Assessing cost competitiveness: The Bank of Finland approach

Essi Eerola, Juho Peltonen and Harri Pönkä

No 1/2026, BoF Economics Review from Bank of Finland

Abstract: This paper describes the framework used by the Bank of Finland to assess the cost competitiveness of the Finnish economy. We discuss the conceptual foundations, data choices, and methodological trade-offs involved in constructing commonly used indicators, with particular emphasis on labour-cost-based measures in a monetary union context. The analysis focuses on compensation per employee and unit labour costs for the whole economy, complemented by indicators for the manufacturing sector as a proxy for tradable activities. Using national accounts data and the European Commission's Autumn 2025 forecast, we illustrate the indicators and evaluate their robustness to alternative methodological choices. Overall, the results show that while different indicators highlight somewhat different aspects of cost competitiveness, the main conclusions are robust to reasonable variations in reference groups, weighting schemes, and adjustments. The paper aims to provide a transparent and consistent basis for interpreting Finland's cost competitiveness and to support informed policy discussions.

Keywords: cost competitiveness; compensation per employee; unit labour costs (search for similar items in EconPapers)
JEL-codes: F10 F40 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofecr:340861

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