By Panos Mourdoukoutas, Forbes
Among all the causes of the current unprecedented Greek crisis, one stands out — strict labor regulations and employment guarantees, including job security, early retirement, and a generous minimum wage. Greece’s minimum wage rose from slightly below 600 euros in 2000 to close to 900 euros by 2011, according to Eurostat. That’s a 50% increase, exceeding the minimum wage increases of Greece’s closest peers, Spain and Portugal, according to the same source.
Labor unions demanded these regulations and guarantees, protesting in the streets and on picket lines. And politicians turned them into law.
That’s how labor compensation turned into an entitlement.
Unable to cope with this difficult labor environment, some Greek companies downsized their operations or closed their doors altogether. Others relocated into neighboring Balkan countries, where labor rules and regulations were not as binding—-the minimum wage in Bulgaria are one-fourth of those of Greece.
A third group of Greek corporations — those with pricing power– hiked prices, shifting the burden to consumers.
A fourth group of companies transformed themselves into welfare agencies, maintaining their labor force by relying on direct or indirect government support for their survival.
And not to go without mentioning was a fifth group — foreign corporations — which stayed away from the Greek market altogether.
As long as the government could borrow the money to support to corporations, this system worked well.But then came the debt crisis. And the government could no longer borrow money to fulfill its obligations.
Greece’s minimum wage plunged from 876 euros in 2012 to 684 in 2014, according to Eurostat. And with business closures and layoffs, and unemployment soaring, workers lost everything, learning a hard lesson: wages cannot be mandated; they must be earned.
To be fair, the generous minimum wage and other labor regulations and guarantees weren’t the only factors that drove business closures and dislocations. There were plenty of other factors, as we discussed in previous pieces here and in Barron’s. But the lesson is still valid.
The problem is that union activists and liberal politicians have yet to learn this lesson. Even in this country, where free enterprise rather than socialism is at the core of the prevailing economic system.
That seems to be the case with New York, where labor advocates have been pushing for a $15 minimum wage and politicians appear ready to deliver, adding this provision to a host of other regulations.
How many corporations will close or shrink their New York operations? How many corporations will raise prices? How many foreign corporations will stay away from New York State? How many people will lose their jobs or miss the opportunity to get a job?
It remains to be seen.
