Seeking Alpha

Philip Atticus'  Instablog

Philip Atticus
Send Message
Management consultant and strategic analyst, based in Athens and London. I manage Navigator Consulting Group, a consultancy specialising in due diligence, business planning and investment management. I work primarily in the former Soviet Union, Central & Eastern Europe and the Middle... More
My company:
Navigator Consulting Group
My blog:
Philip Atticus
  • Comparing Greek and US Public Sector Employment: Myths and Realities 0 comments
    Jul 6, 2012 9:48 AM


    The debate over Greek public sector employment is characterised by a lack of real data and much stereotyping. In 2011, Greece’s public sector employment is 8% of the population and 18% of the active labour force. In the United States, public employment accounts for 7% of the total population and 15% of the labour force. Greece, however, has an extensive public provision of education and healthcare, whereas in the United States these functions are largely provide by the private sector. The OECD confirms this: "Greece has one of the lowest rates of public employment among OECD countries, with general government employing just 7.9% of the total labour force in 2008."

    An important part of the Greek restructuring programme, which is part of the loan conditionality, involves downsizing the public sector payroll via dismissal of up to 150,000 people by 2015. 

    The issue of employment in the public sector is a difficult one to address, and not something which should normally be done as an immediate cost-cutting measure in a crisis of this magnitude. A primary factor for a rational debate on public sector employment is to understand and agree what Greece as a society expects from its public sector, and which tasks are consider it necessary.

    This debate has largely been stifled by the growth in the public sector since PASOK first took power in 1981. This growth was characterised by introduction of left-wing unions into the civil service on a large scale, which had previously been banned by the military dictatorship which fell in 1974 and its precedents, dating back to the fears of a Communist take-over in 1944-1945. Together with this leftward shift in orientation came a large expansion in the role of the state, or at least in the financial expenditure the state was prepared to make. The history of Greece since then has been that of state expenditure expansion and contraction, of long periods of expansion followed by short periods of austerity.

    Since Greece’s European Union entry, this process was heavily driven by EU funding and by the “convergence” philosophy. Greece was granted billions in structural and cohesion funds every year, intended to bring its infrastructure, institutions and private sector up to a competitive level so that it could achieve “convergence” with the existing EU member states. Part of this included the increase of wages in the public and private sectors. It is therefore ironic to hear today that Greek wages have increase more than German ones, and therefore must be cut. This increase in wages and in GDP/capita was precisely the point of convergence and the so-called “Objective 1“ regions.

    This EU money was almost entirely channelled through ministries, which led in turn to the expansion of patronage and corruption in public contracts. No political party in Greece disputes this: most campaign on the premise that they will end corruption; then turn around and continue these practises once in power. Oddly enough, the EU never took real measures to prevent this, despite overwhelming evidence of common practise over time. I should add that neither occurrence is restricted to Greece. 

    The fact that EU funding was typically reimbursed after evidence of expenditure was made also contributed to Greece’s ballooning public debt: the government borrowed money to complete over-priced, inefficient projects, and ignored commercial reality. In many ways, EU funding played the same role as natural gas in Holland in the 1970s, or petroleum in Saudi Arabia today: a condition known as “Dutch disease.” This leads to the declining competitiveness of exports due to inflation, and in the case of Greece, a massive expansion of over-priced public sector projects financed through EU funds.

    The end result of all this is a society and political system which finds itself in a struggle between what it views as public sector privilege and political spoils and the fact that the foreign money (loans or subsidies) to pay for this has run out. The focal point of this struggle is the public sector.

    The debate as to what Greece wants from its public sector has never been held. There is no end of slogans, such as “free education for all”, or “permanent employment in the civil service” but these slogans do not reflect reality. We have not heard a debate or seen any analysis as to which sectors of the public sector deserve higher salaries and investments in productivity (and there are many such sectors), and which sectors require a down-sizing or restructuring. There is no global plan for liberalising state involvement in some sectors, such as education and healthcare, or for improving services to citizens through the use of egovernment.

    And we are unlikely to hear this, as long as the public sector is associated with cost, and therefore costs which have to be cut as part of an austerity programme. 

    As with many things in Greece which emerge from the Troika or the government, there is a great deal of confusion and a lack of clear communication. But one of the “facts” being tossed about Greece lately is that there are more that 1 million people employed in the public sector, while others assert that Greece has one of the highest ratios of public sector employment in the world. 

    As usual, data is fragmented, and several assumptions have been made. I will explain these in depth, comparing Greece to the United States. A comparison with France or Germany would be even more appropriate, finding data from these countries will take even more time. 

    General government employees in Greece are numbered at 705,645 in the Mid-Term Fiscal Consolidation Plan approved by Greece in July 2011. The general government category includes national, regional and local (municipal) employees.

    The main problem is to understand how many employees are in the wider public sector, i.e. semi-governmental organisations (DEKO) and other state organisations with have the status of private sector legal registration. This number is impossible to access with any reliability: although the government has completed a census on this, I have not been able to find the final number.

