After a long depression, Greece is now growing again. Its emergence from the throws of the COVID-19 pandemic has been remarkable, and it is now growing much faster than peer countries. However, beneath this positive trend lies a more complex reality: the fundamental structure of the Greek economy remains largely unchanged. The country continues to be trapped in a cycle of low-wage, low-productivity activities, raising concerns about its long-term growth prospects.

These are the issues dealt with in our work, published as the Hellenic Observatory’s GreeSE Discussion paper no.193, and now forthcoming from Economia Publishing, in our new book “The Missing Links: Mismatch, Mismanagement, and Technological Backwardness in Greek Industry”. We tackle three particularly problematic and interconnected challenges hindering the progress of Greek industry: skills mismatches, subpar management practices, and sluggish technology adoption.

The skills conundrum: a mismatch at the heart of the matter

Greece boasts a high tertiary education attainment rate, with 44.2% of adults aged 25-34 holding tertiary degrees in 2020, a substantial increase over the pre-crisis rates. This, however, hasn’t translated into a workforce well-aligned with labour market needs. The country consistently scores poorly in various surveys assessing education and skills, pointing to a significant shortage of skilled labour. While these issues concern the stock of labour, we should also be concerned about its distribution, namely skills mismatch.

Skills mismatch arises when workers’ skills and qualifications do not align with job requirements. This misalignment can manifest in various forms, including over-skilling, where employees possess skills exceeding those required for their current roles, and under-skilling, where employees lack the necessary skills to perform their jobs effectively.

While hiring over-skilled workers might be privately beneficial for individual firms, it can have negative consequences for the overall economy. If skilled labour is concentrated in unproductive firms, it limits the potential for broader economic growth. Indeed, the literature has consistently found negative productivity effects of over skill mismatch. Data reveal a counterintuitive picture in Greece: over-skill mismatch is extremely high in professional occupations, the largest in the OECD. This contrasts with typical patterns observed in other countries, where over-skill mismatch tends to be lower for professional jobs.

 Figure 1: Over-skill mismatch by occupation type across countries

Sources: OECD PIAAC and authors’ calculations

Notes: Over-skilled workers are those whose proficiency score is higher than that corresponding to the 95th percentile of self-reported well-matched workers, i.e., workers who neither feel they have the skills to perform a more demanding job nor feel the need of further training to be able to perform their current jobs satisfactorily, in their country and occupation. Under-skilled workers are those whose proficiency score is lower than that corresponding to the 5th percentile of self-reported well-matched workers in their country and occupation. High-skilled occupations are ISCO occupational groups 1 and 2.

There are good reasons to think that mismatch in high-skilled jobs, relative to other jobs. is especially problematic. High-skilled jobs often involve high levels of match-specific human capital, meaning the skills acquired are highly tailored to specific firms. As such, productivity levels of these workers can vary widely across firms, meaning that appropriate matching is crucial. Furthermore, skills shortages may be more pronounced in highly skilled occupations, leading to higher search costs for firms seeking to fill these positions. In addition, shortages may be more important for these jobs, in the sense that substitutability of skills in these positions is likely lower than for jobs that require less formal training. Finally, discrimination, which has been shown to be a very important driver of growth, is also likely more important in professional occupations.

The implications of skills mismatch extend beyond individual firms and can hinder overall economic efficiency. Efficient economies rely on the smooth flow of resources towards more productive uses, leading to productivity gains. This allocation becomes even more critical when the overall supply of skills is limited, as is the case in Greece. When skilled labor is misallocated, it prevents the economy from reaching its full potential.

The management gap: a culture of control impeding progress

The next area we tackle is another critical weakness hindering Greek industry: poor management practices. Over the past two decades, relevant research has stressed the role of management as a key factor of productivity differences across firms, with similar importance as ICT, R&D, and human capital (Bloom et al. 2019).

Figure 2: The distribution of management practices across countries

Source: World Management Survey (WMS)

Notes: Management scores, from 1 (worst practice) to 5 (best practice). Averages are calculated across all firms within each country. The red diamonds denote the mean, the blue bars denote the interquartile range, and the black lines denote the 95% range.

The evidence paints a concerning picture: Greek firms exhibit both low average management scores and a very high dispersion, indicating limited diffusion of good practices. This bears a clear correspondence to the productivity literature: productivity dispersion is also thought to signal a lack of technology diffusion. This implies that resources are not flowing to their most productive uses, limiting productivity growth (Bartelsman et al. 2013). We also see pronounced differences between domestic firms and multinationals operating in the country, as well as between domestic firms with and without overseas operations.

We shed light on specific areas where Greek firms lag behind. They perform poorly in aspects requiring people management, planning, oversight, and collaboration, while doing relatively well in areas where decisions are made by a single individual. This pattern suggests a culture of low employee autonomy and centralized decision-making. Indeed, data confirms this observation, placing Greece at the bottom of the OECD in terms of employee autonomy. Greek firms tend to restrict employees’ freedom to choose or change the sequence, mode, speed of tasks, and even working hours. This lack of flexibility and delegation not only stifles employee creativity and initiative but also hinders firms’ ability to adapt to changing market conditions.

