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Assessing cost competitiveness: The Bank of Finland approach

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  • Eerola, Essi
  • Peltonen, Juho
  • Pönkä, Harri

Abstract

This paper describes the framework used by the Bank of Finland to assess the cost competitiveness of the Finnish economy. We discuss the conceptual foundations, data choices, and methodological trade-offs involved in constructing commonly used indicators, with particular emphasis on labour-cost-based measures in a monetary union context. The analysis focuses on compensation per employee and unit labour costs for the whole economy, complemented by indicators for the manufacturing sector as a proxy for tradable activities. Using national accounts data and the European Commission's Autumn 2025 forecast, we illustrate the indicators and evaluate their robustness to alternative methodological choices. Overall, the results show that while different indicators highlight somewhat different aspects of cost competitiveness, the main conclusions are robust to reasonable variations in reference groups, weighting schemes, and adjustments. The paper aims to provide a transparent and consistent basis for interpreting Finland's cost competitiveness and to support informed policy discussions.

Suggested Citation

  • Eerola, Essi & Peltonen, Juho & Pönkä, Harri, 2026. "Assessing cost competitiveness: The Bank of Finland approach," BoF Economics Review 1/2026, Bank of Finland.
    • Handle: RePEc:zbw:bofecr:340861
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    References listed on IDEAS

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    1. Gilbert, John & Muchová, Eva, 2018. "Export competitiveness of Central and Eastern Europe since the enlargement of the EU," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 78-85.
    2. Marc Klau & San Sau Fung, 2006. "The new BIS effective exchange rate indices," BIS Quarterly Review, Bank for International Settlements, March.
    3. Martyna Marczak & Thomas Beissinger, 2022. "A new sectoral unit labour cost indicator based on global value chains," Applied Economics Letters, Taylor & Francis Journals, vol. 29(13), pages 1152-1157, July.
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    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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