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

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  • Peroni, Chiara
  • DiMaria, Charles Henri

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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38670.

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Date of creation: 30 Apr 2012
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Handle: RePEc:pra:mprapa:38670

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

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  1. Bontemps, Christophe & Nauges, Céline & Réquillart, Vincent & Simioni, Michel, 2012. "Food Safety Regulation and Firm Productivity:Evidence from the French Food Industry," LERNA Working Papers 12.16.373, LERNA, University of Toulouse.
  2. 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.
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  4. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August.
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  7. 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.
  8. David Soskice & Torben Iversen, 2001. "Multiple Wage Bargaining Systems in the Single European Currency Area," Empirica, Springer, vol. 28(4), pages 435-456, December.
  9. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-65, June.
  10. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 1-21, April.
  11. 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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