Compositional effects on productivity, labour cost and export adjustments Post author By Philip Lane Post date June 22, 2012 Zsolt Darvas at Bruegel has a new paper on this topic – available here. Categories In Uncategorized 11 Comments on Compositional effects on productivity, labour cost and export adjustments ← Ronan McCrea: EU reforms call for new approach to referendums → On the efficacy of internal devaluations: questions I would ask Zsolt Darvas in a seminar 11 replies on “Compositional effects on productivity, labour cost and export adjustments” Will get around to perusing those ‘interpretations’ … … on the labour-capital relation. Ta. Interesting (albeit technical study) of possible low cost electrification of community rail branch lines in the UK. Google : Low Cost Electrification for Branch Lines. July 2010 … DeltaRailES2010003 Issue 1 for the PDF report….see section 15 for the 2 case studies. One of these two examples is the scenic Looe valley line in Cornwall en.wikipedia.org/wiki/Looe_Valley_Line Notice the very large increase in passenger numbers over the last few years which is a characteristic of English community branch lines of this nature With Looe station (terminus) exceeding 100,000+ passengers for the first time.(2010/2011) en.wikipedia.org/wiki/Looe_railway_station Now the EU mandarins in Brussels are wondering why the British local train model is a success and european rural branch lines mostly empty ! http://www.therailengineer.com/2012/06/20/uk-railways-value-for-money The rail engineer mag gives various complex reasons for this …..while their Blitz culture plays a part in all this, the Monetary envoirment is not understood by most engineers. The discrepancy is almost entirely because of the different monetary envoirment withen the UK ,although the population density down south plays a part. If the French were using the Franc again their X73500 local railcar type operations would be making a profit and investment would flow to more local services rather then to high speed stuff. Instead it flows to high speed as only the rich have suffiecent medium of exchange withen the eurozone and can therefore afford the higher cost of the LGV high speed line tickets. (the poor and indeed the lower middle class people withen France simply do not have enough money tokens in their pockets to buy regular regional train tickets despite generous fiscal subsidies for public transport.) i.e.if you don’t have the money you are not going to buy half price tickets PS – The ownership is of no direct day to day consequence although it does have long term capital transfer effects (taxpayer money flowing towards non state actors) Indeed SNCF service is far better service when compared to most private rail companies in the UK with a few exceptions such as Scotrail and some others. However these community branch lines typically take advantage of second hand equipment which would be retired by state run companies such as Northern Irish rail recent retirement and destruction of its thumper DMUs en.wikipedia.org/wiki/NIR_Class_450 And use single car rail cars during the quiet Winter months….. i.e. they make the best use of scarce resourses. A new Ross rail service would have a similar mixed tourist / commute passenger numbers i.e. 1 railcar in Winter / 2 in summer but yee lads just don’t get it over here. Irish thoughts have become clouded by a weird credit opium haze since the EU nightmare began many years ago. Looe town has a population of 5000+ en.wikipedia.org/wiki/Looe while New Ross has a population of 8000+ en.wikipedia.org/wiki/New_Ross Nothing of consequence will be solved unless we eject from this monetary cage of our own making as it prevents efficient use of domestic resourses so that we can buy external mercantile goodies. Other strange facts…………. Why is the Vauxhall brand one of the most popular new Cars in Northern Ireland ? Is it because Vauxhall is such a Great car or is it because Northern Ireland is integrated both from both a fiscal and monetary perspective to the UK ? (And also Ellesmere is not too far away from this market…….car manufactures have expressed a preference to be closer to their markets recently as input and distribution costs rise.) “In May 2012, GM announced plans to move much of the production of Astra vehicles from mainland Europe to the UK. The company announced it would invest £125 million in the Ellesmere Port factory and spend about £1bn in the UK component sector” Hmmm – must buy that skoda fabia greenline soon Northern Irish new car regs per quarter Oct – Dec 2011 : Vauxhall 13% (919) Ford 12% (817) Volks 9% (594) July -Sep 2011 : Vauxhall 11% (1,348) Ford 11% (1,335) Nissan 9% (1,086) April – June : Ford 12% (1,430) Vauxhall 11% (1,278) Volks 10% (1,165) Jan -March : Ford 11% (1,902) Vauxhall (1,735) Volks (1,460) We are in the midst of a deglobalization event as given the now higher raw material input costs this relocalisation makes some sense. Our Euro boys are resisting this however as the Euro club was meant to be the new Market state thing. Will the old Ford maxim win out ? pay them wages and they will buy stuff or will be market state mantra win again …give them credit and they will buy stuff and we can also earn interest off the arbitrage. Who really knows. Interesting times. The Irish manufacturing industry is dominated by multinational firms. Therefore, transfer pricing within a multinational group may have a decisive impact on reported added value and one cannot exclude the hypothesis that the accounting practices of multinationals have changed since 2008. If that is an important factor, then the reported constant price figures do not really measure the true volume developments. All in all, the pharmaceutical and chemical industries are the only sectors driving up Irish productivity, and since the pharmaceutical industry is highly capital-intensive, it is not surprising that the compositional effect is