By George Mountis
THE BIGGEST problem Cyprus is currently facing is the high percentage of unemployment that is in excess of 16 per cent at June 2013 – especially for those under 30 where in some areas – mainly Paphos and Famagusta) unemployment is approaching 45-50 per cent.
Cyprus is currently dealing with the vicious cycle of ‘austerity – recession – repayment of financial support from the troika’, which is consequently increasing unemployment at an alarming rate.
The economic and psychological pressures on the unemployed (of any age) from society and specifically from the necessities of life are huge. The solution to unemployment is primarily a political matter.
The increase in employment does not depend only on major international investments, but also by improving the conditions under which the small-to-medium (SME) enterprises can start hiring the unemployed. If for every SME it is made ‘easier’ to hire an unemployed person, unemployment is likely to decline significantly across Cyprus. The government should allow companies to hire new employees giving tax incentives, enabling them to hire new personnel and promptly paying the wages of existing staff.
In May 2013, the Cyprus government announced an emergency plan to provide incentives for the employment of long-term unemployed and those under 30. It has also given an additional discount of 25 per cent on labour costs from taxable income when companies employ additional persons.
Measures like these can significantly boost the economy if companies have/find the reserves (and workload) to hire new workers. Each ‘reduction’ (or relaxation) of taxation will leave more disposable income to businesses for investment and consequently citizens for consumption. Any increases in investment and consumption will generate new jobs and stem the loss of existing ones.
One of the new measures to stimulate the local economy was the decree issued by the minister of labour declaring the whole of Cyprus as a ‘tourist area’ in terms of shopping opening hours, which allows shops to be open seven days a week, until late at night.
The move to modernise working hours with European standards is in the right direction for reducing unemployment and increasing productivity. However, there was strong disagreement voiced by several shopkeepers and employment groups after it was reported that large firms were those which would benefit from this decree by referring to complaints from existing employees pressured to accept an increase in working hours without additional pay.
Every political action should be evaluated based on its contribution to the creation or ‘destruction’ of new and existing jobs. The government can create hundreds of jobs in a short time, by improving the legislative environment, giving impetus to the tourism and manufacturing industry and many associated professions who live by them. The government should also undertake immediate policies financing unemployed from the European Social Fund. Additional corrective actions and reform changes must be made as soon as possible because the government is currently ‘bleeding’ from the continued rise in unemployment.
What is needed is the implementation of an effective strategy to tackle unemployment directly, by creating new innovative development programmes. Examples of these include technological innovation and development, research/innovation think-tanks, structural competitiveness policies, new relationships between business and regulators, etc.
Zero unemployment is clearly impossible. Thus, one of the jobs of local economists must be to provide politicians with the information which will help gauge the right level of benefits which (although they can be seen as a ‘misallocation of resources’ – not rewarding the production of goods/services) allow workers to successfully move from job to job in an ever changing economy yet do not provide a disincentive to work.
These reforms must be made ‘today’ if we really want our economy to revive ‘tomorrow’.
Dr George Mountis, Partner | Banking, Strategy & Financial Services advisory