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Real Unit Labor Costs Differentials in EMU+L4700: How Big, How Benign and How Reversible?

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  • Mr. Igor Lebrun
  • Mrs. Esther Perez Ruiz

Abstract

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.

Suggested Citation

  • Mr. Igor Lebrun & Mrs. Esther Perez Ruiz, 2011. "Real Unit Labor Costs Differentials in EMU+L4700: How Big, How Benign and How Reversible?," IMF Working Papers 2011/109, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2011/109
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    References listed on IDEAS

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    1. Mary O'Mahony & Marcel P. Timmer, 2009. "Output, Input and Productivity Measures at the Industry Level: The EU KLEMS Database," Economic Journal, Royal Economic Society, vol. 119(538), pages 374-403, June.
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    Cited by:

    1. Yuming Cui & Changrong Lu, 2018. "Are China's unit labour costs still competitive? A comparison with ASEAN countries," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 32(1), pages 59-76, May.
    2. Pietro Cova & Lisa Rodano, 2019. "Relative price dynamics in the Euro area: where do we stand?," Temi di discussione (Economic working papers) 1226, Bank of Italy, Economic Research and International Relations Area.

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