Efficiency, Not Effectiveness, Leads to Effective Turn-Around
Save 40% when upgrading to Creative Cloud : For existing CS3 or later customers
More Efficient Workers May Be Europe’s Light at the End of the Tunnel
Led by Manufacturing, Productivity is Up and Costs are Down for the Weakest Economies — Is this the Start of a More Competitive and Balanced Europe?
NEW YORK, July 30, 2012 /PRNewswire/ — Amid continued economic, financial, and political turmoil, several E.U. countries are seeing improvement in a crucial measure of competitiveness.
According to a new Executive Action Report from The Conference Board, the cost of labor per unit of output has fallen significantly in a number of the hardest-hit economies, led by Ireland and Eastern Europe.
For the Euro Area, controlling unit labor cost (ULC) — defined as nominal labor compensation per unit of real output —may be key to redressing the competitive unbalance between core and periphery that has haunted a continent and fueled four years of recurring crisis.
Bart van Ark, The Conference Board Chief Economist and co-author of the report
“A drop in unit labor cost is an important sign of the beginning of adjustments in Europe’s most trouble economies.
“For now it is mainly the reduction in wages which leads the adjustments, but once productivity begins to increase as well, it could be the key to a more sustainable recovery.
“Since states within the Euro Area cannot devalue their currencies or dictate interest rates, boosting ULC and, thus, competitiveness relative to other members of the zone can only come about through real changes in worker efficiency.”
France, Germany, Austria, Ireland, U.K. Could Be Leading the Recovery in Competitiveness
There are early signs that the rebalancing through unit labor cost adjustments is under way.
While France, Germany, Austria, and other relatively strong continental economies have pursued social welfare policies to limit unemployment during the downturn — thereby reducing productivity and increasing unit labor costs — countries with more flexible labor markets in the “Anglo-Saxon” model have been able to make faster adjustments.
Ireland lowered its ULC by 5.3 percent between 2008 and 2011, a success only rivaled by less mature Eastern European countries such as Hungary, Latvia, and Lithuania, which still retain their own currencies.
Elsewhere outside the Euro Area, ULC in the U.K. has fallen by 3.6 percent — the sharpest decline of any large economy.
Greece, Portugal, Italy Battling Still Labor Costs
In the most troubled European economies of Greece, Portugal, and Italy, a tradition of rigid labor markets kept unit labor costs rising through the early years of the crisis.
Continued weakness and deepening austerity measures, however, have recently pushed them towards turning points suggesting a strong reduction in costs and faster efficiency gains compared to the Euro Area’s northern core.
In Greece, ULC rose by 4.4 percent overall between 2008 and 2011, but fell by more than 5 percent from 2010 to 2011.
With its large contingent of flexible part-time workers, Spain is further along; Spanish ULC fell 4.4 percent between 2008 and 2011.
Across the Euro Area, unit labor costs in manufacturing have fallen by 3.9 percent in the past two years, after rising at the outset of the crisis.
Cost Per Unit of Output is Critical
Because of the rapid shifts in unit labor cost in recent years, the German manufacturing sector has become less competitive in terms of cost per unit of output relative to the manufacturing in many other European economies — again, led by Ireland, Eastern Europe, and the United Kingdom.
Dramatic reductions in workforce and compensation have propelled British firms ahead of formerly more cost-competitive French, German, and Italian rivals.
Meanwhile, Ireland is now Europe’s most efficient manufacturing economy by far, ahead of even low-wage off-shoring destinations like Poland.
Labor Intensive Sectors Still A Heavy Weight
In contrast to manufacturing, the service sector — which is more labor-intensive with output largely composed of non-tradables — remains a weak performer across Europe.
Only Spain and the United Kingdom have managed to substantially lower unit labor costs in the services sector.
With output falling faster than workforce or wages can be cut, Germany, France, Greece, and Ireland all saw significant ULC increases in services.
The remarkable 41.5 percent decline in Irish ULC for manufacturing was largely offset by a 26.4 percent ULC increase in services.
