Sunday 8 August 2010

The sad state of private sector employment in Greece

In contrast to many of my previous posts, which deal with the operations of the Greek public sector, this one will address one of the more egregious aspects of the Greek private sector: the extremely poor state of private sector labour law and respect for basic employment conditions.

We should not forget that while a huge public debt has been incurred since 1981, the private sector accounts for between EUR 20 - 25 bln in unreported and unrecovered taxes each year in recent years. The following two examples illustrate exactly how bad the situation can be.

A long-standing friend works as a store director for an international retailer which recently announced plans to withdraw from Greece. This retailer was hit by the downturn, but one of the main reasons they are leaving Greece is because in the first half of this year, Greek banks have been providing working capital at an annual interest rate of 14%. I should point out that this is an EU-headquartered retailer with a 2009 global turnover of EUR 3.5 bln and a network of over 210 stores worldwide. This is not a neighbourhood psilihatzithiko.

Nonetheless, Greek banks apparently consider this retailer such a risk that working capital costs 14%, at a time when the banks have already benefited from over EUR 40 bln of ECB repo window liquidity at less than 1%.

Greek banks have also benefited from a EUR 10 bln troika package for recapitalisation, and the Karamanlis’ government’s support package of EUR 28 bln (not all of which was absorbed). Another EUR 25 bln is on the way. If anyone wants to understand why the economy of Greece is doing particularly badly at this time, look no further than the bankrupt state of the Greek banking sector.

But this is not the main point of this post. The store network of the international retailer I mentioned was bought by a Greek retailer, who coincidentally is under investigation for an allegedly rigged deal involving a previous transaction with the Greek government.

This Greek retailer made the following offer to the managers, including my friend:

·         Sign a contract to work 6 days per week, full time (minimum 12 hours per day)
·         Be available for special promotions through the year, including Sundays, Christmas and Easter
·         Lose related benefits, such as the corporate car.

My friend refused, and was thus fired.

This resignation is definitely the right decision to make. It’s clear that the Greek retailer has no intention of complying with even the basic requirement of Greek and European labour law. To sign a contract for an unlimited work week and work year, without benefits, and with a salary that is low to begin with is the height of stupidity.

It’s a system in which instead of investing in competent managers who might be able to find a way out of the present crisis, the owners focus on cost reduction—regardless of the human or legal cost.

It’s the very attitude which has gotten Greece into the present mess it finds itself. I expect it will not be long before we see this Greek retailer going cap in hand to the government, demanding subsidies to remain afloat.

This is certainly not a new situation in Greece. In 2008, I spent a short holiday at a 5* resort in Rhodes. I was surprised to see the same maitre d’table and the same waiters taking care of breakfast, lunch and dinner, three days in a row. On the fourth day, I pulled the fellow aside and asked him why he was still working, since by my count he would have worked at least 60 hours in five days.

The story he told me is chilling. The entire hotel staff work the same schedule: 14 hours a day (from 07:00 – 24:00, with a break for an afternoon siesta), 7 days a week, for the 6 months that the hotel is open.

At the end of the 6 month period, the hotel closes for the winter, and the entire staff is fired, to be re-hired again at the beginning of the next season. If the staff want the work, they accept. Otherwise, they are fired.

I can understand that the hotel owners are probably confronted with high fixed costs, low occupancy and declining or negative profitability. But this is no way to run a 5* hotel, let alone any enterprise. Forcing people to work 14 hours a day for 6 months is against every labour law in the European Union, let alone common sense.

This is especially the case for staff who:

·         Have no direct share in corporate profitability
·         Receive no or little indirect income (who tips in a hotel restaurant?)
·         Are over 55 years old and highly competent in their jobs
·         Are in daily direct contact with customers.

Whichever way you look at it, this is illegal and short-sighted behaviour. It’s a damning testament to the failure of the hotel management to run an enterprise properly. It’s a failure of Rhodes and Greece as a whole to compete successfully as a tourism destination. And it’s a failure of the Greek Ministry of Labour, who is apparently blind to a common industry practise.

Unfortunately, this situation will not be ending soon: Greece is characterised by thinly-capitalised small enterprises offering very low value-added, and little competitive differentiation either within Greece or outside it. There is overcapacity in nearly every sector, and certainly in tourism accommodation. As a result, nearly every sector is characterised by commoditisation: a situation where a good or service becomes a commodity, available globally, and at steadily lower prices thanks to global competition.

The way out of this is to differentiate oneself competitively and invest in areas where (a) pricing can be maintained, (b) direct access to consumers is possible, (c) repeat business accounts for at least 30% of turnover, and (d) a real, continual investment in human resource and process productivity can be made.

Unfortunately, few Greek companies or employers appear to realise this. The emphasis is on labour cost reduction, no matter what this means for productivity and competitiveness.

While the Labour Ministry employees are drinking coffee and fingering their worry beads, the managerial and working class of this country is being flushed down the metaphorical toilet. It hardly provides for much confidence in the future.  

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