The government, through the mouth of Kyriakos Mitsotakis, announced a new increase in the minimum wage from April this year. However, the percentage increase is currently unknown. The agencies have already presented their positions, offering an increase from 3% to 15.8%. GSEE submitted the highest offer, while KEPE, IOBE and TtE offer increases of 3% to 5%.

What is the real goal of increasing the minimum wage in Greece? Before answering a specific question, I would also like to mention that according to the OECD database and 2021 data.https://stats.oecd.org/Index.aspx?DataSetCode=MIN2AVE), the minimum wage in Greece, at 40% of the average wage in Greece, is low compared to 47% in the case of Portugal or 49% in France. In this article, I will try to assess the increase in the minimum wage, which goes hand in hand with the potential of the Greek economy.

Indeed, the minimum wage is positively affected by both the general wage level and the general price level (the so-called Greek GDP deflator).

On the other hand, however, the decline in the competitiveness of the Greek economy, to which I am approaching (https://fred.stlouisfed.org/series/CCRETT01GRQ661N) from the increase in the price level in the Greek industry in relation to the price level in the world economy has a negative impact on the minimum wage in Greece. In addition, the faster the unemployment rate rises, the more the minimum wage “shrinks” because workers, especially in low-wage jobs (which many consider less productive), feel more insecure about their job prospects.

In the graph above, I capture the changes in the minimum wage depending on our economic capabilities (i.e. change in wages, general price level, competitiveness of the Greek economy and unemployment rate) between 1971 and 2022. I use the Fully Modified Ordinary Least Squares econometric method for quantifying the chart.

We observe the following:

The minimum wage recorded losses of up to 11% per annum against the country’s economic potential in the 1970s, largely due to the oil crisis.

The minimum wage exceeded economic opportunity by about 16% in 1982, just after Andreas Papandreou took over as prime minister.

A large increase of over 11% also occurred in 2011. However, as Greece found itself in the midst of the European debt crisis, the so-called “troika” largely took over the management of the country’s economy. , the minimum wage has been reduced to 5% per year due to our financial capabilities. In 2021, the minimum wage closed with a loss of 1.9%.

In 2022, the minimum wage recorded a loss of 6.8% compared to what the Greek economy could offer.

So what does the above mean? In 2023, the minimum wage could increase by 6.8% to make up for the loss of income in 2022.

However, if the government wishes to be more generous (also due to elections), it could increase the minimum wage by 8.7% (i.e. 1.9% plus 6.8%) to make up for lost income in the 2021 biennium. 2022. In practice, this means raising the minimum wage to a maximum of 775 euros. This is what the Greek economy has to offer at the present time.

Mr Kostas Miloš is Professor of Finance and Accounting at the University of Liverpool.