The Euro Area Not Seen as A Safe Haven for Trouble Economies
Given the significant private and public sacrifices needed to bring down unit labor costs against an over-strong currency, an exit from the Euro Area altogether has become a tempting option for the most troubled economies.
To test the consequences of a Euro Area exit, The Conference Board modeled the impact that regaining a national currency — and independent monetary policy — would have on unit labor costs in a country like Greece compared with alternative scenarios.
Bert Colijn, labor market economist for The Conference Board Europe and co-author of the report
“The huge devaluation following an exit from the Euro Area would certainly boost competitiveness in the first year or two.
“But these effects would quickly evaporate, as the subsequent recovery in labor compensation in the medium- to long-term outpaces GDP growth.
“Hollowing out labor costs can only do so much. Lasting competitiveness gains must ultimately come from the productivity side of the unit cost labor equation.
“For this reason, we found that neither a troubled economy nor the Euro Area as a whole is likely to benefit in the long run from a unilateral exit, or a wider breakup, or the status quo of muddling through.
“Ultimately, the best outcome for competitiveness is achieved with greater fiscal integration, including a banking union and Eurobonds, that will encourage the sort of investment needed for productivity, innovation, and competitiveness that is substantive and sustainable.”
For complete details:
Report: Despite the Chaos, Europe’s Economies Are Gaining Competitiveness though Improvements in Unit Labor Cost Performance
By Bert Colijn and Bart van Ark
About the Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org
SOURCE The Conference Board
CONTACT: Peter Tulupman, +1-(212) 339-0231 / firstname.lastname@example.org
Web Site: http://www.conference-board.org
More articles by Press Releases...
- Can Mobile Devices Can Be More Secure than PCs? Yes, Here's Why... - 17-May-2013
- Top 10 Global Economies: How Costly Is A Hiring Mistake? - 17-May-2013
- Dow HRO Services Launched Successfully in Asia - 16-May-2013
- 14-Point Roadmap for "Improving Diverse Representation in the Boardroom" - 15-May-2013
- CXOs: You Can Now Strategically Manage Technology Investments - 15-May-2013
- CedarCrestone 2013–14 HR Systems Survey Now Open - 14-May-2013
- SMBs Struggling with PPACA, ADP Has A Webinar for You! - 13-May-2013
- Vendors: Have HRIS Customers But Not Sure What They Want? - 13-May-2013
- Athens, LinkedIn, Altimeter Group - What's Going On 16-May? - 13-May-2013
- Call for Presentations : IHRIM's Workforce Analytics Forum - 10-May-2013
To leave comments, you will need to sign in or register with facebook. To have your comments posted to your own facebook wall, be sure to click the 'Post to Profile' box. To minimize spam, all comments require admin approval before they will be displayed.
Benefits for Registering with The HRIS World
Using our registration option will allow you to receive our latest articles via email (you can opt out at any time) -- either allposts or posts for specific blogs.
|5 Common Hiring Mistakes
Read more about these mistakes, and how to avoid them in this whitepaper.
Podcasts - all articles
Kindle - all blogs
RSS feeds - by blog
Some More Information for You...
For the latest video briefs, check out any of our 50+ playlists on our YouTube channel...ADP : Brasil IT : Brasil IT-BPO : Ceridian : Cloud Computing : Epicor : HR Tech Europe : HR Technology Conference: IHRIM : Insight UK : Intel : Kenexa : Kronos : Mobile News : OpenText : Oracle : PeopleSoft : SAGE : SAP : SHRM : Success Magazine : Taleo : TechnoFunc : TowersWatson
You will also find our Microsoft and Microsoft Office 2010 YouTube video playlists helpful with your learning...Microsoft : Microsoft Office : 365 : Access : Excel : Lync : OneNote : Outlook : PowerPoint : Web Apps : Word : Microsoft Windows phone : Publisher : Project : SharePoint Workspace : Visio
AND NOW - Previews to Microsoft Office 2013 and Microsoft Office 2013 Applications!!!Microsoft : Microsoft Office : Access : Excel : OneNote : Outlook : PowerPoint : Web Apps : Word : Microsoft Windows phone : Publisher : Project : SharePoint : Visio