The Greek labour market before and after the pandemic: slack tightness and skills mismatch

Abstract

The Greek labour market recorded a significant improvement during the first half of 2022. This is encouraging and reflects, inter alia, output growth, the government support measures during the pandemic and the implementation of important structural reforms during the previous decade. However, in the current inflationary environment, the question that arises is whether the labour market is slack or tight and whether wage pressures may be emerging. This article draws on diverse sources of information on the labour market, in an attempt to shed some light on this question and examine how the Greek labour market evolved before and after the pandemic. In sum, unemployment remains high in Greece, well above the euro area average, and labour market slack is still evident by most measures. However, pockets of tightening are beginning to emerge at the sectoral level. Moreover, slack is declining at a fast pace, much faster than in the euro area, as suggested by the drop in unemployment over the past three years. The high share of long-term unemployment and the rather elevated estimates of efficient unemployment presented in this article also point in the same direction. Given the recent strong employment growth and the prospect of a significant need for additional labour over the coming years due to the implementation of the NextGenerationEU plan, labour market tightness could increase further. This concern is further compounded by extensive survey evidence of skills mismatches in the Greek labour market, which are known to adversely affect allocative efficiency and, thus, productivity. Looking ahead, it is important to pursue labour market policies aimed at increasing participation rates and upskilling or reskilling the labour force, including in particular the long-term unemployed.

Keywords: labour market, unemployment, Beveridge curve, tightness, slack

JEL Classification: E24, J08,J21, J24, J31