Greece and the Troika – Lessons from International Best Practice Cases of Successful Price (and Wage) Adjustment

Abstract

This paper reviews cases of successful price and wage adjustment, which are often regarded as constituting best practice, Australia, Latvia and the newly-formed German states and contrasts them with the Greek experience under the Troika Program. Latvia stands out as having had the quickest adjustment in wages. By contrast, before the crisis, Greek wages appeared to have been largely insensitive to labour market conditions but this changed with the program. We find that the reaction of wages to unemployment in Greece under the program was increasingly similar to that observed in Germany and Portugal (a case which has attracted less attention). A priori it is likely that the change in wage behaviour in Greece was due to the labour market reforms imposed under the program. But this cannot be proven beyond doubt.

Keywords

• phillips curves
• price and wage adjustment
• internal devaluation
• australia
• greece
• latvia
• portugal
• west vs. east germany