This document analyzes competitiveness in the European Union by examining changes in unit labor costs over time in Germany, France, the UK, and Greece. It then focuses on how environmental regulations have impacted competitiveness in the paper industry. The key findings are: 1) Germany has had relatively stable and slowly increasing unit labor costs, maintaining competitiveness. France has seen larger increases in costs due to rigid labor laws. The UK's costs decreased due to currency control. Greece's costs dramatically fell during its financial crisis. 2) Studies show that environmental regulations modestly increase production costs for industries like paper but do not heavily impact overall competitiveness. While regulations incur compliance costs, they do not decrease competitiveness more than other

1. Competitiveness in the European Union
And
The Effects of Environmental Regulation on
Competitiveness in the Paper Industry
Politics and Economics of the European Union
Dr. Peter Mikek and Dr. Ethan Hollander
By Nash Jones

2. Abstract
Background:
This paper works under the understanding that firms belonging to states in an economic
union conform to similar standards and means of production. All member states of the EU must
comply with the European cap and trade pollution system that requires firms to purchase permits
that allow them to produce a certain number of tonnes of CO2. What we do not know is whether
or not these costs directly affect a firm’s competitiveness on the international market. This paper
uses Unit Labor Costs to first observe changes in competitiveness in Germany, France, Greece,
and the UK. It then focuses on the effects of the paper industry’s competitiveness and how it is
affected by environmental regulation.
Methods:
The analysis used in this paper involves graphs that measure changes in ULC over time
to determine changes in overall competitiveness, while also taking into consideration major
crises, such as the Greek Financial Crisis and the 2008 global recession. The case study section
of this paper uses an equation developed to help measure carbon output costs and compares these
costs to graphs measuring changes in ULC for paper manufacturing. Additionally, this paper
looks at prices of carbon output and compares them to actual paper production levels.
Conclusion:
The conclusion reached in this paper is that CO2 related permit costs do not heavily
affect competitiveness in the international paper market. While they do not improve competition,
as some theorists believe, it cannot be determined that they significantly increase ULC, which
would decrease competitiveness.

3. Introduction
The purpose of this paper is to measure and analyze trends in the competitiveness of
states in the European Union, while also determining the effects of environmental regulation on
their paper production industry. At its core, international competitiveness is how well a country’s
goods sell in comparison to the same goods from other countries. Two of the strongest factors
that impact international competitiveness are production and labor costs, and currency value.
Monetary policy, which controls the exchange rate, is something that only the European Central
Bank (ECB) can control, leaving corporations with primary control over labor costs. There are
also additional factors, such as environmental regulation, which can impact production costs,
driving costs up. Additionally, there is a great amount of debate as to how to actually lower
production costs. Labor costs can be measured by using Unit Labor Costs, which measure
productivity against cost of labor to determine the cost to the employer. This paper will first look
at the trends in competiveness in EU members states and compare them to see which states have
continued to be competitive and which ones have gone into decline. After that, I will present a
specific case study to determine whether or not costs resulting from environmental regulation
have a significant impact on ULC.
Literature Review
The European Commission frequently releases reports on competitiveness in member
states and select industrial sectors. In the Member States Competitiveness Report 2014, the
Commission released factors contributing to competitiveness improvement, as well as a list of
states who had improved or declined in competitiveness. The report for 2014 emphasizes
technological and policy innovation in order to compensate for increased energy cost and
hardships caused by the 2008 financial crisis (1). The official goal is to lower CO2 emissions by
2030 while also disconnecting high resource use and environmental harm from economic growth
(2). The section on increasing competitiveness informs us that Germany, the Netherlands,

