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International comparisons of the levels of unit labor costs in manufacturing

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Author Info
Peter Hooper
Elizabeth Vrankovich
Abstract

Comparing absolute levels of unit labor costs across countries entails translating labor compensation rates and productivity measured in national currencies into a common currency (e.g., U.S. dollars). Compensation rates are translated using market exchange rates and productivity is translated using relative output price levels. This paper focuses on the estimation of relative output price levels. Two approaches have been used, one based on relative unit values and the other on expenditure PPPs. We use primarily the latter approach and extend earlier work in this area by adjusting expenditure PPPs for biases introduced by indirect taxes, distribution margins, and trade prices. We compute for each of the G-7 industrial countries unit labor cost levels in U.S. dollars for total manufacturing and for various subsectors of manufacturing. Our estimates suggest that in 1995, U.S. unit labor costs were substantially below those in Japan and Germany, somewhat below those in France and the United Kingdom, and very similar to those in Canada and Italy. The cross-country differences we find are somewhat larger than--albeit qualitatively similar to--those obtained using the unit value approach.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 527.

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Date of creation: 1995
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Handle: RePEc:fip:fedgif:527

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Keywords: Labor productivity ; Manufactures;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Shang-Jin Wei & David C. Parsley, 1995. "Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits," NBER Working Papers 5032, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Hooper, Peter & Larin, Kathryn A, 1989. "International Comparisons of Labor Costs in Manufacturing," Review of Income and Wealth, Blackwell Publishing, vol. 35(4), pages 335-55, December.
  3. Masayoshi Maruyama, 1993. "A Study of the Distribution System in Japan," OECD Economics Department Working Papers 136, OECD, Economics Department. [Downloadable!]
  4. Frank R. Lichtenberg & Zvi Griliches, 1989. "Errors of Measurement in Output Deflators," NBER Working Papers 2000, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Irving B. Kravis & Robert E. Lipsey, 1991. "The International Comparison Program: Current Status and Problems," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 437-468 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  6. Roger R. Betancourt, 1993. "An Analysis of the U.S. Distribution System," OECD Economics Department Working Papers 135, OECD, Economics Department. [Downloadable!]
  7. Patrick A. Messerlin, 1993. "The French Distribution Industry and the Openness of the French Economy," OECD Economics Department Working Papers 138, OECD, Economics Department. [Downloadable!]
  8. Takatoshi Ito & Masayoshi Maruyama, 1990. "Is the Japanese Distribution System Really Inefficient?," NBER Working Papers 3306, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Steven J. Davis, 1992. "Cross-Country Patterns of Change in Relative Wages," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 239-300 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  10. Dollar, David & Wolff, Edward N., 1988. "Convergence Of Industry Labor Productivity Among Advanced Economies: 1963-1982," Working Papers 88-19, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
    Other versions:
  11. Gittleman, Maury & Wolff, Edward N, 1993. "International Comparisons of Inter-industry Wage Differentials," Review of Income and Wealth, Blackwell Publishing, vol. 39(3), pages 295-312, September.
  12. Szirmai, Adam & Pilat, Dirk, 1990. "Comparisons of Purchasing Power, Real Output and Labour Productivity in Manufacturing in Japan, South Korea and the U.S.A., 1975-85," Review of Income and Wealth, Blackwell Publishing, vol. 36(1), pages 1-31, March.
  13. Josef Lachner & Uwe Chr. Täger & Günter Weitzel, 1993. "The German Distribution System," OECD Economics Department Working Papers 137, OECD, Economics Department. [Downloadable!]
  14. Robert Z. Lawrence, 1991. "Issues in Measurement and International Comparison of Output Growth in Manufacturing," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 357-387 National Bureau of Economic Research, Inc. [Downloadable!]
  15. Stephen S. Golub, 1994. "Comparative Advantage, Exchange Rates, and G-7 Sectoral Trade Balances," IMF Working Papers 94/5, International Monetary Fund.
  16. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June. [Downloadable!] (restricted)
  17. Luca Pellegrini & Angelo M. Cardani, 1993. "The Italian Distribution System," OECD Economics Department Working Papers 139, OECD, Economics Department. [Downloadable!]
  18. Froot, Kenneth A. & Rogoff, Kenneth, 1995. "Perspectives on PPP and long-run real exchange rates," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 32, pages 1647-1688 Elsevier. [Downloadable!] (restricted)
  19. Nishimura, Kiyohiko G., 1993. "The distribution system of Japan and the United States: a comparative study from the viewpoint of final-goods buyers," Japan and the World Economy, Elsevier, vol. 5(3), pages 265-288, September. [Downloadable!] (restricted)
  20. Maddison, Angus & Ark, Bart van, 1994. "The international comparison of real product and productivity," GGDC Research Memorandum 199406, Groningen Growth and Development Centre, University of Groningen. [Downloadable!]
  21. Edison, Hali J, 1987. "Purchasing Power Parity in the Long Run: A Test of the Dollar/Pound Exchange Rate (1890-1978)," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 376-87, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jörg Hinze, 1998. "Problems of international labour cost comparisons," Intereconomics: Review of European Economic Policy, Springer, vol. 33(3), pages 146-152, May. [Downloadable!] (restricted)
  2. Timmer, Marcel P., 1999. "Climbing the Technology Ladder Too Fast? An International Comparison of Productivity in South and East- Asian Manufacturing, 1963-1993," ECIS Working Papers 99.2, Eindhoven Centre for Innovation Studies, Eindhoven University of Technology. [Downloadable!]
    Other versions:
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