Report
Functioning of the euro zone: Are the most competitive countries those where labour costs increase fastest?
In a currency area, there is normally a cost competitiveness adjustment mechanism: countries where produc tion costs are high have slow growth in production costs, while countries where , on the contrary , cost competitiveness is strong have rapid growth in production costs. We seek to determine whether this relationship currently applies in Germany, France, Spain and Italy. We can also ask the same question for inflation instead of unit labour costs. We then see that this adjustment mechanism is not present for unit labour costs , but is present for prices. This means that the convergence of price levels takes place via an adjustment of profit margins, but not via an adjustment of labour costs.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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