Notes on Labour Market Flexibility and Informality in Greece

1. Notes on Labour Market Flexibility and Informalityin GreeceAnagnostopoulos A.* ,** Bitzenis A*., Kontakos P.**University of Macedonia, Greece & **TEI of Thessalyπαραδοτέο έργο στο πλαίσιο της Πράξης «ΘΑΛΗΣ-ΠΑΝΕΠΙΣΤΗΜΙΟ ΜΑΚΕΔΟΝΙΑΣ- Η Σκιώδης οικονομία (παραοικονομία) στην Ελλάδα: Μέγεθος, Αίτια και Επιπτώσεις» με κωδικό MIS 380420». 10th Annual MIBES International Conference TEI of Thessaly

2. The purpose of the presentation • To determine the framework of flexible working arrangements (part-time & temporary time employment, family employment) • To analyse the labour reforms during post-crisis • To describe the main points of labour informality

3. Labour Market Institutions • High Unemployment: Never fell lower than 7.0 % the last 25 years • Greece presents one the worst rates in female / long term / youth unemployment among OECD countries • Strict EPL: higher score than the OECD average; • EPL in temp employment, is the third highest regulated • Temporary work agencies were illegal till 2001. Tight regulations introduced with authorisations and reporting requirements for the setting up of temp work agencies • Low Part-time (8%): Legally introduced in late 1990s. • Constraints for businesses which hire part-timers • The LI is stricter to those businesses which hire part-timers • Work Hrs Schedule is needed in a weekly basis by the LI

4. Labour Market Institutions (2) • Centralised Wage Setting: Determined in Athens for all Greece • The General National Collective Agreement (NGCA) defines the minimum tariff of the first pay level for all workers • Collective Bargaining: This agreement can be supplemented by sectoral/occupational agreements which legally extended to the non-union members (if it represents 50% or more of the employees working in the particular sector/occupation) • Enterprise agreements could be signed be firms over 50 workers • Public Sector: Absence of wage bargaining - Greece is the only country where the public servants have no right to bargain over pay issues(ECB paper, no 1406/2011) • Wages based on the government’s annual income policies. • Allowances, benefits, other remunerations could be “negotiated”

5. Flexible Employment Facts & Figures

6. Flexible Forms of Employment “….. Flexibleworkisusedtodescribeallkindsofemployment, whichdifferfromthetraditional 9-5 fulltimeworkwith a permanentcontract”(Avramidou, 2001). • Part-time • Short-time • Temporary time • Fixed-Term Contract • Seasonal employment • Temporary Empl. Agency • Subcontracting • “Family” employment • Home-work • Piece-work • Tele-work • Subsidized employment • Traineeship (Tertiary) • Stage-(Public Empl. Services)

7. Main Points of Flexible Employment (1) Part-time (PT) employment • PT rate in Greece (from 6,5%) is increasing during crisis (11,5%) • Legally introduced late (1990s) compared with EU countries • The majority of part-timers are female (more than 70%) • Almost 50% of part-timers would prefer to have full time jobs • Permit PT in public sector (2003) mainly in reference to vulnerable groups (long term unemployment etc) • Short time (ST) is a category of part-time employment (an employee work for 8 hrs per day but fewer days per week/month)

8. Main Points of Flexible Employment (2) Part-time (PT) employment • Constraints for `businesses which hire part-timers / Employers have to increase the remuneration for those part-timers (a) who work less than 4 hrs per day by 7,5% (b) who work overtime by 10% • The Labour Inspectorate is stricter to those businesses which hire part-timers – require working hours timetable

9. Graph: Incidence of part-time employmentPT employment as a proportion of total employment Notes: * Source: OECD Employment Database: Oecd.stats.org

10. Graph: Incidence of part-time employmentPT employment as a proportion of total employment Notes: * Source: OECD Employment Database: Oecd.stats.org

11. Main Points of Flexible Employment (3) Temporary time (TT) employment • TT rate in Greece (10.9%) - Legal framework was not clearly established • Common characteristic - Fixed-Term Contract (FTC) • Temporary Work Agency New law regarding private employment agencies passed lately (2001) with strict rules: • Setting up a TWA you need (a) share capital of 176,000 Euros (b) two letters of financial guarantee of 200,000 E c) Authorization by the Special Committee from Labour Inspectorate and Ministry of Labour

12. Main Points of Flexible Employment (4) Temporary time (TT) employment • TT rate in Greece (10%), has decreased during the last yrs. • No clear legal framework till recently (2003) • Common characteristic - Fixed-Term Contract (FTC) • FTC under dependent (as an employee) or independent employment (as a subcontractor-free lancer) • If the FTC continues for more than 3yrs then it is transformed into an indeterminate duration contract • Seasonal employment - FTC in specific durations of the yr (for 3-6-8 months) – mainly in tourism industry (hotels & restaurants) food-processing companies and public sector