4. Ireland and Denmark continue to have strong economic growth, while France, Belgium, the UK,
and others started off strong after the financial crisis, but have declined in the six years since then
(3). Strangely, it is the countries with stricter economic regulation that also have the strongest
economic growth. Even though the Netherlands, for example, has the highest level of
environmental taxes as a portion of their GDP—3.9% of GDP is from these taxes—they still
remain in the top tier of growth (4).
The European consulting firm ECORYS also frequently submits reports on the condition
of different industrial sectors in the EU. The Study on the Cost Competitiveness of European
Industry in the Globalisation Era – Empirical Evidence on the Basis of Labour Unit Costs at
Sectoral Level is broken down by country and industry and demonstrates the increase or decrease
over time of ULC. The report focuses on a loss of trade balance and jobs in the manufacturing
industries as the primary reason for loss of competitiveness (5). The graphs show that in many
states, the same industry will experience similar changes in ULC due to similar standards and
practices between states in that sector. The paper industry, as presented in the report, was an
industry which suffered a deterioration in competitiveness due to job loss and high price
elasticity, meaning that states that produced at a marginally lower cost could gain a significant
advantage over other states, both in the EU and outside of it.
From a theoretical standpoint, there are ideas that go against the traditional view that
environmental regulation only hinders competition. Dr. Michael Porter, in his essay Toward a
New Environmental-Competitiveness Relationship, proposes that efficient environmental
regulation actually helps competitiveness. He states that regulation will cause firms to adopt new
technologies that will make production more efficient, less costly, and ultimately likely to beat
competitor products in the international market (6). This is contradictory to the common belief
that regulation raises the cost of compliance, thereby decreasing competitiveness. According to
this theory, firms are actually losing out on potential profit by not developing green technology

5. to replace current environmentally harmful processes.
Some research has already been done in answering the question of whether or not
environmental regulation affects competitiveness. In a report titled The Implications for
Competitiveness of Environmental Regulations in the EU, David Hitchens concludes that
environmental policy has little real effect on competitiveness. While the cost of compliance is
not free, it is not particularly expensive. On the other hand, Hitchens disagrees with Porter’s
hypothesis in that green technologies rarely spur businesses on to be more efficient, and
generally just increase cost (7). Green technology will, however, have a positive effect on the
environment, which is usually not included in determining the overall benefit of new technology
and policy.
Analysis of Competitiveness
In order to have a fuller understanding of what determines competitiveness, it is
important to determine what unit of measure to use. For this paper, I will use Unit Labor Costs as
my unit of comparison and measurement, as opposed to other units of measure, such as the
Wage-Adjusted Labor ratio. Unit Labor Cost is a more effective unit for this study because
Wage-Adjusted ratio focuses on the value added adjusted for wage, while ULC focuses on total
costs and total output, which is closer to the real cost of production. Unit Labor Cost is
determined by dividing total labor costs by real output. An increase in Unit Labor Cost will mean
that a firm will be less competitive compared to a firm that produces the same product at the
same quality. I say “should” because of factors such as brand recognition and other variables that
cannot be accounted for using this measurement. For this paper, I will use a base year of 2005
when determining changes in Unit Labor Costs for countries in general, and a base year of 2010
when looking at the paper industry separately. This section of the paper will focus on trends in
competition in Germany, France, the UK, and Greece; how they compare to other EU states, and
what this could mean for the EU as a whole. Data was compiled from both World Bank data and

6. Eurostat’s economic database, along with information from the European Central Bank.
Germany
Germany continues to be one of the European Union’s most productive countries.
Germany’s GDP of $3.73 trillion USD makes it the fourth strongest economy in the world (8).
Within three years of the recession of 2008, Germany had returned to its pre-recession GDP level.
In terms of the World Bank’s Export Value statistics, Germany’s export value has increased
51% since 2000 (9). Germany’s top industries are automobile production, machinery, and
chemical supplies. Although Germany suffered during the recession, strong infrastructure and
conservative fiscal policy allowed them to recover more rapidly than the majority of EU states.
Fortunately for the rest of Europe, Germany has grudgingly allowed some of its cash reserves to
be used to help ease the financial crisis still being faced by weaker states. Low wages and
Germany’s pull in the ECB to keep inflation down has resulted in relatively low labor costs for
the economic powerhouse of the EU. As Figure 1 shows, Germany has had a slow upward trend
in Unit Labor Costs. This is partially due to lower than expected output from the German
(Figure 1: Graph of Unit of Labor Cost Change for Germany)
industrial sector (10). However, the potential for a raise in wages for the first time in a decade
y = 1.5383x + 95.319
R² = 0.8293
90
95
100
105
110
115
200520062007200820092010201120122013
ULC
Year
Germany
Germany
Linear (Germany)

