Abstract
This chapter presents a new approach to measuring competitiveness in the Euro Area by focussing on the profitability of investment instead of on tradable goods and current account imbalances. Taking the average return on capital in the Euro Area, the equilibrium wage level is calculated and competitiveness measured as the gap between actual and this equilibrium level.
Scuola superior Sant’Anna and London School of Economics. I thank Piero Esposito and Marco Forti for research assistance.
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Notes
- 1.
Most prominent are the Global Competitiveness Report published by the World Economic Forum (http://www.weforum.org/reports/global-competitiveness-report-2013-2014) and the IMD World Competitivness Year Book (http://www.imd.org/wcc/).
- 2.
The usual measures are indices for real exchange rates, based on relative prices of commodities and export baskets converted by given exchange rates. See: Eurostat (http://ec.europa.eu/eurostat/en/web/products-datasets/-/TSDEC330), OECD (http://stats.oecd.org/Index.aspx?querytype=view&queryname=168), IMF https://www.imf.org/external/pubs/ft/fandd/2007/09/pdf/basics.pdf).
- 3.
- 4.
See for example: (Wyplosz 2013) and my comment on the following pages.
- 5.
- 6.
Unit labour costs are defined as the wage costs per unit of output: \( \mathrm{U}\mathrm{L}\mathrm{C}=wL/y \). Hence real unit labour costs are \( \mathrm{RULC}=\mathrm{U}\mathrm{L}\mathrm{C}/P=wL/Py={\sigma}_w \) .
- 7.
(Stockhammer 2015), (O. Onaran and Th. Obst 2015).
- 8.
See (Koll 2005); (Commission 2005).
- 9.
The data are obtained from the European Commission’s Ameco data base.
- 10.
Note that flexible exchange rates make the series more volatile, but the effectiveness of a change in the exchange rate on competitiveness depends on the exchange rate elasticity of exports. A recent study by (Swarnali et al. 2015) shows that due to the formation of Global Value Chains this elasticity has significantly fallen. Hence, our competitiveness indicator may be a good measure for flexible exchange rate regimes as well.
- 11.
The evidence is forthcoming in: (Collignon and Esposito 2015).
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Collignon, S. (2016). Wage Imbalances in the European Labour Market. In: Talani, L. (eds) Europe in Crisis. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-57707-8_4
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DOI: https://doi.org/10.1057/978-1-137-57707-8_4
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