What's the Greek Economy Really Like?
Scott Sumner was talking about Greece months before its fiscal woes put it on the front page. This passage was so vivid it stuck with me:
Before delving into the numbers, I’d like to first try to dissuade
you from thinking about this problem in terms of mental images. To do
so, I am going to first talk about two other countries; German and
Greece. Which of those two countries has the largest GDP? Obviously
Germany. And why is Germany’s GDP much larger than Greece’s GDP? Most
of us have mental images of each country:
Germany: A manufacturing powerhouse full of sleek Bauhaus-style factories churning out turbines and BMWs
Greece: A beautiful sleepy backwater, full of fishing ports and mountain villages with donkeys walking down the street.
But it turns out that these images are very misleading-and in fact
have little or no role in explaining the wide gap between Germany and
Greece’s GDP. The three institutions cited in Wikipedia’s PPP GDP tables all
estimate Germany’s per capita GDP at about $35,500. Unfortunately, the
three sources differ on Greece, ranging from $29,000 to $32,000. Let’s
say it’s $30,500, which would make Germany about 15% richer.
The means that the reason Germany’s GDP is roughly 10 times bigger
than Greece’s is almost entirely due to it much bigger population (80
million vs. 10 million.) If you had a country of 100 million at
Greece’s level of development, then it’s GDP would be larger than that
I was skeptical at the time. “Mental image”? I didn’t spent a lot of time in Greece, but the non-tourist part I saw with my own eyes looked like the Third World. Today Tyler links to a partial resolution of the puzzle. Remember that GDP stats value government “output” at cost:
The shakeup of longstanding aspects of Greek life, from endemic tax
evasion to overstaffed offices of idle employees, has prompted fears
that widespread social unrest could unhinge a Greek recovery.
The government’s proposals for deep spending cuts already have stoked
strong resentments in a country where one in three people is employed
in a civil service that, until now, has guaranteed jobs for life.
In Germany, in contrast, it looks like only about 10% of the labor force works for the government. Knowing the Germans, it’s easy to believe that its government employees accomplish as much as the Greeks’ despite their smaller population share. This implies that 25% of the Greek labor force is, contrary to official stats, producing nothing.
So using Sumner’s other numbers – and assuming output is roughly proportional to labor force – per-capita GDP is more than 50% higher in Germany than Greece. First-hand observation tells me that’s still an understatement, but it still closes a big chunk of the gap between official stats and reality. How’s that for a mental image?
May 3 2010 at 9:46am
Does anyone know the percentage of the US workforce employed by the public sector?
May 3 2010 at 10:08am
Using the same source thay you used for Germany, only 14,1% of greek labor works for the government:
May 3 2010 at 10:09am
Yes, low productivity in the Greek public sector fits the images in the news. CNN ran an interview with a Greek guy who had a job sweeping streets. In the US, such a guy would be driving a huge machine and would sweep all of downtown in an 8 hour shift. In Greece, the worker dwarfed his tools–a small broom and a wastepan. He might be able to keep a few blocks clean in an 8 hour shift. The worker’s complaint was that his benefits were at risk with the ‘austerity’ measures–though his ‘job’ was secure. In any case, the point is the sector, not the person–a public sector that offers jobs like that must have very low productivity.
May 3 2010 at 10:18am
Don’t trust Greeks and their data!
May 3 2010 at 10:49am
I’d like to echo what Bryan said about the non-tourist areas of Greece. My parents being from Greece I had many opportunities to visit; Greece is at best a developing nation.
Also, I would be willing to wager that a sizable portion of the economy is informal. One of the measures being introduced now is that all stores, kiosks (which are ubiquitous in Greece), etc. have to install cash registers. So much business activity is done out of the light of the “official” world that comparisons are hard to make. That being said, low productivity (particularly in the public sector) is a good assumption to make.
May 3 2010 at 10:57am
“Also, I would be willing to wager that a sizable portion of the economy is informal. One of the measures being introduced now is that all stores, kiosks (which are ubiquitous in Greece), etc. have to install cash registers.”
But, then, these mean that greek GDP will be *higer* than the statistics.
May 3 2010 at 12:26pm
“Germany: A manufacturing powerhouse full of sleek Bauhaus-style factories churning out turbines and BMWs”
That may apply to the west part of Germany, but does it apply to the east?
My guess would be that per-capita production in East Germany was even lower than in Greece at the time of German reunification…
May 3 2010 at 12:32pm
A more useful statistic would be C+I-G+NX. Not just for Greece.
May 3 2010 at 12:53pm
I think Greek GDP is higher than the stats say, however, I also believe that productivity is low. Also note that my suspicions are mostly based on anecdotal evidence.
May 3 2010 at 1:16pm
Attribute a greater portion of output to government if you will, but the funds for it must still come from somewhere. In part it has come from borrowing, but using your figures that still would leave private industry in Greece even more productive than Germany.
May 3 2010 at 2:23pm
My significant other works inside the Greek Government. I can tell you it is not uncommon for bosses to come to work at 11 and leave a 2 for lunch, never to return that day. Moreover, workers who do work hard, are maybe 1 in 5. Often, employees refuse to do work that is assigned to them because they cannot be fired.
Basically, people get paid and produce nothing. And that is not hyperbole.
May 3 2010 at 2:25pm
I suspect you have only visited bits of the center of Athens. Much of the center of Athens is very poor, attracting new immigrants and so on, but it is very unrepresentative of the standard of living in Athens more generally the country as a whole. Describing Greece as a developing country means that either you haven’t really been to Greece or you haven’t been to the developing world. As a guy who grew up in Greece, is currently living in the UK and is posting this comment from Addis Abeba, I can confirm that Scott’s mental image is much closer to reality than the one you propose.
