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Measuring the Competitiveness of the Cyprus Economy: the Case of Unit Labour Costs

Author

Listed:
  • Marios Polemidiotis

    () (Central Bank of Cyprus)

  • Maria C. Papageorghiou

    () (Central Bank of Cyprus)

  • Maria G. Mithillou

    () (Central Bank of Cyprus)

Abstract

The focus of this paper is on developments in unit labour costs (ULC) in Cyprus, an important indicator of competitiveness. The data points to a significant correction in the nominal ULC index in the period 2013-2016, almost exclusively driven by the significant wage declines observed in the public and private sectors, with the decline in the private sector driven mainly by construction and the trade, transport and tourism sectors. Once the index is adjusted for the impact of prices (to arrive at the real ULC index, a complementary indicator that is sometimes informative to analyse), the data points to an earlier and more pronounced correction in ULC. The marginal rise in the ULC index in 2017 is due to the small rise in wages, largely in the public sector, which still leaves the level of the index well below its pre-crisis level. Furthermore, developments in the ULC index are in line with recent macroeconomic performance. Overall, the significant wage moderation observed prior to the crisis, and especially the immediate and continuous adjustment of wages (as well as that of prices) following the March 2013 events, demonstrates the Cyprus economy’s potential to achieve internal devaluation as a mechanism for the correction of macroeconomic imbalances.

Suggested Citation

  • Marios Polemidiotis & Maria C. Papageorghiou & Maria G. Mithillou, 2018. "Measuring the Competitiveness of the Cyprus Economy: the Case of Unit Labour Costs," Working Papers 2018-2, Central Bank of Cyprus.
  • Handle: RePEc:cyb:wpaper:2018-2
    as

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    File URL: https://www.centralbank.cy/images/media/pdf/CBC-Working-Paper-on-ULC-2018-02.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Competitiveness; labour productivity; unit labour costs; wages; crisis;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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