7. could potentially increase, rather than decrease, the damage being done to Germany’s economy
unless these extra wages are being spent in the country on German goods. Germany has had
strong cost stability over the past decade at the expense of not raising wages, even as quantitative
easing begins to inflate the money supply. This is likely to have a positive effect on
competitiveness across Europe, as the now cheaper goods will be more easily sold abroad.
France
Unlike Germany, France has not had a strong recovery in the post- recession world. This
is heavily due to the rigidity of the French labor market, which is heavily union dominated and
borderline socialist. Harsh union regulations have proved harmful to French productivity and
overly beneficial to average worker wages and benefits (11). This ratio of low output and high
wages has caused the French industrial sector to become stagnant and increasingly uncompetitive.
Figure 2 shows France’s increase in Unit Labor Costs, while Figure 3 compares it to Germany’s
growth. While slight increases in worker wages can be beneficial to the economy, too dramatic
of an increase can result in a terrible imbalance, destroying competitiveness.
(Figure 2: French ULC Growth Graph)
y = 2.19x + 97.872
R² = 0.9811
90
95
100
105
110
115
120
2005 2006 2007 2008 2009 2010 2011 2012 2013
ULC
Year
France
France
Linear (France)

8. (Figure 3: German vs. French ULC Growth)
The rigidity of the labor market is particularly toxic to France’s return to stability. Even
with quantitative easing going into effect, French industries will not be able to effectively fix
their Unit Labor Costs without union reform. One particular instance, in which a Goodyear
Tires factory in France permanently closed, but was forced to continue to pay wages and benefits
to workers (who now no longer had to work) is a prime example of how the labor unions have
crippled the balance between productivity and payment (12). It is absolutely necessary that
companies be able to hire and lay off employees as necessary in order to create the appropriate
balance of workers to work. Otherwise, stagnant market sectors lose the ability to reform
according to demand, ultimately leading to the loss of a market for a state’s goods or services.
Unlike German firms, which are allowed to haggle with the unions in each sector of industry
over fair wages, French firms are bound by law and the courts to very strict standards regarding
unions that apply to all sectors of the economy. It is unlikely that under these conditions that
French competitiveness on the international market will improve. Instead, it is more probable
that French industries will continue to stagnate and decay under the weight of heavy labor
pressure.
0
20
40
60
80
100
120
140
2005 2006 2007 2008 2009 2010 2011 2012 2013
ULC
Year
Germany
France

9. United Kingdom
The United Kingdom is unique in that it is one of the few states to have a decrease in
Unit Labor Costs. This is due largely to also being one of the only EU states to have complete
control over its own monetary policy, thanks to its politically important position. Due to its
control over monetary policy, the United Kingdom has been able to deflate its currency, keeping
labor costs relatively low. In spite of relatively weak currency, the UK’s export sector has failed
to improve to the extent that was predicted shortly after the 2008 global recession. Exports have
fallen largely to decreases in demand and reductions in Foreign Direct Investment. This has
meant that output has been lower, and new investment has declined, resulting in an overall
increase in trade deficit. Figure 4 demonstrates the overall decrease in Unit Labor Costs, which
would lead many to believe, incorrectly, that the UK is becoming more cost efficient, even
as trade continues to fall. On a brighter note, the UK is increasing in relative competitiveness, as
the World Economic Forum ranked the UK as the 9th most competitive state in the world in its
2014-2015 report, a rank higher than in the 2013-2014 report.
(Figure 4: Change in UK ULC)
y = 0.6267x + 102.17
R² = 0.0803
90
95
100
105
110
115
2005 2006 2007 2008 2009 2010 2011 2012 2013
ULC
Years
UK
UK
Linear (UK)

10. Greece
Greece has been the poster child of European failure as of late. Austerity measures,
crippling debt, and an uncooperative attitude have left Greece in a dire economic situation. Even
with all of the cuts made to private consumption, state expenditure, and worker wages, the level
of debt incurred during the “Boom” phase has not been mitigated by restrictions after the bust
(13). Severe cost cuts have helped significantly lower Unit Labor Costs. In this instance,
however, this is not a sign of improved competition. If Greece had the ability to artificially
inflate its currency, it might be able to escape this destructive cycle. Direct investment by the
Greek government could be another way to improve industrial competitiveness and improve
wages. However, Greece has instead tried to pay down its national debt, which has neither made
a significant dent in the amount owed to other countries, nor has it improved the economy.
Greece still has a negative trade balance, which in this instance strongly indicates a lack of
improvement in the economy. Figure 5 shows the dramatic increase and then decline in Greek
Unit Labor Costs, a sign of the effects of the 2008 recession followed by harsh effects of
austerity.
y = 0.6267x + 102.17
R² = 0.0803
90
95
100
105
110
115
2005 2006 2007 2008 2009 2010 2011 2012 2013
ULC
years
Greece
Greece
Linear (Greece)

