Labour market dynamics in Ireland, Greece, and Portugal

For most of its history as an independent state, the Republic of Ireland suffered from underdevelopment, dependency, and a failure to industrialize, despite efforts to the contrary. The problem of a lack of employment opportunities beyond what was offered in the comparatively inefficient agricultural sector and nascent local industries was traditionally offset by mass emigration, a fact that will be returned to in Chapter 4 and which was also the case in both Portugal and Greece. The population continuously declined until around 1960, despite a high birth rate and efforts at industrialization under the first Fianna Fail government.5 During the 1970s through to the mid-1980s, however, the country began a plunge into what seemed to be a permanent economic crisis. The greatest labour market challenge during this era was how to combat the severe and long-term fact of unemployment that had set in since the early 1970s, and its related impact on poverty levels in the country. At the point when government-initiated crisis talks were held between state and ‘social partners’ in 1987, the unemployment rate stood at just under 20 per cent.6 Of course, official unemployment rates do not report the percentage of the potential workforce that chooses not to engage in paid work and therefore the overall number of economically inactive adults. Importantly in Ireland, only a small percentage of women, and married women in particular, traditionally took up paid work outside the home up until the 1990s.

Ireland’s ‘miracle’ economic recovery after 1987 was accompanied by massive employment growth, even if it took several years for this to make a serious impact on unemployment rates. By 1995, the unemployment rate was reduced to 12.2 per cent, above desired levels but reduced over the past decade (OECD, 1997: 65). A decade after that, Ireland had achieved one of the lowest unemployment rates in the developed world, remaining stable at around 4.5 per cent between 2000 and 2005. The benefits of economic growth, however, are best reflected in data related to employment creation, especially since new groups that had previously not been counted as ‘unemployed’ were now entering the workforce for the first time. Employment growth was especially strong in the new, foreign investment-led industries of computer technology and pharmaceuticals, as well as in the service sector, and the greatest boom years were to be found in the mid-1990s. Between 1989 and 1997, employment grew by 23 per cent overall - 32.4 per cent in the service sector and 25.7 per cent in industry - and fell by 17.3 per cent in the farming sector (Tansey, 1998: 36). Although the fast pace of economic growth led to increased wage dispersion and a widening income gap, absolute poverty levels were actually reduced (Nolan, 2003).

It should be noted that employment growth included a large percentage of jobs that were part-time in nature, something that contrasts sharply with the Southern European cases and significant for policies for work-life balance and also raising questions about job security, job quality, and underemployment. Also, in direct contrast with its long history of outward migration, Ireland experienced labour shortages in some sectors of the economy during the 2000s, which stimulated an immigration wave, especially from the newest members of the EU. At a policy-making level, the greatest concern was how to continue the expansion of knowledge-based employment opportunities based on indigenous capital and continued improvements in labour productivity rather than direct overseas investment, since Ireland now faced much competition in this area from regions

Table 2.1 Irish labour market indicators, 1995-2008

Year

Employment rate (percentage of population aged 15-64)

Unemployment rate

Total workforce with at least upper- level secondary school education

Part-time employment as percentage of total workforce

Male

Female

Total

Aged under 25

1995

67.1

41.6

12.3

19.5

45.2

12.1

1996

67.5

43.2

11.7

18.2

47.3

11.6

1997

69.1

45.9

9.9

15.4

50.0

12.3

1998

72.1

49.0

7.5

11.3

49.3

16.7

1999

74.5

52.0

5.7

8.6

-

16.8

2000

76.3

53.9

4.2

6.8

54.9

16.8

2001

76.6

54.9

4.0

7.3

57.6

16.6

2002

75.4

55.4

4.5

8.5

59.2

16.6

2003

75.2

44.7

4.7

9.1

60.3

17.0

2004

75.9

56.5

4.5

8.9

62.2

16.9

2005

76.9

58.3

4.3

8.6

63.0

-

2006

83.4*

63.3*

4.5

8.7

75.7

-

2007

83.0*

64.4*

4.7

9.1

75.7

17.7

2008

80.4*

64.0*

6.4

13.3

73.5

18.6

Source: Eurostat.

Note

* Percentage of population aged 20-64.

of the world in which labour was much cheaper (Clinch et al., 2002). That concern was particularly prevalent in 2001-2002, although the threat of recession and an end to job growth that was predicted during this period did not in fact eventuate. A reversal of fortunes in terms of employment and unemployment did not occur until the following decade as a result of the banking crisis and subsequent austerity measures.

