Unit labor costs have fallen significantly in deficit countries since they began adjustment. There have been no output gains except in Ireland, which reflects general collapse of the euro area. The reallocation of resources from the nontradables to the stronger tradable sectors would stimulate the overall economy to help it reach full employment.
Unit labor costs have fallen significantly in deficit countries since they began adjustment. There have been no output gains except in Ireland, which reflects general collapse of the euro area. The reallocation of resources from the nontradables to the stronger tradable sectors would stimulate the overall economy to help it reach full employment.
Unit labor costs have fallen significantly in deficit countries since they began adjustment. There have been no output gains except in Ireland, which reflects general collapse of the euro area. The reallocation of resources from the nontradables to the stronger tradable sectors would stimulate the overall economy to help it reach full employment.
the competitiveness and health of the external sector (external balance), while the reallocation of resources from the nontradables to the stronger tradables sectors would stimulate the overall economy to help it reach full employment (internal balance). In monetary unions that are also organized as banking and fiscal unions (unlike the euro area currently), greater risk sharing also mitigates the impact of current account imbalances among member countries on macroeconomic and financial stability.
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Progress in reducing the relative prices of nontradable and tradable goods2
Some adjustment has occurred through a lowering of costs (Figure 1.3.1, panel 4). Unit labor costs have fallen significantly in deficit countries since they began adjustment, with more substantial adjustments in countries such as Greece and Ireland, on the back of both productivity gains (as labor shedding generally exceeded the decline in output) and wage declines (Figure 1.3.2). During this period, overall unit labor costs in Germany increased moderately, which helps rebalancing (Figure 1.3.1, panels 5 and 6). In terms of the reallocation of resources between sectors, the dynamics of adjustment show significant variation among deficit countries (Figure 1.3.1, panels 7 and 8). Ireland, where unit labor costs started to decline in both the tradables and nontradables sectors earlier than in the other euro area members, has begun to experience a recovery of output in the tradables sector, but it has not yet led to improved wages and employment (Figure 1.3.2, panels 1 and 2). In Portugal and Spain, output fell in the recent period and employment has continued to decline, with little in the way of wage cuts until recently (Figure 1.3.2, panels 36). In Greece, adjustments are being made through wage cuts and labor shedding in the absence of output recovery (Figure 1.3.2, panels 7 and 8). Overall, there have been no output gains except in Ireland, which reflects in part the general collapse of domestic demand in the euro area, and employment remains below precrisis levels in both the tradables and nontradables sectors.