13. Main Points of Flexible Employment (5) Temporary time (TT) employment • Temporary Employment Agency - FTC between three parties (employee, indirect employer & direct employer -the agency) • Law regarding private employment agencies passed in 2001 with strict rules. Setting up a TWA you need (a) share capital of 176,000 Euros (b) two letters of financial guarantee of 200,000 E c) Authorization by the Special Committee from Labour Inspectorate and Ministry of Labour • It hasn’t been adopted in Greece except in some circumstances in Athens by multinational and large employment size companies. • Manpower Employment Ogranisation loses its monopoly

14. Main Points of Flexible Employment (6) Subsidisedemployment (SE) • Initially applied in 1982 and belongs in the field of active labour market policies • Management and application come mainly from the Manpower Employment Organisation (OAED) • Apply (with wage subsidies) to trainees (under internship scheme) or to unemployed (under Stage or other work experience programs) • Could be considered as a form of temporary employment because there is FTC and a specific duration.

15. Graph: Incidence of temporary employment in depended employment Notes: * Source: OECD Employment Database: Oecd.stats.org

16. Graph: Incidence of temporary employment in depended employment (2) Notes: * Source: OECD Employment Database: Oecd.stats.org

17. Main Points of Informal Employment (1) “Family” employment • There is no legal framework for family (non-paid) members • Include parents, siblings and extended family members • These are paid / not paid/ not registered family employees • Statistical Authority officially takes this “category” into consideration • 5% of the total employment (LFS data) - ~1% in the Eurozone • These members are mostly found in micro-enterprises

18. Main Points of Informal Employment (2) “Family” employment (2) • They are mainly femalesoffering their services whenever needed • These kind of employees have no rights to a pension scheme • It is very difficult to enforce the labour law in the family-owned • The workplace is considered as the kind of extension of the family relationship. • They contribute to the undeclared work and consequently to the underground economy

19. Main Points of Informal Employment (3) “Family” employment (3) • Those who “officially” hired family employees pays less labour taxes by 8% • Taxation is more lenient in Greek family enterprises • European Employment Observatory Review (2004): Undeclared work is bound to be higher in activities with a high incidence of family workers

20. Main Points of Informal Employment (4) The “Flexible” Firm in Greek terms • Very small enterprise mainly as a self employed (own account worker) or an employer with max. 4 employees • Family members “employ” under this framework and they are always on call. • Except agriculture, this type of business is popular in services • These businesses are very “competitive” compared with others, however, the legal system may “force” them to this direction

21. Labour Reforms During the Crisis • “….Problems were identified in particular in the wage bargaining system, minimum wages for the young, employment protection and flexible working time arrangements….” • (EC, 2010a; IMF, 2010) • “…Greece ranks first on progress towards structural reforms • from 2008 to 2011…” • (OECD, Going for Growth, 2012)

22. Reforms on EPL • Dismissals • Reduce the length of dismissal notice period (especially those employees with long tenure) and lower severance payments for white collar workers • Redefine the collective dismissals increasing the threshold for firms with more than 20 employees • Fixed-Term Contracts & Temp Work Agencies • Introduce the probationary period (from 2 months to 1 year) • Extend the maximum cumulated duration of the contracts to 36 months (previously 24 months) • Only three renewals of such contracts are permissible during 36 months; additional contracts automatically make the contract at the open-ended status

23. Reforms on Flexible Working Arrangements • The employer has the right – in case of slowdown in activity to • - Introduce short-time working arrangements on daily, weekly or other basis, for a period up to 9 months (there was no specific framework previously). • - Introduce averaging working time over different intervals: • Additional 2-hour work per day (following the 8-hr) for six months (previously four) according to the needs of the firm (reduced working hrs will be returned on the other 6-month per) • Employer may use the maximum 3-month rest period

24. Reforms on Minimum Wages -Collective Agreements -Mediation/Arbitration • Decrease gross national minimum wages by 22% • Lower the minimum wages for young (below 25 yrs) by 32% • New law introduce Special Enterprise Agreements which are more powerful than the sectoral ones (Decentralise ER) • These type of agreements can be signed by any firm • The legal extension of collectively agreed wages is abolished • Both negotiating parties – rather than only labour unions – can resort to arbitration, if mediation fails • Cuts up to 30% on wages in public sector (including abolishment/elimination of the benefits/allowances, reduction 50% of Christmas/Easter bonuses)

25. Reforms on Dismissals (Law 3863/2010) • Greece had one of the highest scores in EPL index among OECD • 2nd highest score in notice period for the scale of 20 yrs tenure • - Modify the dismissal rules (individual and collective ones) • Reduce the length of dismissal notice period (especially those employees with long tenure) and lower severance payments for white collar workers • Redefine the collective dismissals increasing the threshold for firms with more than 20 employees