Meanwhile, Greece emerged from the 1940s, which had been dominated by the upheavals of foreign occupation and civil war, economically devastated and socially dislocated. The period of occupation not only ensured that industrial production across most sectors of the economy ground to a halt, but also led to widespread starvation and mortality, making this arguably the last ‘Third Worldlike’ famine experienced in Europe (Hionidou, 2006). The series of centre-right governments that dominated Greece during the post-war period aimed to shift the country away from reliance on agriculture through an industrialization programme and state investment in infrastructure. Agriculture itself was singled out for investment in the 1960s, with increased attention paid to modernizing that sector. This resulted in strong growth through much of the recovery period, although it should be noted what a low threshold the country was ‘growing’ from and that much of the growth was state-led. Although the recovery had started by the early 1950s, initial employment opportunities were scarce. As in both the Irish and Portuguese cases, the potential problem of unemployment that emerged once people began to move away from their family farms and into the cities was resolved through mass emigration. Also, as in the two other cases, emigration and underemployment in agriculture probably masked the true level of unemployment and under-employment during the 1950s and 1960s. Two other developments that were highly significant for later labour market developments were the concentration of urban growth in and around Athens and the rise of the service sector as the basis for future economic growth, more so than manufacturing.7

As in the case of the rise of military regimes in Latin America during the 1960s and 1970s, Greece’s military coup of 1967 was preceded by several years of ‘leftist’ government, in this case of George Papandreou’s Centre Union. Yet the colonels’ regime did not attempt to implement a structural adjustment project, but instead pursued a much more mixed economic strategy, including massive public sector investment that stimulated growth between 1968 and 1974, but at the expense of a ballooning public debt. When a recession hit the country in 1974, the military left behind an economy in trouble that would weigh down many of the developmental efforts of the new democratic regime. The period between 1974 until at least 1990 is thus often portrayed as one long economic crisis for Greece. As in other OECD countries, stagflation had set in by the early 1970s, and one major task of the first democratic government, headed by Kon- stantinos Karamanlis and the newly formed New Democracy party, was to address the problem of inflation. Stabilization measures were also imposed under the PASOK government of the mid-1980s, but that decade was marked much more decisively by a slowdown in economic growth, a decline in GDP, continued inflationary pressures, and an expansion of the public sector.

Although a short-lived New Democracy government was elected on a structural adjustment platform in 1990, the serious task of ‘modernizing’ the economy was left to the post-Papandreou PASOK government of Costas Simitis, who led the party from 1996 to 2004 (Oltheten et al., 2003; Papagoulatos, 2000). The major motivation for the austerity measures imposed during this period was the need to conform to the EMU criteria, which Greece eventually achieved. Tight monetary and fiscal discipline was accompanied by apparently strong economic growth but also by greater income inequality and continuously high unemployment. Later developments, notably those surrounding the 2010 debt crisis, also revealed that very little of this growth was ‘knowledge’ based.

Greece’s labour market performance has been generally regarded as poor for most of the post-1974 democratic period under discussion. Unemployment has been high, averaging at over 10 per cent of the working age population between 1995 and 2005. Although many European countries have had similar recent experiences of high unemployment, several features of the Greek experience are particularly worth noting. First, the unemployment rate has remained steadily high, especially in comparison with Ireland, which has shown major improvement over time, and with Portugal, which has been able to maintain quite a low rate. Second, the rate of female workforce participation did increase during the late 1970s and early 1980s, but so did female unemployment. Female

Table 2.2 Greek labour market indicators, 1995-2008

Year

Employment rate (percentage of population aged 15-64)

Unemployment rate

Total workforce with at least upper- level secondary school education

Part-time employment as percentage of total workforce

Male

Female

Total

Aged under 25

1995

72.5

38.1

9.2

28.5

42.6

4.8

1996

72.7

38.7

9.6

31.0

44.3

5.3

1997

72.1

39.3

9.8

30.8

45.7

4.6

1998

71.7

40.5

10.8

29.9

47.7

6.0

1999

71.1

41.0

12.0

31.5

50.1

6.1

2000

71.5

41.7

11.2

29.1

51.6

4.6

2001

71.4

41.5

10.7

28.0

52.1

4.1

2002

72.2

42.9

10.3

26.8

53.9

4.4

2003

73.4

44.3

9.7

26.8

55.7

4.1

2004

73.7

45.2

10.5

26.9

59.0

4.6

2005

74.2

46.1

9.8

26.0

60.0

4.8

2006

80.3*

51.2*

9.0

25.0

63.9

5.7

2007

80.4*

51.6*

8.4

22.7

62.8

5.6

2008

80.4*

52.5*

7.8

21.9

63.3

5.6

Source: Eurostat.

