Sunday, November 25, 2012

Government Pensions in Greece

Government spending on state pensioners more than doubled from €2.9 billion to over €6.6 billion in 2000—2009 (+€3.7 billion). Why?

The number of pensioners rose by a mere 13—19% percent depending on whether one uses the data from the ministry of finance or ELSTAT (see sources and notes below). This graph plots the data from ELSTAT. Clearly, the number of pensioners cannot, alone, explain the increase in spending.

To understand what drove more spending, I have decomposed the rise in three parts: inflation, more pensioners and higher pensions. “Inflation” assumes that the number of pensioners is constant and just grows the 2000 average pension at the rate of inflation. “More pensioners” takes that constant purchasing power euro and multiplies it by the number of pensioners—the delta between that and inflation can be attributed to the fact that there are more people receiving a pension. “Higher pensions” is what remains unexplained by either inflation or the number of pensioners.

Of the €3.7 billion increase, inflation accounted for 26%, the higher number of pensioners made up 23% and higher pensions contributed the remaining 51%. Thus, half of the increase in government spending for state pensioners came from giving out more generous pensions. Military pensions were 50% higher than inflation alone would justify and civil pensions were 35% higher.

One final comment on the number of pensioners. For this, I turn to the ministry of finance, which has more complete and more updated information. The chart shows the number of pensioners from 2000 to 2012.

From 2000 to 2005, the number of pensioners was growing at 0.6% a year. Then, in 2006—2007, it started to grow at 1.5% a year. Finally, in 2008—2012, it grew by 3.1% a year. The pace of retirements accelerated by 2.5 times in less than a decade! I don’t have enough information to explain this. Perhaps there was a demographic bulge. But I suspect that early retirement incentives played a role as well.

Notes and Sources

The Greek state classifies pensioners in two ways.

In the Hellenic Statistical Authority’s (ELSTAT) Public Finance statistics, they are divided into civil, military, war and other; ELSTAT, Public Finance 2000-2006, 23, here; ELSTAT, Public Finance 2002-2008, 23, here.

In the Ministry of Finance’s budgets, they are classified into civilians, military, war, rail, local government, national resistance and clergy; Ministry of Finance, State Budgets, various editions, here.

Both data series have their advantages and they generally match with two exceptions: the ministry of finance data is for October of each year (ELSTAT does not specify whether this is year-end), and the ministry also includes a count for national resistance fighters, which do not show up in ELSTAT. But the numbers are pretty close otherwise.

For all charts, except the last, I have relied on ELSTAT. There is one more exception: ELSTAT reports spending for 2009 in its Statistical Yearbook 2009—2010, but it does not report the number of pensioners in the same way. I have used the data from the Ministry of Finance to estimate the total number of pensioners in 2009. The results are the same: the split between inflation, more pensioners and higher pensions is similar for the data through 2008 (48% explained by higher pensions).


  1. So, in less than a decade average pensions increased by about 50 percent - in real terms! I wonder whether anybody in the Greek government could believe that this would not lead to a financial disaster.

  2. in 2010 they announced that at the end of the year they would stop all early retirement.
    They announced that in advance!
    Many people were technically eligible for retirement under the old law but had chosen to continue to work.
    What did they expect all those people to do ? When faced with a choice; Retire now or at 65.

    They should have phased in the new retirement age like all civilised countries do.

    Unless their objective was to reduce the size of the workforce by forcing people into retirement.

    This and many other new laws taken as a whole leads to the inevitable conclusion either the government has been monumentally incompetent, or their objectives do not include saving the economy.


  4. the portuguese guyJanuary 9, 2013 at 7:39 AM

    Nikos, I seel these as simptoms of a larger disease. One of the main artifacts of this crisis is supression of inflation. We see it in the energy market, for instance. This works like the artifacts of ruined graphic hardware: salary deflation (and inflation supression in the commodities' market) is being imposed on the reality, but we should not be be seing it at all. I see these increases in social security expenses as shifting labor costs. That is, depressed labor costs do turn into externalites, wherever and whenever they can.

    This way, the reindustrialization of the West becomes harder, not easier. The West is behaving like an insect caught in a spider's web: the insect can easily free itself from one of the web's sticky threads. Nevertheless, as it clumsily frees himself from one thread, it gets caught by a couple more...

    In truth, the labor market is not performing the function that it should be doing. The signals it now sends are artifacts of the austerity crisis. Salaries should go way up for many skilled professionals, at least in the short term. In our market economy, this is the only way to offset all the sticky externalities -- demography, poor education, inflated social expectations and the market's culture of outsourcing -- that conspire to beef up the cost of production factors in the West. Since the recruitment pool of skilled labor goes on shrinking -- and it shrinks way faster in countries under austerity, due to emmigration -- market economy theory tells us that (under economic growth) the remaining skilled labor will be able to get more and more good deals, in the informal economy if need be. For instance, a highly prized skilled professional may retire and continue to work -- perhaps illegally -- so as to get two income streams instead of one. If the economy were to grow again, then this problem would suddenly reveal itself, and in a stronger-than-ever way -- to the surprise of many, I guess. Conversely, the situation will be allowed to remain hidden and deteriorate much further if the desindustrialization of the West keeps its current pace.

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  6. Robert MarchenoirApril 24, 2013 at 5:43 PM

    I wonder what "national resistance" is, and how "war" and "military" are different.

    Also, it seems amazing to me that "rail" even appears on the graphs, since the rail network is practically non-existent in Greece.


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