Greece
July 2011
IMF Country Report No. 11/175
“The public wage bill in Greece (at 13 percent of GDP in 2009) is high by several norms. It is above the Euro area average wage bill (10.5 percent of GDP, over 1995–2009) and higher than what the wage bill should have been if it had evolved in line with potential GDP (i.e. abstracting from cyclical developments) or in line with prevailing prices in peer Euro area countries (i.e. if there were no real appreciation and no loss of competitiveness), after the adoption of the euro. These macroeconomic norms also suggest that the public wage bill in Greece should be around 9-10 percent of GDP, close to the level prevailing before the adoption of the Euro, but lower than the OECD average (11 percent of GDP, 2009).”
“Public employment would be reduced by about 20 percent by 2015, using reductions in contract employment (0.2 percent of GDP), attrition policies (0.1 percent of GDP), and involuntary redundancies (0.1 percent of GDP, in addition to redundancies for closure of public entities, see below). The plans would bring the public wage bill and the ratio of public employment to labor force below the OECD average (14.4 percent, 2005).”
“Greece could gain from simultaneous implementation of product and labor market reforms. Intuitively, deregulation of product markets stimulates competition and increases firms’ elasticity of labor demand, thus magnifying the effects of labor market deregulation on employment and overall output. … Achieving wage moderation in the economy—important in the context of Greece’s large competitiveness gap— requires both reforms of private labor markets and fiscal reforms reducing the government’s wage bill.”
Selected Structural Reforms Pending:
Fixed-term contracts, working-time management, and term contracts for youth Q2-2011: New legislative amendments will permit individuals to work longer hours for a longer period, while reducing the use of overtime pay, and will lower the severance pay associated with fixed-term contracts as well as limit the times these types of contracts can be renewed. It will also provide for an introduction of term contracts for youth to gain work experience at sub-minimum wages.”
Romania
July 2010
IMF Country Report No. 10/227
Romania—Staff Report for the 2010 Article IV Consultation, Fourth Review Under the Stand-By Arrangement, and Requests for Modification and Waiver of Nonobservance of Performance Criteria
—Staff Report
“Improving Romania’s business climate would boost Romania’s growth potential. Romania lags behind other EU member States in terms of quality of business environment according to indicators on perceived corruption (Transparency International), ease of doing business (World Bank) or competitiveness (World Economic Forum). The EU’s latest report on Romania’s state of business climate notes mixed results while Romania slid down by ten positions on the World Bank’s ease of doing business ranking in the past year. In particular, Romania has room for improvement in tax simplification, contract enforcement and hiring.”
“Moreover, Romania’s labor market is rigid compared to other countries in the region (see chart). Labor reforms should include helping low-skilled workers enter the job market and promoting senior labor. The authorities highlighted that Romania’s draft pension reform includes changes in the incentives structure for early retirement. They also envisage modifying the labor code in order to increase working time flexibility and to reduce hiring and firing costs.”
June 2011
IMF Country Report No. 11/158
Romania: First Review under the Stand-By Arrangement and Request for Modification of Performance Criteria—Staff Report
“The authorities have undertaken important reforms in labor legislation and social protection. The new Labor Code, enacted April 30, aims to improve labor market flexibility by promoting fixed-term and temporary employment, extending probation periods, and increasing the flexibility of working hours. The controversial Social Dialogue Code was recently promulgated after being cleared by the Constitutional Court. It aims to make the wage-setting process more flexible and allow for a better orientation of wage growth on productivity developments. Key elements include raising the representativity thresholds for both trade unions and employers’ associations, abolishing the collective bargaining at national level, and elimination of the automatic ergo-omnes extension at the sectoral level.
The authorities are continuing making efforts to streamline social assistance while protecting the vulnerable through means-testing of benefits. A new Social Assistance Code has been drafted to consolidate the existing 54 categories of social benefits into 9. Social inspection has yielded significant results, as the number of beneficiaries of heating allowances has declined by half in 2011.”
Portugal
June 2011
IMF Country Report No. 11/127
Portugal: Request for a Three-Year Arrangement Under the Extended Fund Facility
“In the absence of exchange rate policy, the program seeks an internal devaluation through front-loaded reforms to increase labor market flexibility, foster competition to exert downward pressure on non-tradable relative prices, and lower social security contributions to increase profitability in the tradable sector. …Over the medium-term, labor market reforms to lower unit labor costs and moderate private sector wage adjustments, as well as measures to increase competition in domestic markets, are expected to promote price competitiveness.”
“Policies under the program will revise the overly generous unemployment insurance system to change incentives and increase employment, while at the same time broadening social safety nets, by including new entrants and extending eligibility to the self-employed. Measures to be implemented over the next year will also reduce high severance payments, aligning them across fixed-term and open-ended contracts, and revise the overly restrictive interpretations of fair dismissal clauses in the labor code, reducing the bias toward using fixed-term contracts.”
“Over the program period, any increase in the minimum wage will take place only if justified by economic conditions and agreed in the context of regular program reviews. In addition, commitments under the program will ensure clear criteria for the extension of collective wage bargaining agreements. These criteria will take into account the competitive position of firms. A number of measures to promote wage adjustments in line with productivity at the firm level are also envisaged.”
“A potentially important policy move will be a plan to adopt a fiscally neutral reduction in labor costs, offset primarily by higher consumption taxes and expenditure cuts. The strategy hinges on simulating the effect of currency depreciation: lower labor taxes increase the competitiveness of domestic production as firms pass on the decrease in labor costs to final producer prices, while higher consumption taxes reduce consumption. In addition the proposed reduction in labor costs is job creating.”
Spain
July 2011
IMF Country Report No. 11/215
Spain––Staff Report for the 2011 Article IV Consultation
“Labor: Bolder Reform Needed …
Wage flexibility was hamstrung by the wage bargaining system, which includes inflation indexation, and the protection of permanent contracts (which can foster wage demands detrimental to employment). And wage agreements negotiated at the industry and province levels are automatically extended to the entire province and industry, without much scope to opt-out for individual firms or workers.
The labor market is being reformed in the right direction. The 2010 reform increased hiring incentives by easing dismissal costs and criteria, and by granting firms greater flexibility to opt out of collective agreements. In June 2011, collective bargaining was further reformed toward greater firm-level flexibility through:
(1) establishing the prevalence of firm-level agreements, especially over provincial ones;
(2) reducing the possibility of indefinite extension of previous agreements when social partners cannot agree on a new agreement; - (3) further easing opt-outs of collective agreements; and
(4) giving firms more internal flexibility. Most interlocutors including social partners, the International Labor Organization (ILO), and academics broadly agreed the labor market reforms to date were in the right direction. Nevertheless, as many of the interlocutors also underscored, the reforms were incomplete and remain a work in progress.”
“The labor market is being reformed in the right direction. But the results to date do not provide sufficient confidence that the reforms will quickly deliver an improvement in labor market dynamics that is as strong as the severity of the problem requires. This calls for deepening and broadening the reforms so far. In particular: collective bargaining needs to be effectively decentralized to the firm level; social partners should move away from inflation indexation; and severance payments should be further lowered to at least EU average levels.”
