The Cyprus Institute of Labour, associated with the Pancyprian Federation of Labour (Peo), released a comprehensive report on Monday, delving into the economic and employment landscape for 2023.

The findings of the report underscored several critical aspects affecting the Cypriot labour market and income distribution post-pandemic.

The report identified a devaluation of labour despite a significant rise in nominal wages. This devaluation, it explained, compounds the impact experienced during 2013-2015, resulting in historical income losses for wage earners.

The report linked this devaluation as the primary driver behind the remarkable profit surge post-2020. It stated that correcting this devaluation would necessitate higher wage increments, dependent on negotiations and the overall balance of power.

The report highlighted that although wages took a hit when things got pricier in 2022, they started to improve in early 2023 as average salaries rose.

Despite this uptick, the report continued, wages haven’t fully caught up, standing about 2.5 per cent lower than pre-2006 levels.

This improvement doesn’t fully offset the gap between workers’ earnings and the increased profits favouring businesses.

The report also suggested that real wages, in line with the pre-inflationary period, have remained stable despite the unemployment rate. However, the share of GDP attributed to labour is lower than pre-inflation levels, indicating a partial income redistribution favouring businesses over workers.

Furthermore, the report tied recent income redistribution primarily to the suspension of the full and automatic wage indexation mechanism, commonly referred to as the cost of living allowance (CoLA).

It noted that restoring this mechanism and enhancing coverage for more private-sector workers is crucial for future stability, considering geopolitical uncertainties and the risk of continued income devaluation.

It added that strengthening legislative frameworks, including minimum wage laws, and bolstering worker unions are seen as critical measures to counter ongoing attempts to devalue labour.

The report also stated that despite the high increases in GDP during the 2015-2023 period, the economy exhibits serious weaknesses.

“This is directly related to the fact that since 2015, only a small percentage of the economic surplus (profits, interests, and incomes) is allocated for capital investments,” the report said.

“The total productive capital, therefore, increases at a rate smaller than what justifies businesses’ capacity to make investments in productive facilities,” it added.

It continued by saying that “this phenomenon became even more pronounced during 2021-2023, when, due to inflation, capital incomes increased further without a proportional increase in total productive capital”.

The report stated that the Cypriot economy is running at full capacity, yet the unemployment rate cannot drop below 7 per cent.

It asserted that what this means is that despite the system being fully utilised, it lacks the capacity to provide jobs for everyone seeking employment, resulting in a persistent 7 per cent unemployment rate.

This shortage of jobs, the report explained, is linked to the slow accumulation of productive capital since 2015. It contrasted this with the years before 2013, when the system was fully used, unemployment was at 4 per cent, indicating near-full employment.

“Consequently, in today’s Cyprus, the claim that “today’s profits are tomorrow’s investments and the day-after-tomorrow’s increases in employment” does not hold. Today’s profits are not adequately invested in productive capital, resulting in insufficient increases in the number of employed individuals for the economy to reach full employment (where there’s a small percentage of frictional unemployment, merely related to the movement of workers from one job to another),” the report said.

“Due to the lag in investments in productive capital, the economy is in a constant state of overheating, where the volume of current production exceeds the productive capacity, leading to increased inflationary pressures and sustaining significant deficits in the country’s external trade. In 2023, the current account deficit decreased (from 9.1 per cent to 7.3 per cent of GDP) but remains the third worst among the 27 EU countries, after Greece and Romania, with a substantial difference from the other countries,” it added.

The report also noted that high imports offset strong export performances, barely contributing to GDP from the trade balance, notably post-pandemic (2021-2023).

It explained that despite robust tourism figures, rising imports matched exports, reflecting high-income consumption habits.

It noted that implementing restraint in imports could generate trade surpluses, boosting GDP and jobs, achieved by redistributing income from wealthy to lower-income households.

It concluded by noting that labour productivity saw a brief surge post-2020 crisis but reverted to pre-crisis stagnation, as per 2023 data.