Sunday, 3 April 2011

The Greek (un)competitiveness saga...

Some people I talk with wonder why Greece is so uncompetitive since wages here are much lower than in the majority of Eurozone countries.

It is true that in nominal terms, wages in Greece are lower compared to the rest of the Eurozone countries.

source: Eurostat

The chart shows median income for people with tertiary education. The situation is more or less the same for people with lower levels of education, but I don’t want to make your eyes bleed, so I won’t be putting all these graphs here.

The thing is that competitiveness is a multi-faceted affair. Wages are one facet, the other facet is productivity. When you couple wages and productivity you get unit labour cost which shows how much one unit (however that unit is defined) of goods or services costs to produce.
As far as the overall economy is concerned, unit labour cost for Greece is more or less the same with other peripheral Eurozone countries (Spain, Italy and Ireland) and a bit higher than unit labour cost for Germany. An important point is that, in 2001 unit labour cost for all the countries pictured in the chart was significantly lower than the one for Germany. During the course of the decade unit labour cost for all of them rose substantially, while the figure for Germany remained essentially flat and even declined a bit, only to rise on 2008 and 2009. My second point is that since Greece has the lowest median income of the five (along with Portugal) it also has the lowest productivity of them all.

source: OECD

Certain trends observed in the Greek economy during the past few years, are perfectly explained after a look at unit labour cost figures. One such trend is the on-going deindustrialization of Greece. The unit labour cost for Greek industry despite being the lowest one on 2001, finished 2009 as being the highest and by a high margin at that. Of the countries shown in the graph, Ireland has the lowest figure, explaining in part the statement made by a few, that Ireland is the one of the PIIGS that is in the best shape and probably in better shape than a lot of core-European countries (as far as that particular metric is concerned).

source: OECD

The third facet of competitiveness is the overall business environment that a country has to offer. I had discussed some aspects of that issue in an older post. Unfortunately this certain aspect of competitiveness is maybe an even weaker link in the Greek entrepreneurship chain than the previous two. The “reforms” being introduced as part of the EU/IMF package are forced and the Greek state as well as the Greek people appear unwilling to play their part for them to materialize.

The key takeaway from the charts above is that Greece could be at least as competitive as the other peripheral countries of the Mediterranean, but it’s not. Since unit labour costs are more or less the same for these countries what ultimately makes the difference is the business environment these countries have to offer. It seems that our country has to offer the worst one possible. As for the reasons for that, one just has to take a look around him…

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