The Problem of Unemployment in Greece

(The following is an extended version of a piece that originally appeared in Greek in Kathimerini.)

The responses to unemployment by the last three governments in Greece have been characterized by sloppy proposals and an insignificant amount of funds in relation to the size of the problem. Regardless of whether there were political considerations behind it (or not), the recent announcement of the Prime Minister highlights, unfortunately, a relentless continuation of a lack of understanding of reality.

The Prime Minister recently (on January 29) told us that unemployment is a “sneaky enemy” and proceeded to announce measures to tackle the problem. He also indicated that “we do not promise things we cannot do, and we say no to populism and fine words.” The goal of the proposed measures, we heard, is to create 440,000 “work opportunities,” of which 240,000 will target the unemployed 15-24 years of age with no prior work experience. The announced measures totaling 1.4 billion euros will be financed by funds from the National Strategic Reference Framework (NSRF), social funds from the EU, and are classified into three pillars.

Specifically, the first pillar sets a target to recruit 114,000 unemployed for the private sector; an initiative that essentially subsidizes wages and social security contributions for businesses that hire unemployed who are up to 29 years old and some who are unemployed between the ages of 30 and 60. The second pillar concerns 240,000 young persons. This program will provide work experience and training for all unemployed up to 24 years old who have no prior work experience. These unemployed will also go to private companies for some time, or participate in vocational training centers (VTC) to improve their skills in order to find their first job, or both. The third pillar concentrates on hiring 90,000 unemployed from households that have no employed person, who will work in community service projects in the public sector and local government.

Assuming that strict rules are in place, with dedicated control mechanisms that will guarantee non-replacement of existing positions in the private and public sector (really, is there a sufficient number of public sector inspectors for this task?), prima facie, it all sounds positive and leads to the conclusion that at last the Prime Minister himself has publicly accepted his responsibility toward the citizens that have been left without a job. But appearances can be deceiving.

Let’s start with the obvious. If we divide the 1.4 billion euros by 440,000 job opportunities to be created in the next two years, we arrive at an average of 220,000, now unemployed, future employed per year, who will receive a total of 3,182 euros during one year, or 265 euros per month. So these jobs offer underemployment, starvation wages, or both. Job opportunities? These interventions in reality provide employment for 4-5 months. Then what?

Moreover, there was nothing new proposed. The present government, on January 10, 2013, had presented us with a National Action Plan for Youth Employment. The “Action Plan” consisted essentially of a compilation of already existing interventions, which, it should be noted, had already received miserably failing grades from ELIAMEP through a study that they produced at the request of the National Bank of Greece. Mr. Samaras suggested identical measures. If these “actions” have not worked in the past, why should we expect them to help now? This is important, because at this difficult hour it would be wise not to throw EU funds out the window. At the end, if the aim is to provide income support, let’s expand unemployment coverage, and not pretend we are creating jobs.

But the essential problem is that the proposed action plan is based on the wrong diagnosis. First, its focus is on the young unemployed, and secondly, it mistakenly identifies the causes of youth unemployment as “employability” — namely, the absence of knowledge, experience, and seniority.

Let’s start with the second question first. The proposal carries a message that youth unemployment will be fought through the acquisition and improvement of knowledge, on the one hand (through VTC), and practical experience in temporary jobs in private sector companies. Success should be evaluated by the ability of participants to find a permanent job after termination of participation in these programs. Do we then expect the young graduates to find a job? How many new jobs were announced in 2013? What has changed since 2008 is demand for labor due to the tremendous reduction of GDP, not the quality of the labor supply of young people. Unemployment has skyrocketed (from 7.7 percent to over 27 percent) due to austerity, lack of liquidity faced by SMEs, and the rapid, albeit legal, reduction of salaries and pensions. These are more or less commonly accepted facts. In 2008, employees aged 15-24 included approximately 270,300 young workers, while in 2013 there were only 125,300 (a 145,000 reduction). Similarly, today, the total number of unemployed people aged 15-24 is approximately 178,500 — in 2008, there were 72,300 (an increase of 106,200). The numbers speak for themselves.

