A new unit labour cost changes decomposition four pillars of cost competitiveness recovery

Peroni, Chiara and DiMaria, Charles Henri (2012): A new unit labour cost changes decomposition four pillars of cost competitiveness recovery.

Abstract

This article presents a new decomposition of unit labour costs into compensation per worker and labour productivity, which, in turn, is decomposed into efficiency gains, technical progress and capital deepening. Data for Western European countries and the US show that the evolution of labour productivity components counteracts the deterioration in countries' cost competitiveness caused by increases in nominal wages. The policy implication is that efforts aimed at reducing nominal labour costs should be accompanied by policies fostering capital deepening. Further improvements in countries' cost competitiveness can be achieved by enhancing efficiency gains and technical progress, which has been mostly negative during the period under study.

• Item Type: MPRA Paper
• Language: English
• Keywords: unit labour cost; internal devaluation; labour productivity; technical change; capital deepening
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C44 - Operations Research ; Statistical Decision Theory; J - Labor and Demographic Economics > J0 - General > J01 - Labor Economics: General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General

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