DP15860 Evaluating the impact of labour market reforms in Greece during 2010-2018

Author(s): George Gatopoulos, Alexandros Louka, Ioannis Polycarpou, Nikolaos Vettas
Publication Date: February 2021
Keyword(s): generalized synthetic control, Greek crisis, impact assessment, labor market reforms, participation tax rate, rescue programs, unemployment
JEL(s): E24, J08, J21, J38
Programme Areas: Labour Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15860

In view of long-standing weaknesses in Greece's labour markets, several labour market reforms were implemented during the economic adjustment programmes with two objectives. Firstly, to support the economy's adjustment through more flexible labour markets and secondly, to enhance gains in cost competitiveness. In relation to their objectives, we find evidence that reforms largely fulfilled the second objective and partially the first, albeit left mostly unaddressed some of the long-standing weaknesses, such as low participation rate and high tax wedge. The analysis is backed by two distinct but complementary approaches. From a micro-founded analysis, while the 2014 reduction in social security contributions positively affected incentives for official sector labour participation, those appear to have decreased cumulatively during the overall programme period. From a top-down macroeconomic perspective, findings suggest that Greece's 2012 labour market reforms had a positive impact on reducing the Unit Labour Cost (ULC), increasing the use of flexible forms of employment, slowing down unemployment rate dynamics and slightly accelerating employment growth trends. At the same time, it appears that the 2012 reforms did not improve labour participation rates, while they increased average working hours and inequality.