Till Labor Cost Do Us Part A Vecm Model of Unit Labor Cost Convergence in the Euro Area

Francesca Pancotto and Filippo Maria Pericoli

No 14, Working Papers from Doctoral School of Economics, Sapienza University of Rome

Abstract: A sustainable path of relative competitiveness among the EMU countries is a key factor for the survivorship of the currency union in the long run. We analyze unit labor costs in the European Union with VECM methodology to evaluate relative competitiveness of euro area countries, controlling for exchange rate on the adjustment dynamics, for the economy as a whole and for the manufacturing sector, considered as a proxy of the tradable sector. Results show a lack of convergence of member countries, which is more pronounced for the tradable sector. Persisting idiosyncratic dynamics may be driven by different bargaining policies and institutional structures of national labor markets, and by differential path of technological advance deterring convergence of long run productivity.

Keywords: Unit labor costs; Exchange Rates; Convergence; Competitiveness; Manufacturing Sector (search for similar items in EconPapers)
JEL-codes: C32 E31 O47 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2011, Revised 2011
New Economics Papers: this item is included in nep-eec, nep-eur, nep-lab, nep-mac and nep-opm
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