Saturday, 17 September 2011

The Greek services sector and what's holding it back...

The technological content/degree of sophistication of an economy’s products and services and their added value usually go hand in hand.

One of the prevailing trends in the so-called developed countries (a group that Greece is considered to be part of, miraculously) for the past 20 years is the transition from industry/manufacturing to a services-heavy economy.

As it is natural then the countries that are able to offer the most sophisticated services with the highest added value possible, will be the ones whose citizens will enjoy the highest living standards.

Services in particular, since they are labour-intensive and not capital-intensive, rely heavily on knowledge and human capital so that they can increase the added value they generate.

In this particular respect as most of us probably expect, Greece ranks desperately low in the overall EU table. Unfortunately the data I found are for 2008, a bit dated, but with the stagnation that’s plaguing the Greek economy I doubt that the picture has improved.

source: Eurostat

Here’s a chart about employment in knowledge intensive services-related occupations (or knowledge intensive services – KIS, as Eurostat calls them). Greece is a real laggard compared to most of its EU peers, even when compared to countries that are considered as emerging markets. 

According to Eurostat, knowledge intensive services are: 
  1. Knowledge-intensive high-tech services: Post and Telecommunications (64); Computer and related activities (72); Research and development (73),
  2. Knowledge-intensive market services (excluding financial intermediation and high-tech services): Water transport (61); Air transport (62); Real estate activities (70); Renting of machinery and equipment without operator, and of personal and household goods (71); Other business activities (74),
  3. Knowledge-intensive financial services: Financial intermediation, except insurance and pension funding (65); Insurance and pension funding, except compulsory social security (66); Activities auxiliary to financial intermediation (67)
  4. Other knowledge-intensive services: Education (80); Health and social work (85); Recreational, cultural and sporting activities (92).
As I mentioned above knowledge intensiveness and labour productivity (I hereby used Gross Value Added per person employed as a proxy) go hand in hand. Well, here’s a regression using panel data from EMU countries, showing just that. Unfortunately the dataset had to be shaved down considerably for the data to be comparable. Nonetheless, I think that the message that the chart gives away is crystal clear. The red dot is Greece.

source: Eurostat, AMECO, own calculations

Here’s the scatter plot for another regression using panel data for EU countries, concerning employment in knowledge intensive services-related occupations and GDP per capita. A you can see, when one takes into account Greece’s level of GDP per capita, it seems that a disproportionately low % of Greece’s total labour force is employed in knowledge intensive services occupations. Greece comprises a bit of an “anomaly” in the dataset. Again, in the chart, Greece is the red dot.

source: Eurostat, own calculations

Could this be an objective indicator that Greece’s level of GDP per capita was artificially pumped all these years due to the running of general government deficits, while our economy’s fundamentals were geared towards a lower GDP per capital level? I don’t know if that is so, but it surely means that the Greek economy remains parochial and outdated…

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