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International comparisons of the levels of unit labor costs in manufacturing

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Listed:
  • Peter Hooper
  • Elizabeth Vranlovich

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.

Suggested Citation

  • Peter Hooper & Elizabeth Vranlovich, 1995. "International comparisons of the levels of unit labor costs in manufacturing," International Finance Discussion Papers 527, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:527
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lehmann, Harald, 2003. "Lohnstückkosten und Wettbewerbsfähigkeit - Eine mikroökonometrische Untersuchung für Ostdeutschland," IWH Discussion Papers 180, Halle Institute for Economic Research (IWH).
    2. Bart van Ark & Erik Monnikhof & Marcel Timmer, 1999. "Prices, Quantities, and Productivity in Industry: A Study of Transition Economies in a Comparative Perspective," NBER Chapters,in: International and Interarea Comparisons of Income, Output, and Prices, pages 327-367 National Bureau of Economic Research, Inc.
    3. Timmer, Marcel P., 2002. "Climbing the Technology Ladder Too Fast? New Evidence on Comparative Productivity Performance in Asian Manufacturing," Journal of the Japanese and International Economies, Elsevier, vol. 16(1), pages 50-72, March.
    4. Felipe, Jesus, 2009. "A Cautionary Note on the Interpretation of Unit Labor Costs as an Indicator of Competitiveness, with Reference to the Philippines," Philippine Journal of Development PJD 2007 Vol. XXXIV No. 2, Philippine Institute for Development Studies.
    5. Jörg Hinze, 1998. "Problems of international labour cost comparisons," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 33(3), pages 146-152, May.

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    Keywords

    Labor productivity ; Manufactures;

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