very large in Ireland. Sales of foreign owned firms in the Irish chemical sector grew from €21bn in 2001 to €40bn in 2010 – – 7.3% per annum and 10% in 2009/2010. Sales per employee more than doubled from €954,000 to €1.967m – – 8.4% per annum and 15% in 2009/2010 according to Forfás. Another miracle for believers in leprechauns? Note the rise in the per employee sales output in 2009/2010. So a big jump in headline sales has been achieved without any rise in jobs. This is conjured up by branding wholesale trade as ‘industrial production’; some limited production such as packaging, and profitshifting. Adding in medical instruments, exports of chemicals/pharmaceuticals/medical instruments at €27.4bn in 2000 rose to €56.4bn in 2011 in current price terms – – rising from 34% of goods exports (balance of payments basis) to 66%, while about 2,000 jobs were added in the sector over the twelve-year period, to a level of 39,000. Pfizer Ireland (post its takeover of Wyeth) is Ireland’s biggest exporter and is owned by a Dutch limited partnership. Microsoft had a global revenue per employee of $777,140 in fiscal 2011 and $27m in Ireland; Google had a global revenue per employee in fiscal 2010 of $1.33m and $8.52m in Ireland. Overall Irish productivity/unit labour cost data is bunk. It should also be said that in the US, reported productivity in manufacturing usually rises when some jobs are offshored. http://www.finfacts.ie/irishfinancenews/article_1024185.shtml A very worthwhile paper though I cannot claim to understand it all. Table 1 makes very interesting reading for those who wish to know just how much higher compensation is in Ireland versus the EU 27. No need to guess which sectors stand out in that analysis. However the compositional effects on labour rates may hide two very important effects of the crisis on labour rates in Ireland. I would refer to these as the ‘Institutional’ effect and the ‘Protected Sector’ effect. The Institutional Effect It is invariably the guy at the bottom of the ladder that gets it in the neck in recessionary times. whether in the public or private sector. The top brass and other well hidden brass often escape the first and second clear outs. This institutional effect, with temporary and contract workers on low pay being the first to be laid off will have had a significant impact on raising the unit labour cost in Ireland. Having witnessed it at first hand over many years, its effect is not insignificant. The Protected Sector Effect: As we all know, better paid people in many sectors protected by govt are still intact. Bank staff are still in situ, doing very nicely while awaiting their redundancy pay-offs. ESB and energy sector workers have suffered little negative gross pay effect and of course PS staff even in 2010 were still doing best of all when compared to the EU 27. All areas under the direct remit of govt. @Joseph You are trying to square the Euro circle – the debate always comes down to who we crucify next………the inbuilt design of the Euro is flawed in a free floating world. Meanwhile the lack of fiscal production in the UK means it remains a Industrial anachronism…….with little investment flowing to its one domestic growth Industry , its railways. The flow is now ready to overflow these 19th century investments. Europe is a sick bankers Joke. In the case of Poland …when it “grows” less coal is available to export…….the costs of its neighbours inputs rise…..demand destruction follows. Europe is a zero sum game folks – it was designed that way. Any real effort to increase the base productivity of a country increases its debt load because of article 123……sucking the life force from that country and making any real efforts to increase productivity pointless. The oringinal model for the new Europe seems to be the Romanian loan debacle of the 70s and 80s. Loan the local dictator / elite some money for modern toys and then squeeze the bastards dry. No money for growth in Romania because money is believed to be debt in Europe en.wikipedia.org/wiki/Cernavodă_Nuclear_Power_Plant Its a bankers paradise. The object of the game is to “structurally adjust” Europe to the bankers whims….. in the past they controlled states which withheld technology from others unless exponential debt was paid such as the above example. Now the banks wish to jump ship from the nation state entirely using the very sick European Experiment as their new vehicle of choice. Labour arbitrage seems to be a part of this Astra /Ellesmere thingy it seems but me thinks its a further belief that Sterling will devalue as it oil runs out is a bigger strategic consideration for zee Germans behind this Industrial curtain. http://www.bbc.co.uk/news/business-18098657 Or is the American Germans , or the German Americans ? Who really knows with this car Industry thingy. Lets now go there…… many dark places ….. too many skeletons in the closet. Duh! When I read any economic commentary which uses terms like “painful downward adjustment” (or similar) I usually stop reading. What is it about some economists that they seem totally disconnected from reality (folk need some minimal level income to live)? Ah! I know, they are completely clueless about how a ‘real’ economy (real folk, physical stuff and lotsa energy) actually works. Seriously! If you pseudo-economists want an object lesson in how a real economy actually does work read up on some intermediary metabolism: The Beta Oxidation Cycle would be a good place to start. Then move back someways to see how the stored tri-acylglyceride (that’s biochemical liquid hydrocarbon fuel by the way) is ‘mobilized’. The ‘bad’ news is the process is only about 40% effective in energy utilization – and that’s after 2 billion years of evolutionary development!!! The article is well put together, nice (if fussy) graphs, usefully academical. Period. The folk in the dole queues don’t give a s**te about this sort of stuff. Comments are closed.