Mikuláš Luptáčik Martin Lábaj Department of Economic Policy University of Economics in Bratislava June 8, 2012 Bratislava 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.

 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

* Without petroleum and coal products

Price-to-Price Multipliers

 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