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Empirica

pp 1–20 | Cite as

Unit labour costs and the dynamics of output and unemployment in the southern European crisis countries

  • Juan Carlos Cuestas
  • Javier Ordóñez
  • Karsten Staehr
Original Paper

Abstract

The GIPS countries, the southern European crisis countries, have seen depressed output dynamics and high unemployment rates during the great recession following the 2007–2008 financial crisis. This paper considers the effects of measures that seek to improve competitiveness by reducing real unit labour costs. The results are derived in structural vector autoregressive models for each of the GIPS counties as well as two reference countries, Germany and the Netherlands. The responses of output and unemployment to innovations in real unit labour costs are economically and statistically significant for Germany and the Netherlands, whereas the responses are typically muted and imprecise estimated for the GIPS countries. The small and uncertain effects raise doubts regarding the efficacy of measures that seek to lower real unit labour costs in the GIPS countries.

Keywords

Internal devaluation Economic crisis GIPS SVAR Bayesian econometrics 

JEL Classification

C11 C33 E23 E52 E62 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Research Unit, Economics and Research DepartmentEesti PankTallinnEstonia
  2. 2.Department of Economics and FinanceTallinn University of TechnologyTallinnEstonia
  3. 3.Department of EconomicsJaume I UniversityCastellónSpain

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