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Mikuláš LuptáčikMartin Lábaj
Department of Economic PolicyUniversity of Economics in Bratislava
June 8, 2012Bratislava Economic Meeting 2012
Motivation
Methodology
The case of Slovakia – results
Conclusions
Further research
One of the causes for current economic problems in the European Monetary Union (EMU) is the increasing differences in the competitiveness among the members of EMU
The real wages e.g. in Germany grew in the last years very slowly, significantly behind the growth of the labor productivity and consequently the competitiveness of Germany was rising stronger than in the other economies.
Recent studies deal mostly with aggregated models and overlook structural changes behind.
Belegri et al. (2011) try to address the following research question:
„What change in the level of labor productivity by sector would have been required to deliver the actual change in final demands in Greece
between 1995 and 2005, if working hours in each sector had been reduced to their EU average?“
They decomposed the annual percentage change of the productivity of labor into the contribution of:
◦ a change in the final demand◦ a change in the employment level (working hours)◦ a combined effect of 1) and 2) (a decomposition with interaction term –
simultaneous change)
An important conclusion of the article is that the labor productivity would have to increase considerably. The unweighted average change over sectors and years amounts to about 40 %. Moreover, the required adjustment of the Greek economy appeared to get more difficult every year, since it grew on average by 1,56 %, annually. In a decomposition analysis they find that both growing final demand and required reductions in working hours play an important role in the size of the required changes, but the latter effects clearly dominate.
Source: Belegri-Markaki-Michaelides, 2011.
Source: KLEMS Database, authors´ computations.
Sector Name Slovakia Eurozone Difference (in %) Slovakia Eurozone Difference (in %)
1 Agriculture, forestry and fishing 1,874 1,679 11,6 1,774 1,665 6,52 Mining 1,637 1,660 -1,4 1,687 1,631 3,43 Food, beverages, tobacco 1,730 1,626 6,4 1,712 1,568 9,24 Textiles, apparel and leather 1,571 1,644 -4,5 1,558 1,611 -3,35 Wood products and furniture 1,675 1,671 0,2 1,604 1,609 -0,36 Paper, paper products and printing 1,818 1,571 15,8 1,668 1,539 8,47 Petroleum and coal products 1,696 1,671 1,5 1,590 1,649 -3,58 Industrial chemicals, rubber and plastic products1,684 1,608 4,7 1,695 1,571 7,99 Non-metallic mineral products 1,767 1,660 6,4 1,683 1,618 4,0
10 Iron and steel, non-ferrous metals 1,650 1,691 -2,4 1,601 1,657 -3,411 Metal products 1,755 1,573 11,6 1,649 1,550 6,412 Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing1,706 1,577 8,1 1,705 1,544 10,413 Electricity, gas and water 1,703 1,600 6,4 1,671 1,555 7,514 Construction 1,680 1,684 -0,3 1,613 1,691 -4,615 Wholesale and retail trade 1,804 1,538 17,2 1,709 1,522 12,316 Hotels and restaurants 1,777 1,662 7,0 1,742 1,613 8,117 Transport, storage and communication1,672 1,696 -1,4 1,659 1,685 -1,518 Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation1,721 1,576 9,2 1,641 1,545 6,219 Real estate services, renting services of machinery and equipment, research and development services1,920 1,502 27,9 1,779 1,491 19,320 National defence and public administration1,734 1,575 10,1 1,564 1,549 1,021 Communication, social and personal services1,749 1,372 27,5 1,634 1,354 20,7
Average working hours (2000)
Average working hours (2005)
Whether the changes in productivity and wages
are in favor of increased competitiveness or not
(in which sectors)
How changes in wage intensities are
transformed to overall cost-push effects
Whether these effects are mitigated by
structural changes in economy (described by
the changes in the input coefficients)
To analyze the changes in labor productivity and wages Slovak
economy between 2000 and 2005, based on Leontief Price
Model and a so called Structural Decomposition
Technique
First, we have looked at differences in the shares of labor
compensations per unit of production
Then we decomposed the change into the contribution of
changes in average hourly wage and changes in
productivity (production per hour worked)
In the next step, we indentified the „cost-push“ effect of
changes in labor compensations per unit of production on
prices (based on Price model)
Slovak Input-output tables for 2000 and 2005
In constant prices (2000) Version B – domestic products Aggregated into 21 sectors Hours worked– KLEMS database
Average hourly wage in
2000 (EUR)
Average hourly wage in 2005
