The purchasing power of wages is 6,8% lower compared to 2006

The purchasing power of the average wage in Cyprus is at 6,8% lower than in the period 2006-2012, according to the report of the Cyprus Labor Institute, presented on Wednesday by INEK research associate Elias Ioakeimoglou, at an event that organized online by PEO. The downward trend in real wages and the devaluation of labor are still ongoing, it was noted during the presentation.

As shown in a relevant graph, the purchasing power of the average wage had fallen to -11% in 2014 after the implementation of the memoranda. With the improvement of the Cypriot economy in the years 2015-2019, it began to recover to reach -3,3% compared to 2006-2012. The pandemic has once again plunged purchasing power to very low levels, from which it has already begun to recover. However, this development is ongoing, as to date it is still 6,8% from what it was in 2006.

At the same time, GDP fully recovered to the level of 2019, but wages did not return, while with the intervention of inflation in the purchasing power, it seems to decrease again.

On the contrary, the income share of capital in the product shows an impressive increase based on the charts presented. It seems that at the end of the first phase of the health crisis, the income share of capital is growing rapidly and strongly, which seems to be continuing.

Mr. Ioakeimoglou stated that in Cyprus since 2002 there has been a stability in the distribution of the product between capital and labor. This was abolished with the implementation of the memoranda. From 2015 capital income increased rapidly relative to total wages and reached 2021 to increase by 41% from 2006. In contrast, total wages increased by only 6% over the same period.

It is noted that the total wages do not reflect the average real wage. On the contrary, the data show that although today 6% more salaries are paid, the average salary has decreased by 6,8%. This means that more people are working today, with lower wages, proving in this way the devaluation of work.

To the argument that the increase in wages probably led to an increase in prices, making them less competitive, Mr. Ioakeimoglou replies that although the competitiveness resulting from the reduction of labor costs increased by 17%, the competitiveness of prices only improved by 7%. On the contrary, what increased was the average profit margin.
He then compared the annual earnings per employee in Cyprus with the rest of Southern Europe. The comparison shows that wages in Cyprus are lower than in Italy and Spain and higher than in Portugal and Greece. It is noted that in Greece wages have never increased after the memoranda, while in Portugal there seems to be an upward trend, which will probably soon exceed the wages of Cyprus.

Another important economic figure analyzed in the report is unemployment. Analyzing the data of the last 15 years, Mr. Ioakeimoglou concludes that for Cyprus it seems that the "equilibrium unemployment", ie the point where there seems to be a substantial change in the labor-capital ratio for wage trading, seems to be in 7,5%.

He also noted that the short-term and long-term unemployed in Cyprus amount to 35.000. However, when the discouraged and underemployed are taken into account, then this number doubles. He noted that although the unemployment rate decreased significantly with the development of the Cypriot economy from 2015 onwards, underemployment and long-term unemployment remain high.

Regarding the macroeconomic data analyzed in the report, Mr. Ioakeimoglou stood on two points. The first concerns the comparison of real GDP with potential. He said that when the real GDP of an economy exceeds the potential GDP, the problems begin: High inflation, higher imports, problems in the trade balance. He stated that the Cypriot economy in 2018, following a policy that was not "wise", as he characterized it, exhausted its potential to grow without problems. Today we are in a situation where the country will have to deal with conditions conducive to inflation, which is already high from external factors. "If the Cypriot economy continues to grow in the way of 2015-2019, it will also have internal conditions, dangerous for internal inflation," he said, adding that if a government leads the country to irrational deficit situations, corrective actions are needed for which the price will be paid by the people.

He noted that in Cyprus during the last growth of the economy, fixed capital investments were 40% lower than in 2010.

However, he expressed particular concern about the huge deficit of 9,1% of GDP observed in the current account balance of Cyprus. He said this is the largest in the EU, followed by Romania and Greece with 4,9% and 4,1% respectively.

He noted that when the European Commission wants to re-implement the policy pursued before the pandemic, Cyprus will be forced to pursue policies to correct these magnitudes. He stated that a similar deficit was present before 2013 (then it was around 15%). He expressed concern that the issue does not appear to be being adequately discussed in Cyprus, he said.

Asked how the current account deficit is being tackled, he said it was now accepted by international organizations that this was being done through a policy of redistributing income at the expense of large incomes.

Putting the report in the international economic context, he stated that internationally we are in a phase of recovery from the health crisis. In most countries the exit is made in an attempt to devalue labor. For the first time in many years there is high inflation of 3%, raw material prices have skyrocketed, which leads to arrhythmias in production, the debt of countries is increased and there is increased liquidity in the international economy, with effects postponed by international organizations, because they know that if they reduce liquidity by raising interest rates, this will be the trigger for a series of negative effects.

On the other hand, maintaining liquidity leads to low interest rates and this leads to losses of a large portion of capital. In the long run this will be reversed, the Central Banks will regain liquidity and the world economy will enter a difficult phase, where class antagonisms will be greatly exacerbated.

The system fails to increase labor productivity, which since 2008 has been stagnant in all countries. The only way to increase the profitability of the capital, is to turn against the work and distribute its share in the product.

In Cyprus and Greece this effort had preceded the pandemic. Similar processes have begun in other countries. He noted that in most countries the devaluation of labor and the redistribution of income in favor of capital are taking place silently and this gives little hope for the reversal of the situation.

He concluded that "the monetary management of the world economy will create conditions for a confrontation between capital and labor."

Answering a question about corporate debt, Mr. Ioakeimoglou said it was a matter of business whether companies would be willing to raise wages if their debts did not exist.

Asked about the factors that affect wage increases, he said that they are the unemployment rate, institutional and ideological. He noted that today wages are lower than at another point in time with the same unemployment rate. Therefore, the other two factors affect the amount of salary. He placed particular emphasis on ideological factors, stating that the ideological prevalence of neoliberalism leads workers to consider unemployment their own responsibility.

In addition, responding to an argument for a further rise in inflation in the event of a wage rise, he said that between labor costs and prices, the profit margin is inserted. If there is room to reduce profits, then wages can be raised without raising inflation.

Asked by the secretary of PASYDY whether the current situation favors the demand for salary increases, he replied that the analysis shows that we are at a critical point and if there are no forces to increase, the process of devaluation of labor will continue. So it's time to step up claims, he said.

In a greeting addressed by the General Manager of INEK, Pavlos Kalosynatos, he stated that the main conclusion of the report is that the return of revenues to the levels of 2019 has not yet been completed. The report proposes a new strategy for sustainable GDP growth, driven by wage growth.

The General Secretary of PEO Sotiroula Charalambous stated that the social dialogue for the introduction of the minimum wage is in progress, while it must be ensured that where there are sectoral agreements, these must be applied throughout the sector.

He also called for measures against the accuracy and efficiency of the ATA, as well as the expansion of social policy, as a mechanism for fairer income redistribution.

Speaking after the presentation of the report, she said that the fact that employment is increasing but the position of employees is not improving is due to "deregulation": informal forms of flexible employment, reduction of the percentage of employees covered by collective agreements.