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A Note On Competitiveness, Unit Labor Costs And Growth: Is "Kaldor'S Paradox" A Figment Of Interpretation?

Listed author(s):
  • Jesus Felipe

This paper shows that unit labor costs (ulcs), the most widely used measure of competitiveness, can be interpreted as the labor share in output multiplied by a price-adjustment factor. This has three main implications. First, ulcs are not just a technical concept since they embody the social relations that affect the distribution of income between the social classes. Secondly, lower ulcs should not necessarily be interpreted as implying that an economy is more competitive, i.e., that it will grow faster, and vice-versa. In wage-led growth economies, an increase in the wage share leads to an increase in the equilibrium capacity utilization rate, which leads to an increase in the growth rate of the capital stock. Hence it is possible to find that the countries with fast-growing ulcs are the ones registering faster growth in exports or in GDP. Once one analyzes ulcs taking into account their functional distribution dimension, "Kaldor's paradox" ceases to be an anomalous result. Finally, one can define the concept of unit capital cost as a measure of competitiveness and shift the burden of lack of growth or loss of market share to capital.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2005-06.

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Length: 21 pages
Date of creation: Feb 2005
Handle: RePEc:een:camaaa:2005-06
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  1. Thirlwall, A P, 1972. "Changes in Industrial Composition in the UK and US and Labour's Share of National Income, 1948-1969," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 34(4), pages 373-382, November.
  2. Fagerberg, Jan, 1996. "Technology and Competitiveness," Oxford Review of Economic Policy, Oxford University Press, vol. 12(3), pages 39-51, Autumn.
  3. Glyn, Andrew, 1997. "Does Aggregate Profitability Really Matter?," Cambridge Journal of Economics, Oxford University Press, vol. 21(5), pages 593-619, September.
  4. Goldstein, Jonathan, 1986. "Markup Variability and Flexibility: Theory and Empirical Evidence," The Journal of Business, University of Chicago Press, vol. 59(4), pages 599-621, October.
  5. Sanjaya Lall, 2001. "Competitiveness, Technology and Skills," Books, Edward Elgar Publishing, number 2298.
  6. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  7. Kaldor, Nicholas, 1970. "The Case for Regional Policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 17(3), pages 337-348, November.
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