Measures of “improving knowledge” will not do; not when our well-educated graduates migrate abroad massively. These “solutions” are of European origin and are ineffective because the main problem we face is that the private sector has shrunk and this has produced a plummeting of demand for the existing workforce due to the depth and duration of the recession – the problem is not lack of quality or the skills of the labor force.

Let us now consider the first issue: the problem of youth unemployment. Indeed, the unemployment rate is very high among the youth, and especially for those 15-24 years old: it rose from 22.1 percent in 2008 to 57.2 percent today. But among the 1.3 million unemployed (average of the first three quarters of 2013), 1,186,000 are over 25 years old. According to the Hellenic Statistical Authority, all unemployed aged 15-24 amounted to 178,500. Recall that the second pillar is supposed to consist of 240,000 unemployed young people up to 24 years old! All the newcomers put together, among those 15-24 years of age, number less than 130,000. Even if we include new entrants aged 25-29, we reach 225,000 persons. The numbers are not consistent, at least not for the youth category of 15-24 — unless the same young person who participates one month in a training program and is then engaged in the private sector represents two “jobs.”

The age-targeted measures are ill conceived, as is the focus on employability. Most tragic of all is that long-term unemployment by now hits approximately 900,000 unemployed, of which 844,000 are not in the category of “youth.” Among them, 224,100 have been out of paid work for more than 48 months (4 years) and an additional 317,000 unemployed for 24-47 months. For all these long-term unemployed, including those who have exhausted their resources and cannot even pay their electricity bill, for the 777,000 unemployed who have a high school education level or lower, the announcement of Mr. Samaras highlights that there will be some lucky 200,000 young and more mature workers (440,000 minus 240,000 people) that will be offered an “employment opportunity” for a few months out of a year in the private or public sector, receiving the meager earnings mentioned earlier.

What must be urgently understood is that although the economy is now approaching the area of balancing the internal and external balance of payments, and the pressure on further depressing the economy gradually slows down, this does not automatically lead to recovery. The economy can remain at frighteningly low production levels, high unemployment, and income inequality of catastrophic dimensions. Recovery needs high and sustained private and public investment rates, and certainly gradual relief from the austerity measures. But let us remember that the decade before the crisis, with average GDP growth around 4 percent, the economy created 55-60 thousand new jobs each year, on average. Even if the growth rate returns to pre-crisis levels, at 4 percent, generating even 50-60 thousand new jobs per year, to reach the employment levels of 1998 to 2008 will be impossible in the near future. The figures for unemployment are so high that the next decade will be “lost,” including for people sent to educational training centers.

It is reasonable to ask: What can the poor government do when it has to deal with the troika “requirements” on the one hand and the NSRF European Unon funds on the other, which are focused on these specific “actions”? Negotiate hard and convince their “partners” that the yardstick for introducing or maintaining conditionality measures, structural and otherwise, at this time is whether they increase unemployment or not; and point out to other partners that these “actions” against unemployment are incompatible with the Greek reality — that the “Youth Guarantee” and the rest should be channeled to other types of interventions.

The time has come to stop recycling the same distorted views. This crisis urgently requires a custom tailored Greek New Deal, which should last for at least the next three years. That is, the extension of a radically reorganized job guarantee program*, a community based program of “koinofelis ergasia,” not for 5 months but for 11 months per year; not for 50,000-90,000 jobs for the unemployed, but 440,000 real, year-round jobs. As for what it will cost and where we will find the money, I will be providing more information next month through a Levy Institute study, in cooperation with INE / GSEE (General Confederation of Trade Unions). There is a solution, but it requires getting rid of current obsessions and not following the beaten track. Whether the current government possesses the political will to do so is another matter.

*The Levy Institute was instrumental in proposing a Job Guarantee policy for Greece, which was adopted by the Ministry of Labor in 2011, as a pilot program for 55,000 unemployed. It was rolled out in 2012 and was run through the NGO sector in collaboration with local and community governing bodies. For a background document that includes guidance notes on how best to design and implement such an initiative, see “Direct Job Creation for Turbulent Times in Greece.”