Postpone any increase in the minimum wage until further notice, in order to allow “systematic positive growth rates” to take place, the ELC recommends in view of today’s announcements by the Cabinet.
What is the rationale behind the proposal.
The KEPI cites estimates based on data from the Bank of Greece, according to which the small businesses (up to 10 persons), which constitute the vast majority of Greek entrepreneurship, are more sensitive to changes in the minimum wage than all enterprises, since their employment elasticity with respect to the minimum wage is -0.169.
In large enterprises (10 persons or more) the relationship between employment and the minimum wage is statistically insignificant. “We therefore expect that any changes to the minimum wage will have a more adverse impact on employment in small businesses where average wages are very close to the minimum wage. An alternative formulation could be that increases in minimum wages hurt small and marginal firms, while not so much bothering larger firms, which can to some extent absorb any resulting increased labour costs,” it said.
According to the Bank of Greece, based on unpublished data from the P/Ergani, the number of workers paid the minimum wage in the total private sector wage earners increased over time from 19.7% in 2016 to 27.7% in 2020.
In fact, in the two years 2018-2019 the number of jobs paid at the minimum wage increased by about 121.4 thousand. Moreover, according to the BoE, the increase in the share of minimum wage jobs over the last three years is a generalised phenomenon, since it is recorded in all individual categories of enterprises, age groups of employees and categories by occupation, type of employment and type of contract.
“Therefore, the changes to the minimum wage affect the average wage mainly because of the high number of workers affected by it, either as those paid at the minimum wage or as those paid at a wage higher than the old minimum but lower than the new minimum. It is also worth mentioning that the wage effect was more limited in large firms, where employees were generally better paid, as shown by the lower Kaitz index and its relative stability before and after the minimum wage increase, but also by the elasticities estimated there. It seems, therefore, that small businesses, where the average wage is very close to the minimum wage, i.e. they have more employees paid at the minimum wage, were most affected by the February 2019 increase,” comments KEPI, explaining that this is for two reasons:
Firstly, they pay more workers at the minimum wage and secondly, their room to react by changing their employment mix is more limited compared to large companies.
More generally, however, there are also sectoral differences, with specific sectors appearing more sensitive to changes in the minimum wage. In particular, in small firms, large sectors related to Tourism and Trade appear to be particularly sensitive to changes in the minimum wage with an estimated elasticity of around 0.4. The Manufacturing sector is in a group of sectors with an elasticity close to 0.35, roughly in the middle in terms of the effect of the bottom. Sectors such as Energy and Public Administration are characterised by low flexibility. With regard to large firms, average wage elasticity is lower than for small firms. Tourism-related sectors continue to record relatively higher elasticity. On the other hand, large firms active in both manufacturing and trade appear to be less sensitive than their small counterparts.
Function of many factors the minimum
“Changes in domestic wages cannot be solely a function of domestic productivity, but also of the income policies of our main competitors. The estimates recorded in the report show that the relationship between the minimum wage and the average wage is positive, while the relationship between the minimum wage and employment is negative. Indeed, the negative impact of the minimum wage on employment is estimated to be more pronounced in times of recession. There are also significant differences in the intensity of the effect depending on the size and the sector of activity of each firm. It seems that small businesses, where the use of the minimum wage is more widespread and which have already been hit harder by the pandemic, are more sensitive to changes in the minimum wage,” the CCI stresses, which further notes that given the recent tax and insurance relief for employees and businesses, as well as the government’s intention to extend it further, coupled with deflation, “real minimum wages have risen by more than 2 percent in an extremely difficult year.”
However, it should be noted that, according to the moneyreview.gr, some members of the Committee of Experts propose to increase the minimum wage by up to 4%, believing that this would send a positive signal to restart the economy, boosting the incomes of low-wage earners and the economic climate in general, while not disproportionately affecting the labour costs of businesses.
KEPE’s conclusions from the previous increase
The latest change in the minimum wage does not seem to have had a large spillover effect on wage distribution, at least according to the KEPI’s assessment: while in the past minimum wage increases were a reference point for the signing of sectoral and peer collective agreements, the shift towards company collective agreements or even individual collective agreements has now limited the spillover effect of their increase. The current institutional framework of the labour market, which is clearly more liberalised than in the years before the financial crisis, both in the conclusion of collective agreements and in facilitating the use of flexible forms of work, which now account for almost 50% of new jobs, seems to weaken the broad and direct impact of the minimum wage on higher parts of the wage distribution. Moreover, and because of high and prolonged unemployment, the degree of pressure on trade unions is more limited, but also because of international competition the scope for retreat of enterprises is more limited. It follows that the observed increases are limited to the lower wage scales, which have recently become more numerous, since a large proportion of employees are now paid very close to the minimum wage.
