Browsing by Subject "productivity and cost decompositions"

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  • Kovanen, Jukka (Helsingfors universitet, 2017)
    Unit labor costs have been a widely discussed topic in Finland as well as all around the world. Technically unit labor costs are calculated by a simple ratio of labor costs and output. There is a large divergency of opinion about how consistent measurement unit labor costs are for competitiveness of an economy or an industry, for example. There is no unambiguous answer how to measure cost competitiveness of a country or an industry and one should keep in mind what the unit labor costs do not measure. Also, it is two different cases to observe nominal or real unit labor costs. In the former denominator is in units of measurements, like meters or units, and in the latter is deflated by current prices. Also there is a difference in observation of development within the firms versus on the aggregate level. In the thesis the unit labor costs of Finnish industrial production are calculated from the firm specific micro data. Also, the part of the structural change and development within firms by decompositions is estimated based on microdata. Furthermore, markup of the firms is estimated by comparing price development to marginal costs of the firms, to this end there are estimated an industry specific production function, by using some micro econometric methods like fixed effects – regression. According to the results obtained the unit labor costs have increased by about two per cents in annual growth rates between 2007 and 2016. There has been lot of fluctuation in the development, especially in the beginning of the observation period. The unit labor costs increased a lot because of drop of the production caused by recession. During the following two years they decreased a little bit. After that the development has been steadier. The decomposition into the structural and within firms effect tells that the major part of the fluctuation were driven by the changes within the firms, when the structural effect was the driver of the moderate but steady increase and being actually more remarkable explainer of the annual growth rates. The markup within industrial firms decreased a little bit during the observation period. Although, should be pointed out that there is some uncertainty in production function estimates and firm specific prices and consequently markup estimates are suggestive.