Note

* Percentage of population aged 20-64.

unemployment grew by an average annual rate of 15.3 per cent between 1981 and 1986, compared to a rate of 9.1 for men (Didika-Logiadou, 1993: 185). That the Greek labour market does not appear to serve women very well is reflected in low contemporary rates of female workforce participation in comparison to many other OECD countries, a problem discussed extensively below. Third, with particular relevance for the analysis of higher education policy that follows, the rate of unemployment among young people has been and is extremely high, and more so amongst the educated. In 2005, the youth unemployment rate was 26 per cent in Greece, 16.1 per cent in Portugal, and 8.6 per cent in Ireland. Four, long-term unemployment has been a particular problem of its own, consistently representing around 50 per cent of the unemployed (Charalambis et al., 2004).

What explains poor labour market performance in Greece? As in the Spanish and occasionally the Portuguese cases, labour market ‘rigidities’ in the form of stringent employment protections are often blamed (Burtless, 2001; Demekas and Kontolemis, 1997). The problem with this explanation is that many of these protections only apply to a fraction of Greece’s labour force, bringing into question the extent to which they really matter. As the discussion of family and welfare policy below will illustrate, rights in Greece at least in the field of labour and social security law, are strongly fragmented along occupational lines. Public sector workers and professionals have more rights than other occupational groups; it was not until 1990 that part-time workers were awarded the set of basic labour protections afforded full-time employees. In addition, there are a number of informal ways in which the labour market is indeed more flexible than formal protections might suggest (Petmesidou, 2001: 78). Greece has a particularly large informal sector, the largest in the OECD in fact, estimated in 2000 to be at least 28.5 per cent of GDP compared to 22.5 per cent in Portugal and 15.7 per cent in Ireland (Schneider, 2002: 13; see also Schneider and Enste, 2000). Other ways in which flexibility is built into the country’s labour market structure include the use of (often) unpaid family labour in agriculture and small businesses. Labour force survey data suggests that this describes the position of one out of eight workers in Greece, six times the rate found in Portugal (Burt- less, 2001: 478).

Some of these typically ‘Southern European’ labour market features are also to be found in Portugal. While the Portuguese economy remained underdeveloped and became increasingly stagnant under the Salazar dictatorship, unemployment did not start to become a significant social problem until the 1970s. Several factors account for this, the first being that true levels of underemployment were masked by Portugal’s reliance on agriculture, which tends to report farmers as employed even if they are barely operating at a subsistence level. In addition, not only was unemployment avoided through emigration, but during the 1960s the colonial army absorbed many of the young men who might have been unemployed otherwise. This situation was reversed after 1974 once the decolonization policy was rapidly implemented. Not only did the army return home, but so did many migrants from the colonies and eventually many economic migrants returned from Europe and North America since Portugal had managed to redemocratize. Adding even further to the pressures of absorbing so much extra labour was a steadily increasing number of women seeking work during the 1970s; an extra burden on young job-seekers since new employment laws tended to protect those already with jobs; and a general reduction in agricultural and industrial production as the result of the political upheavals of the revolution (Ldcio, 1993: 17-18).

Given the increased number of individuals to find jobs for in addition to the sudden withdrawal of foreign investment and other disruptions that took place in the wake of the revolution, it is simply amazing that unemployment levels did not surge higher than they did during the transition to democracy. One estimate is that the unemployment rate rose from 3.1 per cent in 1973 to 14.4 per cent in 1976 before declining to about 12.8 per cent in 1977 (Corkill, 1993: 37). The fact that it was not any higher is usually attributed to the growth of public sector employment during the political transition period, including wide-scale nationalizations of certain industries and companies. One calculation finds that the number of individuals employed by the state more than doubled between 1968 and 1979, from 155,200 to 313,000, increasing again to 442,000 in 1983 (Graham, 1993: 99).

Portugal’s ability to cope with the economic challenges of the late 1970s and early 1980s even as well as it did was at the cost of a burgeoning balance of

Labour market challenges 29 Table 2.3 Portuguese labour market indicators, 1995-2008

Year

Employment rate (percentage of population aged 15-64)

Unemployment rate

Total workforce with at least upper- level secondary school education

Part-time employment as percentage of total workforce

Male

Female

Total

Aged under 25

1995

73.5

54.4

7.3

16.5

21.9

7.5

1996

73.9

54.9

7.3

16.7

21.8

8.7

1997

75.5

56.5

6.8

15.1

22.0

9.9

1998

75.9

58.2

5.1

10.7

17.8

11.2

1999

75.8

59.4

4.5

9.1

19.1

11.1

2000

76.5

60.5

4.0

8.8

19.4

10.8

2001

77.0

61.3

4.0

9.4

20.2

11.3

2002

76.5

61.4

5.0

11.6

20.7

11.4

2003

75.0

61.4

6.3

14.5

22.8

11.8

2004

74.2

61.7

6.7

15.3

25.2

11.2

2005

73.4

61.7

7.6

16.1

26.5

11.5

2006

79.2*

66.3*

8.6

20.4

67.8

11.3

2007

79.1*

66.3*

8.9

20.6

68.3

12.1

2008

79.4*

67.0*

8.5

20.5

69.6

11.9

Source: Eurostat.