    I’ve taken the number of 175,000 as representing employment in this sector. Although this may seem low to most people, we have to remember that the government ownership share in many DEKO is actually quite low. It would be a mistake, in my opinion, to count OTE, the National Bank of Greece, and equivalent organisations in the wider public sector. However, it is also true that the government’s role as a shareholder in these DEKO affects labour law, pension spending and general productivity in these companies. The result seen, in any case, is my best estimate. If anyone can provide a better one, I would be pleased to re-run the numbers.

    The total labour force in Greece is 4,967,200. This is defined as the segment of population over 15 years old which is not in education or training, and which is looking for work. (It therefore includes the unemployed). We should remember that one of the main problems with Greek economic competitiveness is the size of the active labour force: Greek women have one of the lowest employment rates in the European Union. Any future plan for improving the economy must focus on improving female employment and labour force participation. 

    The total population, according to the National Statistics Organisation (ELSTAT) was estimated at 11,257,290 in the first quarter of 2011. Thus, Greece’s public sector employment is 8% of the population, and 18% of the active labour force of the country. There was one public employee for every 13 citizens. 

     

    US

    Greece

    General Government

    22,249,000

    705,645

    Wider Public Sector

    574,000

    175,000

    Total Public Sector Employment

    22,823,000

    880,645

    Total Labour Force

    153,560,000

    4,967,200

    Total Population

    312,257,855

    11,257,290

    Public Sector Employment as:

       

    % Total Population

    7%

    8%

    % Total Labour Force

    15%

    18%

    Population per Public Employee

    14

    13

    We can compare Greek public payroll with that of the United States, which has excellent labour statistics available on Census.gov and the Bureau of Labour Statistics. US general government employment in December 2010 is calculated at 22,249,000 people. This includes: 

    ·       2,852,000 Federal Employees

    ·       5,142,000 State Employees (full and part time)

    ·       14,255,000 Local Employees (full and part time)

    Not included in this are certain government agencies, such as the US Postal Service. I’ve included this as a separate line under “Wider Public Sector” employment, but have not been able to find a complete count. 

    The Bureau of Labour Statistics records 153,560,000 people in the active labour force in the first quarter of 2011. The Census.gov site records 312,257,855 total population on September 20th, 2011 (these dates do not match, but are presumably close enough and flatter the US results).

    This yields a result of 7% public employment to the total population, and 15% of public employment in the total labour force. There are 14 people per public employ in the United States.

    We should also remember that there is a big difference between the US and Greece in terms of public sector service provision. In Greece, for instance, healthcare and education are provided by the state; in the United States they are predominantly provided by the private sector. If “like-for-like” agencies were compared, it is highly likely that Greek and American public sector employment would be much more similar than we think. 

    My calculations are confirmed by the OECD, in its “Government at a Glance 2011 – Greece” publication, which quotes: 

    Greece has one of the lowest rates of public employment among OECD countries, with general government employing just 7.9% of the total labour force in 2008. This is a slight increase from 2000, when the rate was 6.8%. Across the OECD area, the share of government employment ranges from 6.7% to 29.3%, with an average of 15%. The Greek government has plans to further decrease this share, by replacing only 20% of staff leaving on retirement. Public employment is also highly centralised in Greece, with over 80% of staff working at the central government level.

    So the question must be asked: will cutting the public sector, which has already suffered a massive decline in wages and headcount (there were a net 82,000 departures in 2010), yield results?

    I have no doubt it will yield immediate financial results in the form of lower expenditure on salaries. However, I doubt it will render any further benefits beyond this, and the negative impacts will be far higher:

    a.     Already, public sector workers are not working as effectively as possible in light of public sector cutbacks. This is particularly the case in the Revenue services, who are the tip to the spear in the current struggle to balance the budget. 

    b.     These public sector workers are all consumers. Once they are fired or “idled”, GDP and tax income fall through the elimination of this income.

    c.     The loss of productivity for the remainder of the system will increase. Only if these workers are replaced with productivity enhancing processes, i.e. egovernment or elimination of authority-seeking processes, will there be a real impact on citizens and businesses.

    d.     The unemployment rate will rise, creating further financial expenses (via unemployment payments) as well as a downward, long-term drag on GDP.

    As I have written before: the financial shortfall so far in 2011 is minor and is attributed to rational policy choices. The negative economic impacts of the austerity programme as well as structural economic factors are going to increase as we go into the winter, creating a greater fall in GDP and a greater rise in unemployment.

    By implementing these reported measures, the Troika risks fundamentally de-railing the Greek reform programme. They are unnecessary, and a high price to pay for a very small and short-term economic return. There are other alternatives available, and these should be explored first.

     

    © Philip Ammerman, 2011

    Navigator Consulting Group

    www.navigator-consulting.com

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Back To Philip Atticus' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.