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

  • Peroni, Chiara
  • DiMaria, Charles Henri

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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File URL: http://mpra.ub.uni-muenchen.de/38670/1/MPRA_paper_38670.pdf
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File URL: http://mpra.ub.uni-muenchen.de/39882/2/MPRA_paper_39882.pdf
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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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  1. 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.
  2. Requillart, Vincent & Nauges, Celine & Simioni, Michel & Bontemps, Christophe, 2012. "Food Safety Regulation and Firm Productivity: Evidence from the French Food Industry," Congress Papers 124378, Italian Association of Agricultural and Applied Economics (AIEAA).
  3. Katsimi, Margarita & Moutos, Thomas, 2010. "EMU and the Greek crisis: The political-economy perspective," European Journal of Political Economy, Elsevier, vol. 26(4), pages 568-576, December.
  4. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  5. 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.
  6. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
  7. 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.
  8. 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.
  9. David Soskice & Torben Iversen, 2001. "Multiple Wage Bargaining Systems in the Single European Currency Area," Empirica, Springer, vol. 28(4), pages 435-456, December.
  10. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
  11. Subodh Kumar & R. Robert Russell, 2002. "Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence," American Economic Review, American Economic Association, vol. 92(3), pages 527-548, June.
  12. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer, vol. 6(1), pages 1-21, April.
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