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Greek Labor Costs Fall Sharply

imagesA research paper from Conference Board shows that southern European countries have the lowest labor costs in the European Union, with those in Greece falling fastest because of austerity measures that have reduced the minimum wage and are scrapping collective bargaining agreements to go along with deep play cuts, tax hikes and slashed pensions.

The paper reports though that although lower wages a key to economic growth and stability at the same time they are preventing some businesses from investing, although others are being lured by cheap labor costs and because they can pay people less to work for them.

The report examines notes the drastic effects of three years of pay cuts, tax hikes and slashed pensions in Greece, which international lenders said was essential to make the economy more competitive. Greece managed to lower its labor costs by 9.5 percent from 2011-12, while Spain and Portugal, also suffering economic crises, reduced theirs by  only 2.5 percent.

Despite the sharp drop, Greece ranked only 90th in the Global Competitiveness index in 2011 and fell to the 96th place in 2012. Bert Colijhn, an economist and one of the writers of the report, said that statistics showed that these countries are doing a good job in implementing painful reforms. He also underlined that the gap between productivity and wages is closing rapidly and that is a good sign.

The paper concluded that reducing wages and cutting jobs is not all what is needed. These are just the prerequisite for capital investment. If capital investment does not take place he warned, all the pain will be in vain, according to a report in Euractiv.

 

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