Measuring the Competitiveness of the Cyprus Economy: the Case of Unit Labour Costs

Marios Polemidiotis (), Maria Papageorghiou () and Maria Mithillou ()
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Marios Polemidiotis: Central Bank of Cyprus
Maria Papageorghiou: Central Bank of Cyprus
Maria Mithillou: Central Bank of Cyprus

No 2018-2, Working Papers from Central Bank of Cyprus

Abstract: The focus of this paper is on developments in unit labour costs (ULC) in Cyprus, an important indicator of competitiveness. The data points to a significant correction in the nominal ULC index in the period 2013-2016, almost exclusively driven by the significant wage declines observed in the public and private sectors, with the decline in the private sector driven mainly by construction and the trade, transport and tourism sectors. Once the index is adjusted for the impact of prices (to arrive at the real ULC index, a complementary indicator that is sometimes informative to analyse), the data points to an earlier and more pronounced correction in ULC. The marginal rise in the ULC index in 2017 is due to the small rise in wages, largely in the public sector, which still leaves the level of the index well below its pre-crisis level. Furthermore, developments in the ULC index are in line with recent macroeconomic performance. Overall, the significant wage moderation observed prior to the crisis, and especially the immediate and continuous adjustment of wages (as well as that of prices) following the March 2013 events, demonstrates the Cyprus economy’s potential to achieve internal devaluation as a mechanism for the correction of macroeconomic imbalances.

Keywords: Competitiveness; labour productivity; unit labour costs; wages; crisis (search for similar items in EconPapers)
JEL-codes: E24 J08 J21 J31 J38 J45 J68 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2018-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:cyb:wpaper:2018-2

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