May 3 2010 at 3:02pm
“Knowing the Germans, it’s easy to believe that its government employees accomplish as much as the Greeks’ despite their smaller population share. This implies that 25% of the Greek labor force is, contrary to official stats, producing nothing.”
This passage wins the award for shaky argument of the day.
May 3 2010 at 3:25pm
I couldn’t find a breakdown of Greek exports on-line. But I can’t think of a Greek export other than food. (Maybe there are Greek subcontractors on cellphones and German/Italian cars. But I doubt it.)
Wouldn’t a lack of high-tech (or oil/mining) exports act as a cap on any increase in Greek wealth?
May 3 2010 at 7:12pm
In my technological industry, I have purchased from vendors in:
USA, Canada, Japan, UK, France, Italy, Portugal, Netherlands, Australia, Korea, Germany
Who have manufacturing or R&D in:
China, India, Taiwan, Mexico, Belgium
Meanwhile: “The top 12 companies in Greece comprise seven banks, a phone company, electricity provider, oil refinery company, lottery operator and a Greek-owned American company.”
The banks are doing well since: “the European Commission found that banks in Greece charge consumers up to 10 times more than other EU member states for the same services.”
Credit link: http://livingingreece.gr/2008/09/12/largest-companies-greece-2/#ixzz0muZFrasu
May 3 2010 at 8:36pm
Tom: The biggest export of Greece by far is tourism.
This table shows exports of products, of which industrial output is the majority of the 11 billion euro total (this is for 2002, so perhaps it’s 15-17 billion now).
Tourism, on the other hand, is worth 15% of the economy, or more than 40 billion euros.
The figures I’ve found on Greek productivity and hours worked do not fit with the description above. But they come from a Greek institution whose biases I don’t know. I suspect that Greek private workers produce a lot, but that a large number of retired people and students (and perhaps civil servants) result in a low GDP per head.
More details here
May 4 2010 at 1:36am
So consider the consequences here for the Greek debt to GDP ratio…. yikes.
May 4 2010 at 6:47am
I have been in Greece in 1994 and in 2008. I found that this country had changed a lot meanwhile.
In 1994, poverty was obvious everywhere but in 2008, Greek cities were quite like other European ones. But maybe I am victim of a tourism bias.
May 4 2010 at 11:03am
A good topic for a post.
How big are EU transfers to Greece?
How big is Greek debt relative to GDP? If a country borrows a lot, does its GDP automatically rise, ignoring the increase in liability?
Are there useful consumption indicators we can look at— square feet of housing per person, number of TV’s, meat consumption, and such?
J. Daniel Wright
May 4 2010 at 11:57am
I tried to find the latest available data, which I believe is for 2008. The total federal government employment in December 2008 (revised in Dec 2009) was 2,518,101. Source: http://www2.census.gov/govs/apes/08fedfun.pdf
The total state government employment in March 2008 (revised in Dec 2009) was 3,818,577. Source: http://www2.census.gov/govs/apes/08stus.txt
The total local government employment in 2008 (revised in Dec 2009) was 11,039,250. Source: http://www2.census.gov/govs/apes/08locus.txt
Adding these together, we arrive at a total public sector workforce of 17,375,928.
The labor force in 2008 was 154,287,000. Source: ftp://ftp.bls.gov/pub/special.requests/lf/aa2008/pdf/cpsaat2.pdf
Roughly calculated, the public sector employment as a percentage of the labor force was 11%.
May 4 2010 at 2:01pm
Miguel Madeira points out that the OECD, using standardised definitions, gives Greek government employment as an unexceptional 14% of the labout force, clashing with Scott Sumner’s “one-third” civil servants. The explanation may lie in civil service status of teachers (as in France) and possibly health workers. There is no reason to think these two categories are especially idle in Greece, so Sumner’s scenario collapses.
May 4 2010 at 7:56pm
I’ve lived both in Greece as well as in Germany (and England and Scotland). Greece is a poor country with rich citizens. That black economy is huge – very few people people pay their taxes fully! On the other side Germany is not all car manufacturers. Don’t forget East Germany.
May 5 2010 at 6:20am
14 % according to the OECD:
Governemnt provided health care is a recently much discussed example, where we see different levels of governement “productiivy” or outcomes.
Cu-throat, social darwinist US spends 7%.
Socialist Austria spends 8%.
May 12 2010 at 11:22am
“Greece has a huge public sector—40 percent of GDP is generated by the public sector, and 25 percent of Greek workers are public employees”
Posner doesn’t give sources. CIA says
“Greece has a capitalist economy with the public sector accounting for about 40% of GDP”
but I have no idea what exactly CIA means by that. Do government enterprises produce that much?
May 14 2010 at 10:43am
well i consider greece to be perfectly fine when it comes to business. recently i hosted a conference in athens greece and i had absolutely no trouble. i mean i dont understand what the fuss is about. if u can get business done then its fine. for ex before arriving to athens to prepare for the conference i looked into a local bureau http://www.athensconventionbureau.gr and they helped me with everything. it made my life so much easier. instead of running around to find caterers, local partners, venues and so forth they provided me with a list of opportunities and choices and than i took it from there.
May 15 2010 at 6:03pm
The Greek economic output is BS. The situation is similar to the high standards of living attained by Argentina under Menen prior to their last fiscal crisis. For example, Argentine IT workers were being paid salaries higher that their US counterparts. These salaries were financed by debt and showed large productivity for services paid for by the borrowers (the government owned banks). When the debt crisis hit, the labor force saw a minimum 40 % reduction in their earnings. This was done through devaluation of the currency and a healthy cursing of the evil American capitalists, the IMF, and whomever can in handy. Even so, on one wanted to be president.
Greek politicians can not devalue the Euro and are unwilling to cut benefits and salaries as deep as needed, hence the current crisis.
Comments are closed.