(EUR)
Change between
2000 - 2005
18 Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation6,07 8,65 2,58
13 Electricity, gas and water 5,39 6,26 0,87
8 Industrial chemicals, rubber and plastic products5,21 4,62 -0,59
2 Mining 5,09 5,48 0,39
20 National defence and public administration 4,97 6,22 1,25
10 Iron and steel, non-ferrous metals 4,83 6,56 1,72
11 Metal products 4,71 4,25 -0,46
6 Paper, paper products and printing 4,61 4,24 -0,37
9 Non-metallic mineral products 4,39 4,58 0,19
17 Transport, storage and communication 4,36 5,21 0,86
19 Real estate services, renting services of machinery and equipment, research and development services4,23 4,69 0,46
12 Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing4,20 4,43 0,23
15 Wholesale and retail trade 4,04 4,51 0,48
7 Petroleum and coal products 3,77 11,06 7,29
14 Construction 3,64 4,03 0,40
3 Food, beverages, tobacco 3,55 3,42 -0,13
21 Communication, social and personal services 3,24 4,30 1,06
4 Textiles, apparel and leather 3,15 3,23 0,09
5 Wood products and furniture 3,11 3,03 -0,09
1 Agriculture, forestry and fishing 3,06 3,50 0,44
16 Hotels and restaurants 2,84 3,39 0,55
Labor productivity in
2000 (EUR/hour)
Labor productivity in
2005 (EUR/hour)
Change between
2000 - 2005
7 Petroleum and coal products 210,77 360,49 149,72
10 Iron and steel, non-ferrous metals 52,94 58,87 5,93
8 Industrial chemicals, rubber and plastic products51,27 51,06 -0,21
13 Electricity, gas and water 49,55 83,09 33,54
6 Paper, paper products and printing 34,63 45,08 10,45
12 Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing33,25 48,91 15,67
19 Real estate services, renting services of machinery and equipment, research and development services30,58 26,28 -4,30
14 Construction 30,10 32,27 2,17
3 Food, beverages, tobacco 29,91 32,52 2,61
17 Transport, storage and communication 28,91 30,01 1,10
9 Non-metallic mineral products 26,33 30,56 4,23
18 Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation23,62 41,41 17,79
11 Metal products 22,44 28,68 6,24
15 Wholesale and retail trade 21,29 20,41 -0,88
2 Mining 18,27 23,62 5,35
5 Wood products and furniture 17,90 23,99 6,09
1 Agriculture, forestry and fishing 15,65 20,20 4,55
20 National defence and public administration 12,91 14,60 1,69
16 Hotels and restaurants 12,80 12,63 -0,17
4 Textiles, apparel and leather 11,09 13,63 2,53
21 Communication, social and personal services 6,74 9,49 2,75
Wage intensities in
2000 (wages/total production)
Wage intensities in
2005 (wages/total production)
Change between
2000 - 2005
21 Communication, social and personal services 0,48 0,45 -0,03
20 National defence and public administration 0,39 0,43 0,04
4 Textiles, apparel and leather 0,28 0,24 -0,05
2 Mining 0,28 0,23 -0,05
18 Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation0,26 0,21 -0,05
16 Hotels and restaurants 0,22 0,27 0,05
11 Metal products 0,21 0,15 -0,06
1 Agriculture, forestry and fishing 0,20 0,17 -0,02
15 Wholesale and retail trade 0,19 0,22 0,03
5 Wood products and furniture 0,17 0,13 -0,05
9 Non-metallic mineral products 0,17 0,15 -0,02
17 Transport, storage and communication 0,15 0,17 0,02
19 Real estate services, renting services of machinery and equipment, research and development services0,14 0,18 0,04
6 Paper, paper products and printing 0,13 0,09 -0,04
12 Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing0,13 0,09 -0,04
14 Construction 0,12 0,12 0,00
3 Food, beverages, tobacco 0,12 0,11 -0,01
13 Electricity, gas and water 0,11 0,08 -0,03
8 Industrial chemicals, rubber and plastic products0,10 0,09 -0,01
10 Iron and steel, non-ferrous metals 0,09 0,11 0,02
7 Petroleum and coal products 0,02 0,03 0,01
Growth of hourly wage
per year in %
Growth of labour
productivity per year in %
Difference between labour
productivity growth and hourly
wage growth
13 Electricity, gas and water 3,02 10,89 7,87
6 Paper, paper products and printing -1,65 5,42 7,06
11 Metal products -2,01 5,03 7,04
12 Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing1,05 8,03 6,98
5 Wood products and furniture -0,56 6,04 6,59
18 Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation7,33 11,89 4,56
2 Mining 1,49 5,27 3,79
4 Textiles, apparel and leather 0,55 4,20 3,65
1 Agriculture, forestry and fishing 2,69 5,24 2,54
3 Food, beverages, tobacco -0,74 1,68 2,42
8 Industrial chemicals, rubber and plastic products-2,38 -0,08 2,30
9 Non-metallic mineral products 0,86 3,03 2,17
21 Communication, social and personal services 5,82 7,08 1,26
14 Construction 2,09 1,40 -0,69
20 National defence and public administration 4,60 2,50 -2,10
17 Transport, storage and communication 3,65 0,75 -2,90
