Working Paper: CEPR ID: DP15860
Authors: Nikolaos Vettas; Georgios Gatopoulos; Alexandros Louka; Ioannis Polycarpou
Abstract: In view of long-standing weaknesses in Greece’s labour markets, several labour market reforms were implemented during the economic adjustment programmes with two objectives. Firstly, to support the economy’s adjustment through more flexible labour markets and secondly, to enhance gains in cost competitiveness. In relation to their objectives, we find evidence that reforms largely fulfilled the second objective and partially the first, albeit left mostly unaddressed some of the long-standing weaknesses, such as low participation rate and high tax wedge. The analysis is backed by two distinct but complementary approaches. From a micro-founded analysis, while the 2014 reduction in social security contributions positively affected incentives for official sector labour participation, those appear to have decreased cumulatively during the overall programme period. From a top-down macroeconomic perspective, findings suggest that Greece’s 2012 labour market reforms had a positive impact on reducing the Unit Labour Cost (ULC), increasing the use of flexible forms of employment, slowing down unemployment rate dynamics and slightly accelerating employment growth trends. At the same time, it appears that the 2012 reforms did not improve labour participation rates, while they increased average working hours and inequality.
Keywords: labour market reforms; unemployment; impact assessment; participation; tax rate; generalized synthetic control; rescue programs; Greek crisis
JEL Codes: E24; J08; J21; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2012 labour market reforms (E69) | reduction in unit labour costs (J39) |
| 2012 labour market reforms (E69) | increase in flexible forms of employment (J63) |
| 2012 labour market reforms (E69) | slowing down unemployment rate dynamics (J64) |
| 2014 reduction in social security contributions (H55) | increase in labour participation (J49) |
| reduction in participation tax rate (H29) | increase in disposable income (E25) |
| increase in disposable income (E25) | making employment more attractive compared to unemployment (J68) |