Averof Neophytou, the president of the ruling party, raised earlier this week in Parliament the issue of the minimum guaranteed income, which currently stands at 500 euros per month for people who have no source of income.
Neophytou pointed out that this was a measure implemented by his government after the unprecedented bailout in 2013 and followed the collapse of the banking system.
Back then, unemployment was at 18% and Mr. Neophytou said.
Neophytou is right to suspect that setting a minimum wage may cause some distortion in the labour market, although not as great as the unemployment benefit provided to people working in the hotel industry.
The budget for the minimum guaranteed income for 2022 amounts to €225 million and will target nearly 20,000 low-income families.
While a review of the measure's impact on the labour market is more than welcome, perhaps more urgent is the review of unemployment benefits enjoyed by hotel and restaurant workers.
This measure was introduced during the first Gulf War, when the tourism industry was hit hard and people could not find work.
But it remained as an indirect subsidy to the tourism industry.
There are many arguments in favour of this benefit.
Perhaps the most important is the importance of keeping permanent staff without pay during the winter period, when most hotels close for up to five months.
Many of those people who are unemployed during this period do not take other jobs, as the opportunity cost is too high.
Full-time work during these five months will not earn them more than €500 per month at best, in addition to the unemployment benefit, so they prefer to stay
Neophytou is careful not to raise this issue that affects thousands of workers, even though he knows that this is a much more distorting measure in the labour market.
The unions will break out if any government thinks of changing this measure.
However, the labour shortage is pushing wages higher and hurting competitiveness.
If more people don't find current pay conditions attractive enough to enter the labour market, wages will continue to rise, and that's exactly what the unions want.
Labour shortages in what economists call ‘import jobs’ can be mitigated by importing labour from other EU countries, but this has to be planned in advance by firms.
In the last two years, the pandemic has made it impossible to plan in advance and secure workers before the season starts, usually in the first two months of the year.
The answer to this problem is to find ways to employ local peoplewho are unemployed for 5-6 months each year and contribute more productively to the economy without causing distortions in the labour market and affecting the sustainability of the pension system.
Neophytou cannot raise this issue alone.
It is politically too costly, not only for an individual MP, but even for a party.
Unfortunately, the government's populism destroyed in 2015 the famous National Economic Council headed by Christos Pissarides, Nobel laureate professor of economics at the University of Cyprus and the London School of Economics.
It was a promising academic and independent institution that carried great weight and could successfully expose such externalities.
While Neophytos' efforts to address these issues are welcome, they are unlikely to have a significant impact as they will fall on deaf ears.
This is the price of populism.
Michael S. Olympios is an economist, business consultant, editorial adviser to the Financial Mirror
The content of this article including related images belongs to Financial Mirror
The views and opinions expressed are those of the author and/or Financial Mirror
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