Title: Reassessing competitiveness at the sectoral level: A new unit labor cost indicator based on value-added chains
Authors: Martyna Marczak - University of Hohenheim (Germany) [presenting]
Thomas Beissinger - University of Hohenheim (Germany)
Abstract: A new international competitiveness measure at the sectoral level is proposed that is based on unit labor costs and takes into account value added chains. Our cost-based indicator is more suitable than often employed export price-based indicators if firms employ a pricing-to-market strategy. Since in modern economies with strong intersectoral linkages a sectors total costs to a large extent depend on costs of inputs from other industries, we incorporate these linkages to obtain the so-called embedded labor costs. More specifically, they are given by a weighted average of unit labor costs of all domestic sectors contributing to the output of a specific sector, where the contribution of each domestic sector is derived from international input-output tables. We justify this sectoral competitiveness measure with a simple Leontief-type model. As an example, we calculate this measure for German sectors and show that, compared to standard competitiveness measures, it more clearly reflects the often stated argument that German manufacturing industries experienced a significant increase in competitiveness since the 90's.