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

28 Pages Posted: 20 May 2011

See all articles by Igor Lebrun

Igor Lebrun

affiliation not provided to SSRN

Esther Perez Ruiz

European Union - European Commission

Date Written: May 2011

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: Capital accumulation, Economic models, Euro Area, European Economic and Monetary Union, Labor costs, Monetary policy

Suggested Citation

Lebrun, Igor and Perez Ruiz, Esther, Real Unit Labor Costs Differentials in EMU: How Big, How Benign and How Reversible? (May 2011). IMF Working Paper No. 11/109, Available at SSRN: https://ssrn.com/abstract=1847342

Igor Lebrun (Contact Author)

affiliation not provided to SSRN

No Address Available

Esther Perez Ruiz

European Union - European Commission ( email )

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