Transcript Unions* strategies

Unit labour costs: a
meaningless measure of
competitiveness for eastcentral Europe
Martin Myant
ETUI
Brussels
Martin Myant
It is a bad measure
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ULC=labour productivity/labour costs,
used by the European Commission as a measure
of competitiveness, justify wage reductions,
only one possible numerical measure, others give
different answers,
problems with measurement and interpretation,
an inappropriate basis for policy making,
neither absolute levels nor changes over time are
useful.
Martin Myant
The standard argument
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If wages rise faster than productivity, we would
expect prices to rise and competitiveness to fall
leading to a balance of payments deficit,
● can devalue, but not in Eurozone, ‘imbalance’ will
continue and grow,
● such is a story often told of the root causes of the
Eurozone crisis, need to cut wages in ‘deficit’
countries,
● argument shown with picture of relative changes
from @2000.
Martin Myant
de, ei, es, ULCE
ULCE
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
de
ei
es
Martin Myant
There is another story
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Roughly corresponds with current accounts…
but actually current account deficits came after
credit inflows,
construction booms (that leads to higher ULC!),
cutting wages, leads to lower imports, not higher
exports, that reduced/eliminated deficits,
higher exports from higher wage sectors,
NB, never look at absolute levels, compare only
certain countries, use ULCE, not other measures.
Martin Myant
Measures of competitiveness
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Bring in other measures
ULCE, includes non-traded activities, public
services, looks inappropriate…
levels vary between sectors, much higher where
share of labour is higher (public sector,
construction), so structural change alters it,
can use ULCM (actually wage costs this time), or
export prices (not a consistent measure?),
these do not move together and ECE looks like
worst in Eurozone.
Martin Myant
Czechia, relative to partners
Chart Title
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czulce
czulcm
czex
Martin Myant
Hungary
hu
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huulce
huulcm
huex
Martin Myant
Poland
pl
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plulce
plulcm
plex
Martin Myant
Slovakia
sk
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skulce
skulcm
skex
Martin Myant
How to explain differences
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Which measure should we believe? Why are they
so different? Why the country differences?
catching up process to @2008, then stagnates,
catching up by currency movements and wage
rises, public/private differences, policy changes
with austerity period and currency devaluations,
apparently to keep competitiveness,
not openly stated, but revaluation had been logical
element of convergence to EU price levels,
now compare absolute levels.
Martin Myant
Labour cost levels, euros
cz
de
hu
pl
ro
sk
2000
2008
2015
3.7
9.2
9.9
24.6
27.9
32.2
3.6
7.8
7.5
4.2
7.6
8.6
1.5
4.2
5.0
2.8
7.3
10.0
Martin Myant
Such huge differences!
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Huge differences, short-term variations now
appear trivial, relative increases in ULC still leaves
a huge gap,
close to differences in productivity,
so a German worker is x times as productive? bus
driver, teacher, production line? we know this is
wrong, therefore PPP comparisons,
per capita GDP cz, ro, 67%, 44% de in 2014,
but this is not the measure used by policy
makers…
Martin Myant
Explaining the anomoly
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Productivity is measured as low because wages
are low, undermining the key assumption behind
using ULC as a measure of competitiveness,
● true for public services (ways to allow for this, but
essentially cost-based measure in GDP), true for
non-traded, transport etc,
● also true for traded manufacturing,
Martin Myant
What is international trade?
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Assumption of production by firms in one country
competing with those from another, still hear this,
so higher price, from higher ULC, leads customers
to switch to another country’s goods,
reality is MNCs producing in many countries and
outsourcing,
key question is not who do we buy from, but
where does (has) MNC locate(d) production,
follow for two cases, components and finished
products.
Martin Myant
Outsourcing means same
work at lower wage…
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German motor-vehicle manufacturer outsources a
component (car seat) to Romania. Why? Same
quality at lower (much) price,
● appears in ro GDP figures at Romanian, not
previous German, price, workers therefore much
less productive while doing exactly the same
work.
Martin Myant
Outsourcing and ULC
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Productivity of labour in the outsourcing firm will
increase and ULCs are likely to decrease,
● in the host country, nominal ULC is derived from
pre-existing domestic price and wage levels,
● wages can increase a long before it becomes
more advantageous to produce at home,
● once an MNC has chosen a location, there are
(may be) significant costs of moving.
Martin Myant
VW Skoda
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Wages about one third German level,
productivity also much lower,
● but PPP cz about 70%, and Sk productivity on
value added about double the cz average, so
maybe more productive in cz than de?
● VW world average, 2015, 17.2 vehicles per
employee, Germany, 10.9, Skoda, 26.8;
deceptive measure? Depends on kinds of
activities, unclear comparison?
Martin Myant
Skoda VW comparison
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Small cars=small profits, use low wage factories
for smaller, cheaper cars, choice of MNC, world
prices 20% above Sk, de 70% above, so
productivity will appear lower for same work.
● profits, vary between years, 2015 Sk 10.9% of
turnover before tax (worldwide 7.3% return on
sales), labour costs 6.6%,
● so room for higher wages?... extent unclear…
Martin Myant
Conclusion
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ULC a poor measure, assumptions about
international economic relations that are wrong,
● increasing wages not dependent on changes in
ULC, plenty of room for manoeuvre, are limits as
MNCs can move activities, but not precise,
● can increase wages now, don’t need to wait for
productivity to catch up, it never will, because
productivity depends on wage levels.
Martin Myant
Martin Myant