15 Wholesale and retail trade 2,26 -0,84 -3,10
16 Hotels and restaurants 3,64 -0,27 -3,90
10 Iron and steel, non-ferrous metals 6,29 2,15 -4,14
19 Real estate services, renting services of machinery and equipment, research and development services2,09 -2,99 -5,07
7 Petroleum and coal products 24,04 11,33 -12,71
* Without petroleum and coal products
Cost-push effect on prices
2000-2005
Hotels and restaurants 0,057
Real estate services, renting services of machinery and equipment, research and development services0,049
National defence and public administration 0,044
Wholesale and retail trade 0,041
Transport, storage and communication 0,029
Iron and steel, non-ferrous metals 0,029
Petroleum and coal products 0,013
Construction 0,007
Industrial chemicals, rubber and plastic products-0,014
Food, beverages, tobacco -0,017
Non-metallic mineral products -0,024
Communication, social and personal services -0,029
Agriculture, forestry and fishing -0,032
Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing-0,035
Paper, paper products and printing -0,045
Textiles, apparel and leather -0,046
Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation-0,051
Mining -0,054
Metal products -0,057
Electricity, gas and water -0,062
Wood products and furniture -0,064
1( )I A p k
Difference between labour
productivity growth and hourly
wage growth
Average of "Price-to-Price
multipliers"
Electricity, gas and water 7,87 0,093
Paper, paper products and printing 7,06 0,059
Metal products 7,04 0,058
Machinery and equipment, office machinery and computers, electrical machinery, radio, television and communication equipment, medical precision and optical instruments, watches and clocks, shipbuilding and other transport, motor vehicles, other manufacturing6,98 0,063
Wood products and furniture 6,59 0,052
Financial intermediation services, insurance and pension funding services, Services auxiliary to financial intermediation4,56 0,068
Mining 3,79 0,054
Textiles, apparel and leather 3,65 0,049
Agriculture, forestry and fishing 2,54 0,073
Food, beverages, tobacco 2,42 0,063
Industrial chemicals, rubber and plastic products 2,30 0,057
Non-metallic mineral products 2,17 0,057
Communication, social and personal services 1,26 0,053
Construction -0,69 0,065
National defence and public administration -2,10 0,050
Transport, storage and communication -2,90 0,118
Wholesale and retail trade -3,10 0,099
Hotels and restaurants -3,90 0,055
Iron and steel, non-ferrous metals -4,14 0,066
Real estate services, renting services of machinery and equipment, research and development services-5,07 0,121
Petroleum and coal products -12,71 0,067
1ˆP L L
Price-to-Price Multipliers
Generated wages according to final use categories in 2000
Final use categoriesGenerated wages
in bil. EURGenerated wages in %
Wage multipliers
Final consumption of households 3,49 27,0% 0,29Governmnet consumption 3,31 25,6% 0,52Gross capital formation 1,41 10,9% 0,27Export 4,73 36,5% 0,22Total final uses 12,95 100,0% 0,28
Generated wages according to final use categories in 2005
Final use categoriesGenerated wages
in bil. EURGenerated wages in %
Wage multipliers
Final consumption of households 3,06 21,3% 0,23Governmnet consumption 3,65 25,5% 0,53Gross capital formation 1,62 11,3% 0,25Export 6,00 41,9% 0,18Total final uses 14,33 100,0% 0,24
Competitiveness of the overall economy depends on the competitiveness of particular industries and complex interaction among them
Input-output analysis helps to understand the relation between changes in productivity and wages on sectoral level
Interdependencies in the economy can increase or mitigate the positive(negative) effects in particular industry on other industries and therefore overall competitiveness
The first results for Slovakia suggest positive development (in the sense of higher productivity growth than wage growth) in competitiveness in most of the industries
Nevertheless, cost-push effects on prices differ considerably among the sectors
There are sectors with positive development with relatively high indirect effect on prices in other sector (electricity, gas and water; financial intermediation; agricultural products) among others
There are sectors with positive development but relatively low indirect effects (e.g. wood products and furniture)
Negative development with strong indirect effect is in transportation, wholesale sector and retail sector
And mitigated negative development has been typical for hotels and restaurants
Look at more disaggregated data
Prepare a sensitivity analysis
Look closer at the development of wage-
share in Slovakia at sectoral level
Other comments and suggestions are
welcomed
Recommended