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August 2014

Lasting Legacy: Impact of the Financial Crisis on Employment in Greece, Italy, Portugal


The financial crisis of the past six years has wrought lasting changes in employment markets across Europe.Although significant challenges remain, government reforms and greater flexibility around compensation and benefits are increasing investor interest in the region. Below, Mercer talent experts from Greece, Italy, Portugal, and Spain shed light on the current state of employment in these markets and several emerging trends.



Unemployment rates in Greece remain the highest in Europe (almost 28%) as austerity measures intended to reduce the country’s significant debt continue in force. For those under age 24, the situation is more dire, with unemployment approaching 57%, whereas for those aged 25–29 the rate is 42%. Although job loss in the private sector has likely bottomed out, the public restructuring continues with more job displacement likely.

However, there are signs of improvement. The country is producing more than it spends for the first time since the crisis began, opening the door to new investment and, potentially, the beginning of a cycle of job growth. With plentiful talent available, very competitive salaries relative to other European countries, and greater flexibility in employment law, Greece offers good opportunities to employers. Still needed are concrete tax policies that will reassure businesses seeking to invest and greater support for reskilling the workforce.


Italy’s new government has made jobs a top priority, with a commitment through its “Jobs Act” to halt the continued rise in unemployment, now at 12% overall but at 40% for those aged 18–30. Italy remains Europe’s second-largest manufacturer, with exports exceeding imports. And although GDP growth remains negative, GDP growth excluding interest on the debt is now growing, and GDP as a whole is forecast to be positive by the end of 2014.

In the general marketplace, salaries remain frozen while employers make increased use of flexible benefits such as private retirement schemes, insurance, medical plans, and other goods and services to help increase the welfare of employees and their families. The situation is different within midsize exporters and multinationals, where employers are increasing salaries and offering short- and long-term incentives to those responsible for driving growth, including key managers and other staff. Companies and regulators are also focused on greater transparency on pay and on increasing the link to performance in executive remuneration, with stronger use of a deferred system.


Also hit hard by the crisis, Portugal implemented tough measures that have enabled the country to start putting its financial house back in order and regain the confidence of the markets. Unlike Greece, Portugal has successfully exited the bailout program offered by the International Monetary Fund, the European Commission, and the European Central Bank. As a result, interest rates have fallen to a reasonable level, exports are up, and base salaries have started to increase slightly for the first time in three years.

In addition, labor rules have become more flexible and more aligned with best practices in Anglo-Saxon economies, making it easier to hire, restructure, and move people from one function to another. Government bureaucracy has also gotten leaner, which has helped employers that are willing to invest in Portugal. But unemployment is still around 16%, whereas the rate for those under age 30 is considerably higher. And despite improvements in confidence over the past year, some companies are still postponing expansion decisions as they wait for more evidence of economic strength.


For the first time since the crisis, Spain’s GDP is growing, creating hope for the recovery. Unemployment remains almost as high as it is in Greece — around 26% — but job growth during the first quarter of 2014, an increase in consumer lending, and interest rates that are much lower than they were a year ago seem to signal overall improvement.

The effect of the crisis on talent development is an emerging concern in Spain. The crisis not only caused many people to lose their jobs but also caused a massive scale-back in training and development opportunities. As a result, even as the recovery takes its first steps, employers are already concerned that they will not have the talent they need to fuel growth three years down the line. Despite the high unemployment rate, it may be difficult to find people qualified for new roles and new ways of doing business. However, companies are beginning to tackle the problem through new reskilling initiatives.


There is concern that one legacy of the financial crisis is the creation of a “split” employment market that has high demand for a select few but little opportunity for those without the requisite skills. Those who lost their jobs in the public sector do not necessarily have the skills for private-sector jobs. At the same time, private-sector employers are responding to the crisis by changing the very way they do business, requiring new skills and expertise. Even with unemployment rates at very high levels, it is not easy for employers to find the right people with the right skills. Reskilling will be increasingly important both in meeting the future needs of employers during the recovery and beyond,as well as providing opportunities to the unemployed.

This situation is particularly difficult for older workers today, but this segment of the workforce may become increasingly important to employers as younger workers, who face the highest unemployment ratesof all segments, leave their countries to seek better opportunities in other markets. Tapping into the experience and expertise of older workers may be one way of plugging a potential talent gap. More flexible work arrangements would make it possible to employ these workers on short-term contracts or as consultants to work on specific projects.


Structural changes are clearly facilitating flexibility across European workplaces. The compensation and benefits agenda has been opened up as a result and is also changing to accommodate not only the economic climate but also, where possible, employees’ preferences. Unable to offer salary increases in many markets, employers are seeking flexible benefit options that offer real value to employees and their families and fill holes left by shrinking public budgets. At the same time, less advantageous tax treatment has reduced the attractiveness of some benefits, causing both employers and employees to reconsider their value.

Recent changes in public pension schemes have forced employers and employees to think more about saving for retirement. In Portugal, employer-sponsored pensions plans and individual saving schemes are expected to increase over the next year. Employersponsored health benefits and wellness programs also have increased in popularity.

Companies have significantly revamped their management of variable pay as a result of the crisis and have increased the percentage that variable pay makes up of total compensation. In Spain, payments today are based much more on quantitative results and paid out only when companies reach at least 85% or 90% of goals. Companies are also increasing long-term incentives, reflecting the view that business results will improve over the next several years.


Diogo Alarcao (Lisbon)
Partner, Portugal, Country Head
+21 311 3868
Rafael Barrilero (Madrid)
Partner, Talent
+34 91 4 568 557
Christopher Johnson (London)
Senior Partner, Global Leader for Leadership
and Organization Performance
+44 20 7178 7343
Marco Morelli (Rome)
Partner and Italy Leader, Talent
+39 06 9670 8200

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