Trends in unit labour costs and added value deflators in manufacturing industry provide a lot of information on euro-zone countries’ situations

We look at changes over time in unit labour costs and value added deflators in manufacturing industry in the large euro-zone countries. These trends provide a lot of information on: The sophistication of production (high ly sophisticated production enables high prices, even if the exchange rate appreciates); Wage earners’ bargaining power (weak bargaining power leads prices to rise relative to unit labour costs); The presence of restoring forces in cost competitiveness (if there is a restoring force, gaps between prices and labour costs are subsequently corrected). We find that in no large euro-zone country i s there at once high product sophistication, moderate wage earner bargaining power and a restoring force in cost competitiveness.