Competitiveness Disparities Behind the Economic Crisis in the Euro Area

Rantala Olavi

Abstract

The euro area economic crisis is largely a result of the competitiveness disparity between Germany and the rest of the euro area. The wage moderation in Germany has considerably improved its competitiveness in relation to the rest of the euro area. Wage policy has been deflationary in Germany in the 2000s in the sense that real wage growth has fallen below labour productivity growth. In the rest of the euro area wage policy has been inflationary since real wage growth has exceeded labour productivity growth. The input-output price model implies that due to the lower wage inflation the unit cost of production in industry has grown much less in Germany than in the rest of the euro area. Restoring competitiveness necessitates a clear wage inflation halt in the rest of the euro area in the coming years.

Information om publikationen

Serie
ETLA Raportit - Reports 23
Datum
01.04.2014
Nyckelord
Euro crisis, Competitiveness
ISSN
2323-2447, 2323-2455 (Pdf)
JEL
C67, E64, F16
Sidor
28
Språk
Finska