Real Unit Labor Costs Differentials in EMU+L4700: How Big, How Benign and How Reversible?
May 1, 2011
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary
Real unit labor costs (RULC) growth differentials between euro area members have persisted since EMU began and even widened out in the run-up to the crisis. This paper focuses on the causes underlying such dispersion. According to our empirical findings, persistent RULC growth differentials can be attributed to divergent evolutions in capital-output ratios, nominal effective exchange rates and country-specific institutional features, coupled with an increased sensitivity of RULC to fundamentals following the shift in the monetary regime. Because these RULC growth discrepancies in EMU partly result from heterogeneous structural characteristics, policy action seeking more homogenous regulation across the euro area can make a significant contribution to reduce them.
Subject: Capital productivity, Employment, Labor, Labor costs, Labor markets, Production, Wages
Keywords: adjustment cost, Capital productivity, capital-output ratio, Central and Eastern Europe, Employment, EMU, equilibrium condition, Europe, GDP deflator, growth differential, growth divergence, growth gap, labor and product market institutions, labor cost determination, Labor costs, labor market, product market, product market imperfection, Relative real unit labor costs, RULC-capital-output schedule, steady state level, Wages, WP
Pages:
27
Volume:
2011
DOI:
Issue:
109
Series:
Working Paper No. 2011/109
Stock No:
WPIEA2011109
ISBN:
9781455261383
ISSN:
1018-5941
