2014.05.20_OECD-ECLAC-PSE Forum_ragot
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This document discusses the impact of global changes and shocks on European labor markets and production sectors. It analyzes factors like unit labor costs, wages, productivity, and interest rates that contributed to economic divergence following the German reunification and Eurozone crises. The author argues that price and wage rigidities in labor markets anchored imbalances, while financial sectors absorbed some impacts. Market forces magnified the effects. The author advocates for policies like fiscal devaluation, wage moderation, industrial support, and a new view of the relationship between states and markets to help economies converge.
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2014.05.20_OECD-ECLAC-PSE Forum_ragot
- 1. Global Change, labourmarket and the Sectoral Structure of Production Xavier Ragot Paris School of Economics, CNRS II - Latin America Economic Forum, May, 2014
- 2. Introduction Recent Europeanhistory. Histories of two big shocks : German reuni…cation and euro zone. Inertia in price formation : real divergence. Now (after 2007) helping economies to converge with constrained …scal tools : Industrial policy
- 3. Diagnosis (1/4): WeightedUnit Labor Cost Source Dustman et al. JEP. The euro exchange rate is only part of the solution.
- 4. Diagnosis (2/4): Unitlabor cost service sector
- 5. Diagnosis (3/4): wageand productivity Verdugo (2013) on …rm level data.
- 6. Diagnosis (4/4): RealInterest rate In‡ation 1 or 2% higher in Spain Italy, France or Germany. Diverging real interest rate.
- 7. E¤ect on theproduction Sector (1/3) Technology
- 8. E¤ect on theproduction Sector (3/3) Pro…t rate by size 217 big …rms (5000+): 60% of R&D, 50% of exports.
- 9. A Summary Exogenousshock to prices : only nominal interest rates converged. Production sector moves slowly. Real/Nominal wage rigidities : the labor market is the anchor. Financial sector (housing) absorbed imbalances. Market forces magni…ed imbalances.
- 10. Policy implications 1Prices Fiscal devaluation : CICE, and tax cut on social contribution 1.5% of GDP wage moderation : labor market institutions.are key. 2 Industrial policy: sectoral aid ? (but WTO). R&D, and productivity gains is not the answer Save …rms in the transition : defensiev industrial policy. (Competition policy?) 3 New thinking of State and Markets : di¤erent from Keynesian short-run view and "structural reform". 4 We need social constructivism : The political economy is key.