Abstract
A sustainable long-run pattern in the relative competitiveness of Euro area countries is a key factor for the survival of the monetary union. We analyse the issue focussing on unit labour cost dynamics using cointegration analysis for the whole economy and for the manufacturing sector separately. Our findings show that the introduction of the Euro has increased, rather than decreased, the distance among member countries, as measured in the metric of unit labour costs. Dispersion of productivity rather than wage compensation suggests that persisting idiosyncratic dynamics are driven by real factors, i.e. diverging technological patterns rather than by monetary factors, expressed by wage compensation.
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Notes
Ameco database. Compensation of employees (code UWCD); gross domestic product at constant prices (code OVGD); sectoral compensation of employees (code UWCM); sectoral value added at constant prices (code OVGM).
Ameco database.
Rearranging (2) the growth rate of ULC reads:
$$\dot{ULC}= \dot{W^{d}} - \dot{Q}$$(3)Figures for productivity and wage compensation where available separately only from 1990 onwards.
They analyse the following countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Spain.
Results of these tests are available from the authors upon request.
Results unreported, available on request.
See Juselius (2006) for a detailed description.
Data available upon request to the authors.
The procedure to obtain the bootstrapped interval has been obtained adapting the procedures written by Vinod and da Lacalle (2009) and using the R package ‘meboot’.
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We thank University of Bologna, Department of Economics for financial support. We thank Davide Fiaschi for useful comments. This paper represents the authors personal opinion and does not reflect the view of the Italian Department of the Treasury
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Pancotto, F., Pericoli, F.M. Till labor cost do us part. Int Econ Econ Policy 11, 371–395 (2014). https://doi.org/10.1007/s10368-013-0258-3
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DOI: https://doi.org/10.1007/s10368-013-0258-3