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• W972943485 abstract "The analysis in this paper shows that while India's unit labour costs in organised manufacturing displays a clear upward trend since 1980 with a decline since the early 2000s, this is exclusively the result of the increase in the price deflator used to calculate the ulc. The labour share in value added of India's organised manufacturing sector has been on a downward trend, from 0.6 in 1980 to 0.26 in 2007. The study also finds that real wages have increased minimally during the period analysed - well below labour productivity - while the real profit rate and unit capital costs have increased substantially. The analysis questions policy recommendations that advocate wage moderation, which result from simply looking at the evolution of the ulc, and that blame the loss of competitiveness on high or increasing wages. nit labour costs (ULC) are a commonly used measure to analyse the competitiveness of a country or a sector. They are defined as the cost of labour (labour compensation) per unit of output. Standard analyses, following the comparative cost theory, often lead to statements such as: Countries with a lower level of ULC (unit labour cost) relative to other countries may be regarded as competitive (Erumban 2009: 40). The policy implication is that growing ULC (in particular vis-a-vis those of the competitors) harm the economy. India's ULC in the organised manufacturing sector displays an upward trend. In this paper, we reinterpret this evidence and as a consequence, question standard policy implications. We show that ULC are always the product of the labour share in output times a price adjustment. Therefore, it embodies the functional distribution of income between labour and capital. This cannot be neglected in normative statements. Our analysis has impor- tant implications for policies that promote lower wages to lower ULC, as they effectively lower the labour share and tilt the distri- bution of income towards capital, which has economic conse- quences. We also show that (aggregate) ULC is not just a weighted sum of the firms' unit labour costs. The rest of the paper is organised as follows. Section 2 dis- cusses the concept of ULC and how it is calculated. In Section 3, we relate ULC to the functional distribution of income. Section 4 discusses the aggregation of firm-level ULC into an aggregate. Section 5 shows how ULC have evolved in India. We use data from India's organised manufacturing sector and show that while India's ULC displays a clear upward trend since 1980 (with a decline since the early 2000s), this is exclusively the result of the increase in the price deflator used to calculate the ULC. The share of labour (in the total value added) of India's organised manufacturing sector has been on a downward trend since 1980, from 0.6 (60% of gross domestic product (GDP)) in 1980 to 0.26 (or 26%) in 2007. This means that the sector's capital share increased from 0.4 (or 40%) to almost 0.74 (or 74%) over the same period. We also find that real wages have increased mini - mally, much less than labour productivity, and that the profit rate and unit capital costs have increased substantially. Section 6 concludes the analysis." @default.
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• W972943485 date "2011-01-01" @default.
• W972943485 modified "2023-09-27" @default.
• W972943485 title "Unit Labour Costs as a Tool for Competitiveness and Policy Analysis: A Reassessment" @default.
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