26. Table 1a. Main reforms in the Greek Labour Market During the Financial Crisis Thank you!

27. Table 1b. Main reforms in the Greek Labour Market During the Financial Crisis Thank you!

28. Table 1c. Main reforms in the Greek Labour Market During the Financial Crisis Thank you!

29. Table 1. Main reforms in the Greek Labour Market During the Financial Crisis Thank you!

30. Informality: The Undeclared Work

31. (The) Undeclared Work • … causes an estimated €2.1 trillion loss of annual income in Europe (Euractiv,2014) • ... has 35 adjectives and 5 nouns that can be used to describe this particular activity (Williams, 2004) • .. defined as any paid and lawful activities but not declared to public authorities, taking into account differences in the regulatory system of Member States“ (EC, 2007) • …is legalised in a Greek level adopting the EU definition (Law 3996/2011, Article 32)

32. EU Approach on Undeclared Work (UW)  Since 2001, UW has continued to be of concern to EU institutions  EU attempted to transform undeclared unemployment to regular employment within the European Employment Strategy (9th guideline in 2003-2005 and 20th guideline in 2005-2008) • Green Paper on The Modernization of Labour Law (2006) • Establish a European Platform - explore tools and face shared problems – (2014)

33. The Framework of Undeclared Work in Greece Undeclared Work Informal Labour Market “Illegal” Labour Market Formal Labour Market Wholly off-the-books Own-Account workers Wholly Waged Undeclared Work Illegal Immigrants Secondary or Multiple Jobs Holders Wholly off-the-books Self-Employed (with undeclared employees) Pensioners Unpaid Family Workers “Unemployed” Workers Under-Declared Workers Undeclared Overtime Pay Unpaid Family Workers “Extended “part-time Household Production Hidden Subsidies received

34. Reason That Lead to Undeclared Work

35. Financial Condition of a Country/Region • Poor Economic Conditions leads to Weaker Social Welfare • To What Extent Poverty is Associated with High Unemployment? • Higher Unemployment Larger the Pool of Unemployed More Potentially Undeclared Workers • Some scholars support (through Indirect Methods) that Undeclared Work is Extensive in the Southern Europe because there are poorer & have weaker social welfare • In contrast, some other scholars support that UW is not encountered only in marginalised regions but in a number of developed countries. • This reason is controversial and further research is needed

36. High Wage Labour Cost (tax rates, contributions) • There is a Correlation between Tax Rates & Informal Economy • Greece was a country with high minimum wage & strict legislation on employment protection • OECD encourages Greece to Introduce Measures in order to Reduce Costs related to the Youth and Inexperienced • Informal Employment Enables many Employers to flout Regulatory Constraints on Minimum Wages & Social Insurance • Tax Wedge Affects the Middle and Low Incomes

37. Average Tax Wedge (2014)One-earner married couple at 100% of average earnings, 2 children

38. Policies on Undeclared Work • Strengthening and Upgrading the Inspection of Mechanisms • Join Inspections by All Management Labour Organizations (OAED, IKA, SEPE, SDOE) • Such Actions Maximize Performance • Introducing a New Electronic Information System (Ergani) • Joint Information System by All Management Labour Organisations • Online Procedures for Employers • Succeed to Reduce Red Tape Procedures & Administrative Burdens

39. Discussion & Conclusions

40. Conclusions (1) • It is hard not to conclude that Greek labour market performed badly even in the pre-crisis period; moreover, high long-term, female and youth unemployment are highly connected with its rigid labour market • Greece had typical Mediterranean high wage and working conditions floors derived from inside/outside model and the rent-seeking activities • Large tight labour regulation discourage the creation of large firms and “encourage” firms in low value-added sectors where the informal economy is very high (25-30% of GDP)

41. Conclusions (2) • These market reforms were necessary ? YES! • Reforms that other countries undertook many years ago were postponed over and over again, leaving Greece • (a) with an unproductive public sector • (b) unfair and inefficient tax collection system c) regulated economy whose competition is low and declined - however, reforms arrived with a delay • Only these reforms will attract more investment NO!

42. Conclusions (3) • Greek economic crisis should not have been a surprise. • Greece was living beyond its means even before it joined the €. • The structural mistake at the heart of the euro zone was that “Greece and others were able to borrow so much relative to their economies because creditors believed this debt was very nearly just as safe as German Bonds” (NYT, 2011) • Politicians using irresponsible fiscal policies to win elections • Greece goes in the right direction; however, it needs a proper balance between the austerity measures in order to survive

43. As Nobel Laureate, Prof Pissarides said in April 2013 : “..The curse of reforms will always "chase" the politicians..”