The lack of delegation is intimately linked to a broader issue of low trust within Greek firms. This lack of trust prevents managers from empowering employees and delegating authority, perpetuating a cycle of centralized control and limited talent development. It also fosters an environment where employees feel less attached to their jobs, hindering human capital accumulation and ultimately impacting productivity and wage growth.

The consequences of poor management practices are far-reaching. They not only impact firms’ ability to effectively utilize their existing human capital but also hamper their capacity to adopt new technologies and achieve their innovation potential. This is particularly concerning in the context of the digital economy, where firms need to be agile and adaptable to thrive.

The technology gap: innovation and technology adoption in a digital age

Greece’s performance in the digital realm further exacerbates its industrial challenges. The country consistently scores low in digital skills, adoption, and infrastructure. This digital deficit poses a significant obstacle to Greece’s long-term growth, especially considering the rapid pace of technological advancements and the increasing importance of digitalization across all sectors.

We use a novel survey from the Laboratory of Industrial and Energy Economics (LIEE) of NTUA on the factors influencing innovation and technology adoption among Greek manufacturing firms. Figure 3 depicts the adoption rates of various digital technologies by Greek firms. Over 50% of firms report either not using or making minimal use of technologies like big data, e-commerce, and advanced software.

This limited technology adoption is particularly pronounced in family-owned firms. This finding suggests that the traditional, family-centric business model prevalent in Greece might be hindering its ability to embrace new technologies.

We also find a positive association between participation in Global Value Chains (GVCs) on both innovation and technology adoption. Firms engaged in GVCs tend to exhibit higher levels of product and process innovations and are more likely to adopt digital technologies. This finding underscores the importance of integrating Greek firms into global production networks to facilitate knowledge transfer and technological upgrading.

Figure 3: Technology adoption

Sources: NTUA/LIEE and authors’ calculations

Notes: The charts show the percentage of respondents in each category.

Charting a path forward: policy recommendations

Addressing these challenges is crucial for unlocking the full potential of Greek industry. We propose a multi-pronged policy approach targeting these key areas:

1. Education/Skills/Labor Market Policies:

• Strengthening Industry-University Collaboration: Bridging the gap between academia and industry can ensure that education and training programs are aligned with the evolving needs of the labour market. This includes promoting internships, apprenticeships, and joint research projects to provide students with practical experience and enhance their employability.
• Promoting Lifelong Learning: Skills obsolescence will become more common in a rapidly changing world. Therefore, fostering a culture of lifelong learning is crucial. This involves providing workers with access to reskilling and upskilling opportunities throughout their careers, enabling them to adapt to new technologies and job demands.

2. Management Practices:

• Incentivizing In-house Training: Investing in management training programs can equip managers with the necessary skills to effectively lead, delegate, and empower their employees. This can help shift the corporate culture away from centralized control towards a more collaborative and employee-centric approach.
• Promoting Talent Development: Creating a culture that values and nurtures talent is essential for long-term growth. This involves providing opportunities for career advancement, recognizing and rewarding high performers, and fostering a culture of mentorship and knowledge sharing.

3. Innovation and Technology Adoption:

• Harnessing the Innovation Capacity of Universities: Universities are hubs of knowledge creation and technological innovation. Policies should encourage the commercialization of university research, promote technology transfer initiatives, and facilitate spin-offs and start-ups.
• Promoting Regional Innovation Initiatives: Supporting the development of regional innovation ecosystems can foster collaboration between businesses, research institutions, and government agencies. This can help create a more dynamic and innovative environment conducive to technology adoption.
• Facilitating Entry into Global Value Chains: Integrating Greek firms into GVCs can expose them to best practices, foster knowledge spillovers, and drive technological upgrading. This requires targeted support measures to help firms meet the quality standards and logistical demands of international markets.

References

Bartelsman, E., J. Haltiwanger and S. Scarpetta (2013), “Cross-country differences in productivity: The role of allocation and selection”, American Economic Review, 103(1), 305-334.

Bloom, N., E. Brynjolfsson, L. Foster, R. Jarmin, M. Patnaik, I. Saporta-Eksten and J. Van Reenen (2019), “What drives differences in management practices?”, American Economic Review, 109(5), 1648-1683.

*The Hellenic Observatory hosted a research seminar on the topic on 19 November 2024. For more information please visit the event page.

Notes: 
*This article gives the views of the author, not the position of Greece@LSE, the Hellenic Observatory or the London School of Economics.

*The views expressed here are of the authors’ alone and may not necessarily represent the views of the Bank of Greece, the European Central Bank, or the European System of Central Banks.