IMF Working Papers

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

By Igor Lebrun, . Esther Perez Ruiz

May 1, 2011

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Igor Lebrun, and . Esther Perez Ruiz Real Unit Labor Costs Differentials in EMU+L4700: How Big, How Benign and How Reversible?, (USA: International Monetary Fund, 2011) accessed November 21, 2024
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Capital productivity, Employment, Labor, Labor costs, Labor markets, Production, Wages

Keywords: Adjustment cost, Capital productivity, Capital-output ratio, Central and Eastern Europe, Employment, EMU, Equilibrium condition, Europe, GDP deflator, Growth differential, Growth divergence, Growth gap, Labor and product market institutions, Labor cost determination, Labor costs, Labor market, Product market, Product market imperfection, Relative real unit labor costs, RULC-capital-output schedule, Steady state level, Wages, WP

Publication Details

  • Pages:

    27

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2011/109

  • Stock No:

    WPIEA2011109

  • ISBN:

    9781455261383

  • ISSN:

    1018-5941

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