Tourism, trade and manufacturing, densely populated sectors of the Greek economy, are expected to suffer more from the effects of the minimum wage increase, especially if it exceeds 7.5%. The KEPE report, which has been in the hands of Labor Minister Kostis Hatzidakis for nearly a week now, says so, “shattering” expectations that were set up for an increase far beyond what the domestic economy can handle. Decisions have already been made, and the tragic accident at Tempe could “freeze” procedures for several days, but within the next week, the cabinet must approve Mr. Hatsidakis’s proposal in order to then sign the corresponding ministerial decision. and the new minimum wage should apply to at least a quarter of private sector workers.

The “call” about the impact of a possible large minimum wage increase on small businesses, which are estimated to be more adversely affected, came from the KEPE report, which is not binding on the government but shows buying propensity. Thus, the independent Expert Body proposes a 5% increase, while KEPE advocates an increase in the minimum wage and the minimum daily wage from 4.5% to 7.5%. In particular, the committee of experts, having taken into account both the proposals – the recommendations of the authorities, research institutes and social partners, and the course of the Greek economy, assesses that “the level of the minimum wage at the end of 2022 was satisfactory and that the increase is legitimate, which compensates for the projected loss of real incomes of low-paid workers due to inflation (+4.4%) and follows the expected growth in real productivity (+0.6%).” Therefore, he recommends increasing the minimum wage and daily wage by 5%. In the same final text, KEPE estimates that the increase in the minimum wage should at least cover the loss of purchasing power for 2023, setting a minimum increase of 4.5%. On the other hand, for reasons of social equality, he considers it expedient not to exceed the increase given to the majority of pensioners (7.75%). And proposes an increase from 4.5% to 7.5%. He even points out that small businesses where the use of the minimum wage is more common are clearly more susceptible to the adverse effects that the increase would have.

In particular, it is noted that small businesses are more sensitive to changes in the minimum wage, since a 1% increase will increase the average wage in small businesses by 0.53%, and in large businesses by 0.36%. In other words, the pressure from the minimum wage increase is much greater on small businesses. In fact, there are significant sectoral differences regarding the impact of the minimum wage on the average wage.

This will put a lot of pressure on small businesses, warns KEPE. It is proposed to increase from 4.5% to 7.5%.

In particular, in small firms in six industries, the elasticity of the average wage to the minimum wage is estimated to be above 0.5. Among these industries, there are also crowded industries related to tourism and trade, as well as manufacturing. For enterprises with more than 10 employees, the elasticity of the average wage relative to the minimum wage tends to be lower than that of the corresponding small enterprises. The accommodation and catering sector is still relatively more sensitive to changes in the minimum wage, notes KEPE, with an elasticity of 0.43, followed by property management (0.40), healthcare, trade and manufacturing with an elasticity of 0.33.

Another indicator that is expected to be decisive in making the final decision is the Kaitz index, i.e. the ratio of the minimum wage to the average. According to experts, the closer the minimum wage to the average, the higher the index value, which indicates a greater correlation. In 2022, the Kaitz index for all businesses with more than ten employees is estimated at 0.51 (2021: 0.48) and ranges from 0.28 for the energy sector to 0.67 for administrative and support services. Tourism-related industries have a high Kaitz index (0.65), mainly due to low food service wages, followed by healthcare (0.61), other services (0.58), public administration ( 0.58), construction (0.56) and trade (0.56). The slight increase in the Keitz index in 2022 is due to the fact that the average wage at large firms has increased less than the minimum wage. In particular, average wages in large firms increased by an average of about 3% between October 2021 and October 2022.

In enterprises with less than 10 employees across all industries, the Keitz index is clearly higher than the corresponding figure for large enterprises, indicating that a significant part of the workers there receive wages very close to the minimum. In particular, in 2021 the index was 0.72, and in 2022 it increased to 0.74, while it ranges from 0.55 for public administration to 0.83 for education. Education (0.83), arts (0.81), healthcare (0.81), room and board (0.78), and commerce (0.78) consistently rank among the highest Kaitz indices and therefore among the most low wages.