...most of the stressed euro area countries have made remarkable progress in gaining competitiveness. Over the past five years, the cumulative unit labour cost differential vis-à-vis the euro area have fallen by more than 20 percentage points in Ireland, around 15 percentage points in Greece and Spain, and almost 10 percentage points in Portugal. This was accompanied by substantial improvements in the export dynamics of these countries.This narrative is illustrated with charts like this one:
NULC = (labour compensation/GDP) * price index * correction for self-employment
For simplicity's sake, let's ignore the last term, and call the first term "labour's portion," meaning the portion of value-added that goes to labour, rather than profits. So the formula becomes
NULC = labour's portion * price indexIn the presence of inflation, all a rising NULC means labour's portion is not falling as fast as inflation is rising. It does not necessarily mean that wage gains are outstripping inflation, productivity, or anything like that. The chart below is based on exactly the same underlying data as the first chart (including the same correction for self-employment), but without the effects of inflation.
|Source; I assumed no change from 1999-2000 in Greece due to missing data.|
So, the differences in NULC reflect to some extent slower redistribution of value-added away from employees in Portugal, Italy, Ireland, and Greece than in Germany, but mostly national differences in inflation. And at a first glance, it's hard to make the case that these national differences in inflation themselves stem from excessive worker bargaining power outside of Germany. I'm still a neophyte in working with these figures, but this seems to me to be a problem for the position often taken by political scientists that NULC outcomes reflect institutional differences across the Eurozone. For instance, Peter Hall claims that "industrial relations institutions promote the co-ordinated wage bargaining that can be used to hold down labour costs."
In any event, the NULC these days has become the de facto operationalisation of "competitiveness" for the ECB and dominant elite Eurozone opinion. On this definition, "become more competitive" translates into "labour should be receiving a smaller portion of value-added." Promotion of competitiveness has become class struggle (or distributional struggle, if you prefer) by another name. Promotion of competitiveness so defined is also identical to suppression of domestic demand, worsening the problem of the Eurozone's missing demand model.