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Real Unit Labor Costs Differentials in EMU+L4700: How Big, How Benign and How Reversible?
Author:
Mr. Igor Lebrunnull

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and
Mrs. Esther Perez Ruiz
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Series:
IMF Working Papers
Volume/Issue:
Volume 2011: Issue 109
Language:
English
Publication Date:
01 May 2011
DOI:
https://doi.org/10.5089/9781455261383.001
ISBN:
9781455261383
ISSN:
1018-5941
Pages:
27
Keywords:
WP; product market; labor market; GDP deflator; growth differential; Relative real unit labor costs; capital-output ratio; labor and product market institutions; EMU; equilibrium condition; adjustment cost; growth divergence; growth gap; steady state level; product market imperfection; RULC-capital-output schedule; labor cost determination; Labor costs; Capital productivity; Employment; Wages; Central and Eastern Europe; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2011: Issue 109