Note

* Percentage of population aged 20-64.

payments crisis and a huge public debt. By 1983, this spilled over into an economic recession, the social effects of which continued to be offset by public employment, even if by this stage some workers were not always being paid on time given the financial circumstances the state found itself in (Stoleroff, 2001: 79). Privatization of many of the nationalized sectors began in 1987 in conjunction with a general structural adjustment project implemented by the centre-right Social Democratic Party (PSD). Employment growth occurred in the late 1980s and early 1990s, after which another recession led to an overall employment decrease, led by the service sector as well as small-scale manufacturing for export (Lhcio, 1993). Both of these sectors increasingly made use of female labour, a factor that is discussed extensively in Chapter 6.

Portugal is considered something of an exception when it comes to the ability to sustain a comparatively low unemployment rate, at least by European standards, over the past two decades. This appears all the more remarkable when it is recognized that the country has hardly experienced a magnificent general growth record since the late 1980s, despite the surge in employment creation that followed shortly after Portugal’s European integration in 1986. In Ireland, the gradual decline in unemployment levels since 1987 is correlated with impressive employment growth and a stunning expansion of GDP. The Portuguese economy, by contrast, seems to suffer badly from periodic boom and bust cycles. The Portuguese economy only grew by an average rate of 0.85 per cent between

2001 and 2004, including an actual shrinkage occurring in 2003, compared to average growth rates of a little over 4 per cent between 1997 and 2000. The corresponding data for Ireland is an average growth rate of 10.1 per cent between 1997 and 2000, falling to an average rate of 5.1 per cent between 2001 and 2004, the slowdown due in part to Irish dependence on the United States and the slowdown experienced in that country after 2001. The Greek economy grew by an average of 4.6 per cent per year in the latter period and 3.7 per cent in the former.8

Explanations for Portuguese successes in maintaining relatively high employment levels despite periodic economic difficulties often centre on comparisons with Spain, given that the two countries share similar wage-setting agreements among other things (Blanchard and Jimeno, 1995; Bover et al., 2000). A common explanation is that Spain’s labour market is more rigid, especially in terms of wages - meaning mostly that wages are lower in Portugal than in Spain. It is true that, despite formal ‘inflexibility’ such as stringent job security laws, the Portuguese labour market is flexible in a number of other ways. Comparatively low wages constitute one form of flexibility; so do the use of short-term contracts, used increasingly by employers from the mid-1980s, and the use of child and illegal migrant labour. Yet many of these conditions also exist elsewhere in Southern Europe, especially in Greece, and unemployment levels have been consistently much worse in Greece. The weakness of explanations centred on labour market rigidities, which arguably do not differ as much across Southern Europe as the economics literature likes to make out, has led others to focus on broader political factors and especially on the interventionist role of the Portuguese state after 1974. These include the extension of credit to small businesses, initially under a largely nationalized banking sector (Fishman, 2003), and, more recently, active labour market programmes. More generally, it is proposed that the sequencing of privatization of state services, well after the transition to democracy began, meant that a cutback in state employment only occurred after enterprises located in the industrial and service sectors were sufficiently developed to begin contributing to employment growth.

A major problem Portugal now faces is that many of these ‘new’ services and industries, some of which are still heavily tied to an inefficient agricultural sector, are no longer sustainable given competition from Eastern Europe and Asia. Staple Portuguese products have suffered either a loss of market or the growth of competition in recent years, including cork, fisheries, clothing and footwear. Furthermore, a growth strategy based chiefly on low-wage competition is not going to provide an adequate basis for meeting the expectations of an increasingly consumerist society whose reference point is Western Europe and not the ‘developing’ or ‘peripheral’ world. This is slowly leading towards the development of new industries structured around the concept of ‘the innovation society’, yet Portugal has much further than most European countries to go in making this concept a reality. As Chapter 6 discusses in much detail, levels of education in Portugal still lag far behind those in their Western and Southern European counterparts. Despite efforts to improve education levels, an

‘information underclass’ (Corkill, 1999: 179) can be clearly identified.9 This translates into the emergence of a very limited number and range of ‘knowledge based’ local industries and the lack of a clear strategy about how to shift away from continued Portuguese reliance on an underdeveloped agricultural sector, struggling industries, and a growing low-wage service sector.

 
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