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Structural Adjustment and Unit Labour Cost Developments in Europe’s Periphery: Patterns before and during the Crisis

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Abstract This paper analyses developments in production structures in pre-crisis and during the crisis years in the range of EU ‘peripheral economies’ (i.e. the lower- and medium-income economies in the South and the Centre/East). The emphasis is on the development of the tradable sector (and manufacturing in particular) relative to non-tradable sectors and whether these are reflected in longer-term trade imbalances. Different groups of economies emerge, some with a strong manufacturing base, others with a very weak one. We investigate whether and to which extent structural readjustments took place during the crisis years and also analyse in detail relative unit labour cost (ULC) developments across sectors. A decomposition analysis shows that ULC developments are mainly driven during the crisis by output and employment adjustments (rather than by labour compensation) posing the question of whether capacity contraction effects might make ‘weak economies’ in the EU’s periphery even more ‘trade balance constrained’ in the wake of the crisis.

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Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Research Reports with number 390.

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Length: 39 pages including 2 Tables and 12 Figures
Date of creation: Sep 2013
Publication status: Published as wiiw Research Report
Handle: RePEc:wii:rpaper:rr:390
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