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International Differences in Manufacturing Unit Labour Costs

Published online by Cambridge University Press:  26 March 2020

Mary O'Mahony
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Abstract

This article presents measures o f competitiveness in manufacturing comparing Britain to Germany, France and the United States. Data from the National Accounts and the Census of Production are combined to derive new estimates of relative unit labour costs for a number of manufacturing industries. The results show that British manufacturing had a competitive advantage over Germany and France in 1993. This arose primarily from the devaluation of Sterling and followed a period, from 1989 to 1992, when unit labour costs in British manufacturing were generally close to those in Germany and France. Unit labour costs in American manufacturing, however, were considerably lower than in the European countries in 1993. The results by industry show that Britain performs relatively poorly in much of the engineering sector while being relatively more competitive in consumer goods industries. Over time changes in the market exchange rates and nominal wage inflation have large impacts on the relative competitive position of total manufacturing in the four countries whereas productivity growth plays a minor role. However, at the industry level productivity growth is important. In the face of similar movements in relative nominal wages across industries, differences in productivity performance distinguish those British industries which gained ground over their rivals abroad from those whose competitive position worsened.

Type
Articles
Information
National Institute Economic Review , Volume 154 , November 1995 , pp. 85 - 110
Copyright
Copyright © 1995 National Institute of Economic and Social Research

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Footnotes

∗

This study was financed by a grant from The Department of Trade and Industry who bear no responsibility for the conclusions or any errors. I would like to thank Bart van Ark for supplying some of the data and for comments on an earlier draft. Helpful comments were also received from economists in the DTI, in particular, David Higham, Ray Barrell, Stephen Broadberry, Nicholas Oulton and colleagues at the National Institute.

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