mikuláš luptáčik martin lábaj department of economic policy university of economics in...

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





6 Paper, paper products and printing 34,63 45,08 10,45


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




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



16 Hotels and restaurants 12,80 12,63 -0,17



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


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


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




Growth of hourly wage

per year in %

Growth of labour

productivity per year in %

Difference between labour

productivity growth and hourly

wage growth


6 Paper, paper products and printing -1,65 5,42 7,06

11 Metal products -2,01 5,03 7,04


5 Wood products and furniture -0,56 6,04 6,59


2 Mining 1,49 5,27 3,79



3 Food, beverages, tobacco -0,74 1,68 2,42

8 Industrial chemicals, rubber and plastic products-2,38 -0,08 2,30



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

mikuláš luptáčik martin lábaj department of economic policy university of economics in...

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