Home > Uncategorized > The 13,6% decrease in hourly wage costs in Greece after the third quarter of 2009

The 13,6% decrease in hourly wage costs in Greece after the third quarter of 2009

March 15, 2012 Leave a comment Go to comments

from Merijn Knibbe
According to the IMF, Greece has to cut wages. See here and here.

Hmmm. Let’s improve upon the IMF and look at the facts – Greece already did. No country in Europe comes even close (graph), according to recent data from Eurostat. To no avail, alas, as employment is down 8,5%, compared with a year ago (and again, no country in Europe comes close). Considering a 7% rate of inflation between the third quarter of 2009 and the third quarter of 2011 as well as taking the decline of employment between 2009 and 2010 into account this means that purchasing power of total wages must have declined with about 30% in two years (which is consistent with the comparable decline of retail sales).

Technical niceties: as the EU hourly labor cost data published today for the fourth quarter of 2011 do not cover Greece this country is not shown in the Eurostat press-release graph, which therefore means that this graph does not show the, compared with the other EU countries, epic decline of Greek wages. Data for the third quarter of 2011 are however available. I decided to compare the percentage change of wages between the third quarter of 2009 and the third quarter of 2011. The difference with countries like Germany is a stunning 17% in two years. Mind that these are not contractual wages but (total wages plus other wage costs actually paid) divided by the total number of hours, which means that the data are influenced by changes in the structure of the economy. Mind also that Greece is a country with an unusually large number of self-employed.

  1. maria negreponti-delivanis
    March 15, 2012 at 11:53 pm
    Reply

    Ι think that thw estimations above, despite the lack of statistical date, are right.one of the reasons that the recovery will need more a decade, if you also consider the effects of negative multiplier.

  2. Henry Law
    March 16, 2012 at 5:18 am
    Reply

    Oh dear here we go again. WAGES ARE NOT A COST OF PRODUCTION. They are a SHARE of production. Wages are what people actually receive in return for their labour.

    If wages are too low then people cannot afford to buy what they have produced themselves!

    Now gross labour costs to employers – they are another matter, since they comprise not only wages, but also all labour-related taxes including so-called “income tax” nominally paid by employees.

    There is a need for clarity on this matter.

    • Jeff Z.
      March 16, 2012 at 12:39 pm
      Reply

      Henry,

      Wages can be both a cost of production and a share. In some sense it depends on your point of view, but even in your post above you point out that

      “Now gross labour costs to employers – they are another matter, since they comprise not only wages, but also all labour-related taxes including so-called “income tax” nominally paid by employees.” Wages here are a part of costs, and most employers will see it that way and act accordingly.

      You are right that if wages are too low, those who work for wages can’t afford to buy what has been produced. From an individual employer perspective, wages are certainly a cost or outlay, and a necessary one. An individual firm’s owners may want wages to be as low as possible, while wanting wages in other areas of the economy to be as high as possible so that there is decent demand for the company’s products.

      Wages are paid in money that represents a claim on society’s output. So from an economy wide perspective, wages can certainly be regarded as a share of output. U.S. GDP figures are routinely parsed out this way, since you can talk about the “wage share” of GDP and the “profit share.”

      This also highlights the dual nature of ‘profit’ and both a share of output, and a cost of production. The cost of production notion really plays an important role in intermediate goods, such as, say, financial services. Increased profits in financial sector does not necessarily mean increased efficiency in delivering financial services.

      • Henry Law
        March 16, 2012 at 2:06 pm

        What you are saying is what employers imagine but it is a false view of the underlying economic reality.

        Production starts when workers extend credit to an employer and add value through their labour. It is not generally recognised that workers are a major source of credit in the economy.

        The fruits of their labour are sold and the product distributed. Some goes to the workers and that is the reward for their labour, ie their wages, that which is actually available for them to spend, not some notional figure.

        Some goes to the employer, and that is the reward for his labour eg entrepreneurship and for the supplier of his physical capital. He also has to pay for the supplier of his credit, Some goes to the government and that is tax. The residue goes to the landowner and that is rent of land.

        The appearances, I agree, can be otherwise but that is due to faulty systems of accounting and deception on the part of government. The greater the divergence between the two, the more the confusion and inability to resolve the resulting problems.

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