Since the usual narrative about the Greek economy after the Euro introduction involves a large movement of resources and employment towards the non-tradable sector, it is interesting to check this claim against available data. I will be using the Ameco database and looking into the sectoral contributions on total Gross Value Added and Employment between 1995 and 2008 (in order to account for pre-Euro effects and not pollute the statistics with the post-2008 crisis).

Greek GVA Contributions by sector

Services GVA contribution did increase steadily from 71% during the mid-1990s to 78% in 2008. Nevertheless, excluding 2008 (which included a large fall in the industry contribution), almost all of the fall is attributed to lower agriculture GVA contribution (from 7.4% in 1995 to 3.5% in 2007, a fall of 4%). Industry only fell from 14% in 1995 to 12% in 2007. Although industry certainly lost ground (and was much lower than the Euro average of 20%), it seems that most of the change in GVA contributions is due to the Greek economy transitioning to a more ‘mature’ form with agriculture moving closer to the Euro area average of 2%. On the other hand, services contribution increased from 71% to 76% (in 2007), moving higher than the long-run Euro average of 71% (which was quite steady during the same period). Building and construction certainly do not show any signs of a bubble, except for a short period of time during 2006-2007.

Greek Employment by sector

The above observations are even more evident in the employment front. Industry shows a small drop in employment contribution (from 13.5% to 11.6%) which could be attributed to higher productivity while agriculture is the main sector losing employment, with its share falling from 19.3% to 11%. The primary source of employment growth is the services sector which increases from 60.5% to 69% during the same period.

Overall, although the long-run industry contributions are far lower than the Euro average, the Greek economy rebalancing during the Euro era is a result of its GVA composition ‘maturing’, with agriculture moving closer to European averages and the relevant resources and employment being absorbed by the services sector. Compared to the Euro averages (20% industry, 71% services), it is true that the movement went on the ‘opposite direction’, with the services sector growing to the disadvantage of industry (12% industry, 76% services), probably as a result of easy credit conditions.

Looking at more detailed data from the Greek statistical agency, land and water transport services contributions increased from 4% in 2000 to almost 7% in 2008 while ‘Accommodation and food and beverage service activities’ fell from 7.4% to 5.6%. As a result, the data are rather mixed about if the increase in the services sector contribution came from tradable or non-tradable parts. It seems that a large part of the 5% change (but certainly not all) can be attributed to non tradables.

Taking the above at face value, around 3-4% of GVA (and a corresponding part of employment which is equal to around 200,000 persons) should have moved to the tradable sector since 2008. The rough size of this ‘overshooting’ certainly cannot account for the enormous loss of output and employment since 2008 which can only be attributed to the negative credit conditions and fiscal austerity. The price paid for a relatively small adjustment is quite high.