article is part of our feature Policy-Making Under the Troika.


References

[1] See Koukiadaki, A. and Kokkinou, C. (2016) “The Greek system of collective bargaining in (the) crisis” in A. Koukiadaki, I. Tavora & M. Martinez-Lucio (eds.) Joint Regulation and Labour Market Policy in Europe during the Crisis. Brussels: ETUI, pp.135-203.

[2] For a comprehensive recent discussion of different growth models in the context of comparative political economy see: Lucio Baccaro and Jonas Pontusson (2016) “Rethinking Comparative Political Economy: The Growth Model Perspective.” Politics & Society, Early View.

[3] This argument is elaborated in greater length here: Kornelakis, A. and Voskeritsian, H. (2014) The transformation of employment regulation in Greece: Towards a dysfunctional liberal market economy? Relations Industrielles/Industrial Relations, 69 (2): 344-365.

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