Tuesday, February 3, 2009

European Labor Productivity

Absolute Return Partners (via InvestorsInsight) dives into a topic I asked for reader help (and received a bunch of great comments) not too long ago... can the Euro survive? While the article goes into much greater detail about why the European Union is /isn't in trouble, the below portion details how a single currency removes the option for the "PIGS" (Portugal, Italy, Greece, and Spain) to devalue their currency to remain productive:

Since the introduction of the euro, the PIGS have failed miserably to keep up with Germany on this measure of competitiveness. So has Ireland by the way, hence its current predicament.
EU countries outside the euro zone, such as the UK, have also lost out to Germany in recent years, but the UK has been able to play a card which is not at the disposal of the euro zone members. That card is called devaluation. Whether by design or otherwise, the UK has received a massive boost to its competitiveness in recent months as a result of the sharp fall in the value of the pound. Italy used to play this card repeatedly back in the days of the Lira. So did countries like Denmark in the dark days of the 1970s.


  1. The x-axis should run through 100, otherwise it's horrible and misleading.

  2. I disagree. I am trying to show the various countries in the EU + the UK, against the EU average. Against an x-axis of 100 we would only see how relative they did with one another.

    By making the x-axis = to the EU average, one can more easily see how that countries "unit labor" has increased / decreased relative to the rest of Europe.

    The chart is pretty clear that Germany has become more productive with their labor than Italy for example... don't you think?

  3. Nice data, an effective presentation of how relative changes in productivity compare across the EU.

    Do you have any data on how labour costs compare on absolute terms? By this I'm asking for a comparison of actual wages in Germany versus those in Greece and Spain and others. While Germany has managed to hold down labour costs since 2000, could it be that Germany's labour costs are already higher than Spain or Greece's?

    From the labour perspective, it would be interesting to also look at the above numbers normalizing for each country's purchasing power.

  4. kosta- i like it. on the road, but should be able to pull this data when i get back in the office friday