Greece: Selected Issues
IMF Staff Country Reports, November 15, 2019
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- Greece: Selected Issues
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Bibliographic details
- Published: November 15, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513520261.002
Key findings
- The paper explores the links between wage policies, non-wage cost developments, and competitiveness.
- A series of program-era policies helped to partially reverse the trend of declining competitiveness.
- Labor market policies cushioned the effect of the crisis on employment and brought unit labor costs broadly in line with trading partners.
- The more competitive wage structure only partly translated into price adjustments because of:
- product market rigidities (with firms retaining some profit margin), and
- rising non-wage cost factors (e.g., taxes and financing costs).
- The resulting incomplete internal devaluation and subsequent low productivity gains reinforce the view that Greece has further to go to address its external imbalances.
Drivers of incomplete adjustment
- Product market rigidities that limited pass-through of lower labor costs into consumer prices.
- Firms retaining profit margins instead of fully passing cost reductions to prices.
- Rising non-wage cost factors, explicitly including taxes and financing costs.
Risks and threats
- Labor policy reversals following program exit in August 2018 threaten preservation of the achieved labor cost competitiveness.
- Continued low productivity gains risk undermining progress on external imbalances.
Policy recommendations (paper’s conclusions)
- Preserve labor cost competitiveness achieved during the program era.
- Increase efforts to facilitate price adjustment in product markets (reduce product market rigidities).
- Reduce non-wage costs (for example, taxes and financing costs) to complement wage competitiveness and support adjustment.
Greece: Selected Issues
Content in this bundle
- Greece: Selected_Issues; IMF Country Report No. 19/341; October 28, 2019