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

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  • Charles-Henri Dimaria

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans, STATEC - Institut national de la Statistique et des Etudes Economiques - Luxembourg)

  • Chiara Peronni

    ()
    (STATEC - Institut National de la Statistique et des Etudes Economiques - Institut de Luxembourg)

Abstract

This article presents a new decomposition of unit labour costs into compensation per worker and labour productivity, which, in turn, is decomposed into e ffciency 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 e fforts 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.

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Paper provided by HAL in its series Working Papers with number halshs-00826324.

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Date of creation: 14 May 2012
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Handle: RePEc:hal:wpaper:halshs-00826324

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Keywords: unit labour cost; internal devaluation; labour productivity; technical change; capital deepening.;

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  1. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-65, June.
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  3. Sena, Vania, 2006. "The determinants of firms' performance: Can finance constraints improve technical efficiency?," European Journal of Operational Research, Elsevier, vol. 172(1), pages 311-325, July.
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  8. Ark, Bart van & Stuivenwold, Edwin & Ypma, Gerard, 2005. "Unit labour costs, productivity and international competitiveness," GGDC Research Memorandum 200580, Groningen Growth and Development Centre, University of Groningen.
  9. Lee, Chia-Yen & Johnson, Andrew L., 2012. "Two-dimensional efficiency decomposition to measure the demand effect in productivity analysis," European Journal of Operational Research, Elsevier, vol. 216(3), pages 584-593.
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