The transformation of the Greek economy towards a sustainable production model with high added value and knowledge intensity is not yet complete. Despite recovering from a deep recession and remarkably resilient to successive shocks, the Greek economy has yet to correct the chronic structural problems that are limiting its long-term outlook. In our recent study, we focused on three key areas for long-term growth in which the Greek industry is still lagging behind: i) skills development and management system, ii) management practices, and iii) technological upgrading and innovation. All three of these areas are inextricably linked to performance.

Education and training

Although the percentage of people with tertiary education has increased by 11.5 percentage points in Greece over the past decade (OECD, 2020), skills are still at a low level compared to the EU. (ESI, 2022). Therefore, the system of education and training does not adequately meet the needs of the labor market. At the same time, in addition to the development of human capital, its economically rational distribution is extremely important. Using micro data on skills and abilities of adults from the OECD (PIAAC), we confirmed that Greece has the highest rate of overtraining in the OECD (28%, 11%). But the new conclusion is that this divergence from the rest of the world is entirely due to more highly skilled jobs. Characteristic of the problem is also that the level of undertraining is above average (7%, 3.8%).

The skill mismatch in the Greek labor market has many implications. Highly skilled workers are likely to experience less job satisfaction, receive lower wages than workers with similar skills, and manufacturing firms lack a talented workforce. Econometric analysis confirms the negative impact of overtraining on overall performance, which allows us to conclude that the produced overtraining has a negative impact on labor productivity. Getting the skill match right is especially important in an economy that has lost a significant portion of its human resources (brain drain).

Effective use of existing human resources boosts productivity and closes skill gaps as workers need to adapt to new skills.

Management practices

It is generally accepted that firms that score higher in management perform better. However, Greece has the lowest average score in the World Management Survey among selected OECD countries.

We find that Greece exhibits a huge heterogeneity in the adoption of best practices and therefore little dissemination. In particular, it has two negative beginnings: 1) the gap between the management practices applied by domestic companies and the best management practices applied by affiliates of foreign multinational corporations in the country, and 2) the gap between domestic companies operating abroad and those who no international activity. Thus, the optimism is that businesses in Greece can find a path to good governance if they are subjected to it (Genakos 2016).

A more detailed analysis shows that Greek companies perform the worst in human resource management, planning, supervision of employees, as well as the development of synergy, dialogue and cooperation. Instead, they tend to be better at making decisions, perhaps by one person. The above clearly points to the central role played by the family nature of most Greek businesses, where the corporate culture revolves around the founder, with little opportunity for talent development, judgment and discretion on the part of employees. Employees in Greek businesses also show the lowest levels of autonomy in the OECD, a sign of low trust.

Low trust between management and employees can hinder the decentralization of a business and hence its growth. Overall, the econometric study highlights the importance of implementing sound management practices, as highly ranked firms exhibit about 15% higher labor productivity than the average.

Innovation and technology

The most important condition for long-term growth is innovation. However, Greece ranks low in the European innovation index. According to our findings with LIEE/SEV data (NTUA Laboratory of Industrial and Energy Economics, supported by SEV), firm size is a significant barrier to product innovation, although family firms are not far behind (between companies of the same size).

The literature shows that while large firms can use internal funds for R&D activities, have access to additional sources of funding, can better exploit economies of scale, etc., family firms have faster decision making, flexibility and adaptability.

At the same time, Greek manufacturing companies are lagging behind in digital adoption as well as participation in global value chains. The latter are positively associated with innovation and technology adoption, which ultimately increases productivity, knowledge transfer and technology diffusion, so falling behind for Greece is counterproductive.

conclusions

Greek companies perform the worst in terms of human resource management, planning, employee control, dialogue and cooperation.

The role of politics in dealing with these problems must be multifaceted. In terms of skills, the key message is that coordinated measures must be built into sound and inclusive industrial policies, both for higher and vocational education and training. From the point of view of management practices, the state can play an important role by promoting best practices, and it is especially important to separate the activities of a business from its founders (similar to, for example, the German Mittelstand). Finally, linking research with innovation and further boosting knowledge-based entrepreneurship could be a lever to increase the innovative capacity of Greek industry (Pissaridis Committee 2020).

Undoubtedly, the long-term development of the Greek economy requires strengthening skills, increasing productivity, promoting best management practices and encouraging innovation. All this is based on knowledge, that is, human capital, the importance of which in the digital economy is growing.

Sofia Anifantaki, Bank of Greece / Tel. of Cyprus, Konstantinos Dellis, University of Piraeus / Athena RC, Yiannis Kalogirou, NTUA Aikaterini Karadimitropoulou, University of Piraeus, Philippos Petroulakis, Bank of Greece.

This is part of the LSE Hellenic Observatory Research Calls for 2020 which is funded by the Athanasios K. Laskaridis Charitable Foundation and Dr. Vassilios Apostolopoulos. The original study was published in English in the Economic Bulletin of the Bank of Greece (Issue 55, Article 1) and as an ELIAMEP policy brief (No. 119). The views expressed in this article are those of the authors and do not necessarily reflect those of the Bank of Greece or the Eurosystem. The authors are responsible for all errors and omissions.