Thursday, August 17, 2006

Working hard for the Mac attack

An article I read in Kathimerini today has the tagline "Survey shows average Athenian must work 26 minutes to buy a Big Mac". Now, of course the survey is meant to show the imbalance between the cost of things in Greece and the average salary, but using the Big Mac as a means of measuring the imbalance is a bit off the mark. I'd say the average Greek doesn't even go to McDonald's if they have one relatively close buy, and most of the franchise operations seems to exist only around major metropolitan areas here, and an island or two. Still, a Dubliner only has to work 15 minutes for his Big Mac, so maybe there is something to this.

One major difference between Greece in America is the way people spend money. Sure, there are consumers here, but the average Greek, especially the average Greek with a family on a budget, will never buy fast food. Never. Nor would they eat out. Sure, there aren't as many options for quick food on the go here like there are in America (the drivethru is not a common thing here), but there are options for eating out, especially delivery places. But the Greek family is thrifty and the Greek mother cooks. Things like McDonald's (or the Greek counterpart, Goody's) are a luxury to the average Greek market. So the price of the Big Mac is moot, although the fact that an Athenian must work more to make the same amount of money, is a very valid point.

The other day I read somewhere that the average income for a Greek is something like 780 euros a month, give or take a hundred euros (I can't remember the exact figure, but it was below 1000). I've been here for 4 years, and I have noticed a sharp increase in prices. When I first moved here, it was within the first year of the great euro conversion, and most people were still counting their money in drachmas. People weren't used to the euro, and prices seemed pretty good to me - coming from America. Once retailers got used to the euro, though, prices started going up, and they haven't really stopped. When I arrived in Greece a loaf of fresh bread was 50 cents, now it is between 99 cents and 2 euros. This type of price increase has been pretty standard across the board for most food products - from doubling to quadrupling prices. Yet the Greek income has hardly budged at all. This story cites that inflation in Greece is among the highest in the E.U., and that isn't surprising.

In the meantime, the government has spiked electricity prices to an all-time high, and despite taking great pains to ensure that tainted goods are no longer entering the marketplace, they don't seem to be that concerned about rising prices. They will be concerned, however, when Greeks have maxed out their debt and are unable to continue being good little consumers. The Greek economy is fragile enough already, it really can't take another hit. Bankruptcy and low retail revenues could push it on even more of a downward spiral. Things are not looking good.

I realize that the Greek government is still relatively "young", when you take into consideration that everything changed only a mere 32 years ago. But the lawmakers need to wake up, and start seeing the problems that are here, instead of shielding their eyes and seeing only what they want to see. Greece is a beautiful country filled with wonderful people, and they deserve to get their money's worth.


St. Caffeine said...

Uh oh, Mel, a macroeconomic topic. Yippee!

Yes, the news story you referenced does indicate pretty low real (inflation adjusted) wages for Greek workers, but the additional holiday time and such should be factored in before reaching a final opinion as to "standard of living".

Though it doesn't account for time off, I did find a ranking ( that takes more than just wages into account. By this measure, Greeks also fare poorly -- 17th out of 22 countries, just behind Spain but considerably ahead of Portugal. Of course that ranking is based on private sector salaries and I don't know how big the private vs. public sector is in Greece.

As a good economist, I'm trained to say inflation is "always and everywhere a monetary phenomenon," but with the euro Greece has no individual control over that. So why does Greece have such a high inflation rate right now? Further, why are wages not adjusting with inflation (is the Greek labor force heavily unionized?)? Those are the real puzzles to me.

Given the constraints of the euro, though, I'm not sure the government can solve the big problem of falling real wages. Sure they can mandate higher nominal wages, but that'll almost certainly add to the inflationary problem. Well they could mandate wages and prices at the same time, but that'll set the stage for a train wreck of massive proportions. Macro policy is hard.

melusina said...

Well, there are a large number of public sector jobs. And workers here are heavily unionized, although I don't see that it does them much good, aside from getting lots of days off for strikes.

I'm not an economy person (by a LONG stretch) but I do find it interesting how much prices have risen since the introduction of the euro here. If you watch the news here, inflation in Greece is worse than most euro countries. My feeling? Businesses are simply taking advantage of the fact that a large number of the population still can't quite *grasp* what the euro means in monetary terms. Of course, that is a rather cynical view. I could be completely wrong.

It just doesn't seem like wages are getting a cost of living increase here, but the "real" story could be masked by melodramatic news stories. And I know that debt is increasing here at a phenomenal rate (not for us, thank god, we pay our credit card in full each month).

In the end, I'm not sure the euro is working in Greece, at least not as it should - and I'm not sure if that is the fault of the government, the economy, the business, the people, or a mix of the whole damn thing. I think the last poll I saw said that something like 69% of Greeks are unhappy with the euro, and I can see why. Although I still have to wonder if these price increases would have happened regardless.