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

Igor Lebrun and Esther Perez Ruiz

No 2011/109, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; product market; labor market; GDP deflator; growth differential; Relative real unit labor costs; capital-output ratio; labor and product market institutions; EMU; equilibrium condition; adjustment cost; growth divergence; growth gap; steady state level; product market imperfection; RULC-capital-output schedule; labor cost determination; Labor costs; Capital productivity; Employment; Wages; Central and Eastern Europe; Europe (search for similar items in EconPapers)
Pages: 27
Date: 2011-05-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=24838 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2011/109

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().