Crisis, Adjustment and Resilience in the Greek Labor Market: An Unemployment Decomposition Approach

Vassilis Monastiriotis,Angelo Martelli

doi:10.1177/0160017620964848

Vassilis Monastiriotis, Angelo Martelli

Open Access

https://doi.org/10.1177/0160017620964848

Copy DOI

Abstract

The crisis in Greece led to one of the largest economic shocks in European history. Drawing on micro-data from the Greek Labour Force Survey, we utilize standard micro-econometric methods and non-linear decomposition techniques to measure the size of the shock exerted on the Greek regional and national labor markets and the compositional and price adjustments in response to this. We find elements of economic dynamism, with some sizeable price adjustments in the economy of the Greek capital, Athens; but overall our results show that compositional adjustments (in labor quality/characteristics) have been partial and limited, becoming stronger only in the more recent recovery. Our results suggest a significant metropolitan advantage with regard to economic resilience, coming predominantly from a more efficient functioning of the labor market in metropolitan areas vis-a-vis other regions. Our use of the decomposition techniques for the analysis of macro-level developments in the labor market offers a novel perspective to the application of the decomposition methodology.

Highlights

The Greek crisis represented an immense shock to the Greek labor market
In our analysis we find that adjustment to the shock came predominantly through changes in shadow prices, especially in the more urban areas of the country, representing mostly an intensified sorting on the basis of some individual characteristics, both marketable and exogenous; while some more minor quantitative adjustments took place
Despite the attention afforded to the Greek economy following the country’s immense crisis since 2009, analysis of how the labor market adjusted to the economic shock, both during the crisis and in the subsequent recovery, remains limited

Summary

Introduction

The Greek crisis represented an immense shock to the Greek labor market. Reversing abruptly the trajectory seen since the country’s entry into the eurozone, unemployment rose from a fifteen-year low of 7.8% in 2008 to 27.3% in 2013; before starting subsiding more recently. The estimated fixed effects represent the change in the intercepts of the underlying unemployment regressions (adjusted to correct for the “decomposition identification problem”) between two years, showing the (potential) rise in unemployment that is specific to the period defined by these two years (crisis or recovery), irrespective of changes in the composition of the labor force (the “endowment” component) and in the valuation of the various labor force characteristics (the remainder of the “price” component) that may have taken place in that period On this basis, we can interpret the “fixed effect” as a measure of the overall shock to the labor market (whether positive or negative) and, all other “explained” and “unexplained” components as the (compositional and price-related) adjustments that took place in response to the. We discuss the implications of this, as well as of our overall analysis more generally, in the concluding section

Conclusions

Findings

Source