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The Desert, Greece and its Public Sector

 ”I like the desert. It’s hot there in the desert, but it’s clean.” Lawrence of Arabia, 1962, the movie.

The Germans. The Greeks. That bloated public sector. Of whom? The Greeks? Think again, by reading the ECB working paper of these 8 researchers.

Yes, the share of public employees over total workers of Germany is only 19% while the Greek one is 29%. But Greece is by no means the worse: Germany’s strongest ally, Belgium, is at 38%, while public-loving France is at 31%.

The German public sector has less university-degree holders than the Greek one (49 against 56%) but, nevertheless, many more in managerial position (26 against 18%). Greek public employees are slightly younger (41 vs. 43 years old) and work basically the same amount of hours during the week (35 vs. 36).

The net hourly wage for public employees is 30% higher in Germany (13 euro against 10), while the mark-up over the net wage in the private sector (a much more relevant measure to gauge the extent to which public sector is putting pressure on private sector wage negotiations and, possibly, on inflation dynamics) is much higher in Greece: 55% against 21%. However, once you take into account not hourly wage but net average (yearly) compensation – 23.000 euro in Germany and 15.000 euro in Greece – the difference in mark-up over average private sector compensations shrinks: 18% in Germany and 27% in Greece (it is 46% in Portugal and 26% in Spain).  This is because (in all countries) in the private sector worked hours are higher than in the public sector and so differences decline.

Anyhow, these are numbers  that are hard to compare across countries if you do not take into account differences in characteristics that affect wages: age, gender, education, public sector type etc. Once you do that, 3 groups of countries emerge:

Group  A, the “private-attentive ones”:  Belgium and France, where the premium with respect to private sector pay is almost non existent.

Gruppo B, the intermediate ones: Austria, Italy and Portugal.

Group C, the “public-attentive ones”: Spain, Ireland, Greece and … Germany. The latter, indeed, has a premium of 15% against the 16% one of the Greeks.

So there you go. The Greek public sector is not such a large anomaly one is trying to convince you it is. Yes, the public sector employment is relevant, but not that much more than in many other European countries. It has less managers than the German public sector, even though more of the employees are graduates. There does not seem to be an incredibly negative effect of Greek stipends on private sector stipends that affect directly competitiveness: the public stipend premium over the private sector one is the same as the German one.

The Greek problem, like the one of many euro countries, is one of general productivity and wages, possibly due to an excessive degree of centralization of Greek wage bargaining that disregards productivity. But if you look at the numbers, the growing weight of the public sector in the Greek economy is not so much due to greater waste but to the greater recession and the lower GDP. These two factors have a cause: austerity and a bloated banking sector (whose ROE collapsed from an average 15% in 2005-2007 to a negative number in 2009) whose murky dealings with foreign EU banks led to disaster.

The ECB Working Paper speaks clearly. Actually, data speak clearly, for whoever wants to understand the current dynamics in the EU area and separate truth from lies.

Data, true data, have this fantastic quality. They are like the desert of Lawrence of Arabia: they are clean.

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