Relative Unit Labour Costs

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Transcript Relative Unit Labour Costs

International Competitiveness
Definition:
International Competitiveness is the ability to sell goods and
services at competitive prices in a foreign country
Exercise:
Global Competitiveness - Eight factors…?
• Relative Unit Labour Costs
(Total Cost of Employing Labour / Units of Output Labour produces).
As £ costs are expressed in $, weaker £ = lower RULC
Generally recorded in index value ie 100 in 2000, 105 in 2001 etc.
• Relative Export Prices = Export prices of UK Goods compared to
export prices of main trading partners – expressed as an Index.
index = export prices relative to partners = Competitiveness
• Export vs Import Prices: ie if X prices  vs M prices then likely that
UK losing competitiveness.
• Productivity (Output/worker) – effects RULC
• Wage and non-wage costs (H&S, carbon taxes, waste and recycling,
employment protection, employer contribution to pensions etc.)
• Regulation
• Quality (After-sales service, design, reliability and performance)
• R&D
• Taxation
• Govt Supply Side Policy
• Govt Exchange Rate Policy
• Govt Control of Inflation (& Trade Gaps/Business Cycle)
Other costs / effects - besides Labour for Intl
Competitiveness – Evaluation Points
• Land – cheap resources could boost competitiveness
• Capital – high fixed capital formation ie investment in productive capacity –
could boost competiveness and make Labour more productive
• Innovation – Are some countries just more culturally entrepreneurial than
others?
• Other - Does fluency in English / English as world language confer an
advantage on UK, USA, Canada, Australia etc?
The British Problem – poor productivity?
• UK: Low Inv’t relative to GDP (in comparison to our competitors) – Aging or
“shallowing capital” and “Labour Hoarding”? (using too much labour
• Low spending on R&D
• Poor UK management / Skills gaps in UK Industry (Hitech/Pharm/Construction)
• Outdated Infrastructure (Example Heathrow debate, Northern
Powerhouse?, poor internet roll out?)
• Topical – will being outside EU reduce “red tape” – promote
entrepreurship?
• Stability of Economic fundamentals in long term => “Macro stability” (Low
Inflation, stable banking system, competitive exchange rate and
comparable tax structure to competitors)
Global Competitiveness Index
• http://reports.weforum.org/global-competitiveness-index/heat-map/
• Figures from WEF 2014
• Switzerland / Singapore / Finland / Germany ….UK 9th
Determinants of
Relative Unit Labour Costs
• Macroeconomic stability – encourages capital
investment
• Level of human capital – skills & education
• Capital investment – UK has tended to under-invest in
long-run infrastructure
• Labour market flexibility – lack of competition in
labour markets raise wage rates (workers bargain
harder) – UK unemployment is very low
Problems of sustaining international
competitiveness
• Low wage costs are likely to grow
• Other costs likely to rise
• Current account surplus is likely to lead to a rise in the exchange rate
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