Overtaxation of Private Sector Salaried Employment as a Key Impediment to the Recovery of Greece

The practice of taxing heavily employment in the private sector in Greece is a key factor that impedes the growth of the average Greek company, reducing productivity and salaried employment to low levels even before the crisis. The disadvantageous treatment of private sector employment, through the tax wedge, takes place when compared both internationally and, with other income source alternatives, domestically. The high tax-free threshold that does not focus on supporting families and pensioners in old age and the high non-retributive social security contributions are among the main parameters that have to be changed in a drastic way in order to alleviate the situation of private sector employees, especially up to medium incomes, in a fiscally neutral way. An additional rationalization of the excessive progressivity of income taxes should aim toward the long-term growth of employees that earn higher wages, from their currently low numbers. An increase of growth prospects and decline in country risk are needed, both to bolster the lower end of the job market and to stop the decline at the top end.