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Cyprus
May 20, 2019
Cyprus Mail
Opinion Our View

Our View: There are no quick-fix solutions for unemployment

THERE HAS been a surfeit of high sounding announcements issued by parties, unions and organisations on the occasion of Labour Day. All have noted the high unemployment, which numbers about 80,000 people, the high percentage of jobless youths, falling wages and the erosion of workers’ rights. Nobody could challenge these observations, which nevertheless avoid dealing with the causes of our economic problems that started appearing long before the collapse of the banks.

Unemployment had been on an upward trend before the haircut of the Greek government bonds and the exclusion of Cyprus from the markets. No matter how many measures the Christofias government’s labour minister took the rise in unemployment could not be halted because the economy was already in recession and business had begun downsizing. The property bubble had already burst causing demand to fall and putting pressure on all businesses.

In retrospect, we know that the high employment level was being sustained by high bank borrowing rather than a healthily-performing economy. High interest rates, charged by banks, only made matters worse for businesses, forcing them to cut jobs. We mention this because most May Day declarations did not even acknowledge the unsound foundations on which our economic model had been built. After all it was thanks to this model that we had the labour shortages that allowed unions to consistently secure the big pay rises that eroded competitiveness and made the situation worse.

Now things have gone in the opposite direction. There is an excess supply of labour and falling demand which means that wages will keep falling. And with the number of unemployed at 80,000, nobody knows when and where the downward slide will stop. One thing is certain it is not in the hands of the government or the unions. For instance some the declarations have been arguing that the government should be tougher in its negotiations with the troika, the implication being that this would make a difference to unemployment levels. Others have been calling for money to be spent on development, as if this would miraculously kick-start the economy.

Unfortunately there are no quick-fix solutions and we fear things will get worse before they start to get better. And when things improve we may find that the optimum size of our economy might not be big enough to achieve the conditions of full employment that we had become accustomed to and allowed unions to keep pushing up wages. Of course none of this applies to the first-class workers employed in the public sector, who have always been unaffected by what happens to the economy and the second-class workers.

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