Prices and Productivity: A France-Germany Comparison

This study compares French and German manufacturing price levels in 2007 and investigates in both countries over the 1991-2010 period value added price growth rates in manufacturing and services. Using the ICOP methodology and the data from the Eurostat production surveys, we calculate production price levels in the French and German manufacturing sector. Results show they are quite close to each other. As to growth rates, using national accounts data, while German manufacturing value added prices have been relatively stable between 1995 and 2010, French manufacturing prices have been falling. This relative decrease could be attributed to the relative fall in the French gross margins over the last years. This gap is not replicated in the aggregate value added prices. The latter have been rising more steeply in France than in Germany, and this is due to price fluctuations in services. The increase in the French compensation rate in services has been significantly larger than the hourly labour productivity. In Germany, with falling unit labour costs over the 2005-2007 years in the manufacturing sector, German firms could hoard substantial gross margins that, however, have only been partly allocated to investment.