Employment issues that would arise in a reunified Cyprus

By Andreas Charalambous and Omiros Pissarides

Discussions to resolve the Cyprus problem are currently at a standstill, while the work of technical groups on various aspects has been suspended. However, even during periods characterised by lack of progress, it is important to maintain open communication channels between Greek Cypriots and Turkish Cypriots and continue the efforts to identify common understanding and policy approaches.

In today’s article, an attempt is made to shed light on key aspects of employment issues that would likely arise in a reunified Cyprus.

The TC economy presents, in terms of employment, substantial divergences compared to the economy in the government-controlled areas: a low rate of employment, especially among women and young people, excessive employment in the “public” sector and an extensive undeclared economy. It is particularly important to note that wages, pensions and social benefits are comparatively low. Furthermore, significant gaps exist in terms of harmonisation with the acquis communautaire.

At a political level, it was decided that labour market issues would be the responsibility of the constituent states. Nevertheless, there are essential aspects that should be handled at a central, federal level, in order to avoid widening inequalities and distortions in the functioning of the labour market.

The starting point must be an analytical, independent technocratic study of the current situation in the labour market and, on this basis, the elaboration of a strategy and specific policy measures, with the aim of achieving gradual convergence.

Also, an important element is the gradual implementation of the acquis communautaire throughout Cyprus, based on an ambitious plan given that, in the EU, employment issues regarding free movement of labour, health and safety in the workplace and gender equality are becoming more and more important.

Given that employment issues will primarily be the responsibility of the constituent states, the obligations at the level of the central federation should focus on: (a) establishing minimum levels in terms of payroll, pension contributions and benefits, and labour taxation issues; (b) achieving gradual convergence, through continuous upgrading of the minimum levels, and (c) implementing an ambitious convergence programme, focusing on education and training, as well as attracting GCs and TCs living abroad. Ensuring adequate funding through the utilisation of European funds would be crucial in this respect.

The above should be included in an integrated legislative and regulatory framework at the federal level, while it is necessary to establish the appropriate institutions, centered on a federal ministry, for the purposes of effective implementation.

GC and TC scientists and social partners should play an essential role in the formulation of employment and wider social policies, demonstrating the necessary spirit of understanding and compromise, as well as the ability to formulate “outside the box” approaches.

Andreas Charalambous is an economist and former director at the Ministry of Finance. Omiros Pissarides is the Managing Director of PricewaterhouseCoopers Investment Services