Academic journal article Monthly Labor Review

Manufacturing Prices, Productivity, and Labor Costs in Five Economies

Academic journal article Monthly Labor Review

Manufacturing Prices, Productivity, and Labor Costs in Five Economies

Article excerpt

Over the past decade, there have been significant changes in the competitive performance of the world's main industrial nations. Following a massive restructuring in many industries, U.S. manufacturing has shown a strong recovery from the slowdown in output and productivity growth that occurred during the 1970's. For manufacturing as a whole, the United States has clearly maintained its position as a leader in terms of the level of productivity during the 1980's and early 1990's. Since the mid 1980's, the U.S. export volume of manufactured products also has increased rapidly and the Nation's current account position has improved.

During the 1970's and 1980's, the Japanese share of world output increased sharply in several industries, and productivity levels in Japan rose rapidly, especially in investment goods industries. However, the Japanese economy currently faces a need for major restructuring, following a slowdown in domestic demand and a continuous appreciation of the yen. At the same time, the Japanese domestic market continues to be strongly protected against the potential exports of other nations.

The competitive performance of European countries has been diverse. During the 1980's, Germany(1) lost some of its edge in several manufacturing industries. Compared to Germany, France and the United Kingdom experienced a faster rise in productivity and a slower increase in labor cost. German manufactured exports have also grown more slowly than those of France and the United Kingdom since the mid-1980's.

In addition to the changes in competitiveness among themselves, all advanced industrial nations have experienced increasing competitive pressure from traditionally low income countries, in particular from countries in East and South East Asia and Latin America, which have made substantial progress in raising productivity levels over the past two decades.

This article discusses the 1970-93 performance of the major industrial nations in terms of four measures of competitiveness. (See table 1.) All four measures are directly related to each other. The estimates of relative price levels represent the average ratio of producer prices of each country to those of the United States, divided by the currency exchange rate. Value added per hour worked is compared by expressing the output of each country in U.S. dollars using producer price (or "unit value") ratios (UVR's). Labor compensation is compared on the basis of the exchange rate. Unit labor cost represents the ratio of relative labor cost to the comparative productivity levels.

An overview

Table 1 shows that although the United States had substantially higher productivity levels than did Germany, Japan, France and Great Britain, the latter countries were more competitive in terms of prices and unit labor costs in 1970. Between 1970 and 1980, the relative productivity performance of 3 of these 4 "follower" countries (the United Kingdom is excluded) improved significantly. By 1980, France and Germany strongly challenged the U.S. productivity leadership position, and in some major branches such as machinery and equipment manufacturing (in both countries) and chemicals (in Germany), productivity levels were even higher than in the United States by that time.

Table 1. Indexes of manufacturing price levels, labor productivity, and

unit labor costs, selected years, 1970-93

[U.S.=100]

Country pair and
  measure                1970  1975   1980   1985   1990   1993(P)
France-United States
Relative producer price
  level                  68.8 102.3  117.8   72.8   129.5 (1)133.9
Value added per hour
  worked                 73.3  78.5   89.8   89.8    91.3     87.8
Labor cost per hour      48.4  86.9  110.5   69.9   117.8    111.3
Unit labor costs         66.0 110.6  123.1   77.8   129.1    126.9
Germany-United States
Relative producer price
  level                  65.7  96.8  113.2   70.1   132. … 
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