11. (Figure 5: Change in Greek Unit Labor Costs)
The industry that has been hit hardest by the recession is the Greek shipping industry.
The unemployment rate of sailors is among the highest of all of Greece’s service sectors, and
does not show signs of improvements. Related industries also suffer from a lack of
competitiveness, as they are more expensive than foreign competition (14). Recently, the Greek
parliament tried to remove tax privileges from the shipping industries and was greeted with
outrage by those concerned (15). Shipping is one of Greece’s largest industries, and has been
facing harsh competition since 2008, which resulted in other countries flooding the market with
new ships. Wages can only be cut so far before an industry becomes unsustainable, and Greece is
quickly approaching this point. It may have no other choice than to exit the shipping market and
reinvest in another sector.
Europe as a Whole
In general, we are seeing upward trends in Unit Labor Costs in Europe on the state level,
meaning lower levels of international competitiveness. There is no single factor contributing to
this decline in competitiveness, and no single solution that will solve its problems. The core EU
states mentioned previously suffered less significantly than the Baltic or former Yugoslav states
did. This is not a free pass though, as Europe continues to be in a declining position of power to
China in terms of trade and industry. The EU risks losing relevance and its position of power in
the world if it continues on this negative trend and could potentially lose much of its industry to
rising states. One major improvement would be to make labor markets less rigid, allowing them
to respond to the needs of supply and demand without having to go through the legal system.
Rigid labor markets harm competitiveness by driving labor costs up in terms of benefits and
wages, while simultaneously lowering productivity by limiting labor hours. This would apply
primarily to France, as Germany makes deals individually within sectors of the economy. At the
same time, Germany is one of the few EU states that have recovered and remained competitive

12. in the post-recession world.
(Figure 7: Comparison of Unit Labor Costs of EU states)
Europe seems to struggle not from lack of resources, or labor, or capital, but from a
hostile environment to business. In addition to labor problems stemming from unions, Europe
also has significant amount of government regulation that limits free market opportunities.
Environmental regulation, as we will see later, increases costs by forcing a cost of compliance in
maintaining waste disposal, emissions levels, and recycling issues. This paper will focus on
emissions. The EU did not decrease or suspend these regulations following the recession, which
would have allowed for them to be more productive and produce at a lower cost.
According to the Thomson Reuters Accelus Compliance Report 2014, more than half of
firms polled globally indicated that their personal liability was expected to go up by 17% due to
compliance to government regulation (16). Compliance commitment is more than just immediate
expenditure, however. It requires firms to pay teams and laborers to do nothing but focus on
compliance, which in turn costs the firm more but gives it no actual product output. The United
States can afford to hire these teams, as the focus on environmental regulation is a less important
policy issue, and thus less strict. The EU, alternatively, has pushed environmental policy as an
0
20
40
60
80
100
120
140
160
180
200
2005 2006 2007 2008 2009 2010 2011 2012 2013
ULC
Year
Germany
Belgium
UK
Spain
Latvia
Luxembourgh
France
Greece

13. important issue, even as unemployment in some states spikes above 20%. At the core of the EU’s
economic crisis is bad prioritization.
How Has Environmental Policy Affected the Paper Industry?
The focus of this section of the paper will be on the effect of environmental policy on the
paper industry of the European Union. There are two leading theories on the effects of
environmental regulation on industry. The first, which is the traditional view, is that increased
regulation is harmful to industry, as it creates extra costs in the forms of compliance with the
regulation, need for new equipment, control of emissions, etc. At the same time, it also lowers
productivity by creating a control on how much pollution can be emitted. This harms Unit Labor
Costs by both increasing production cost and decreasing real output, making firms less
competitive on the international market.
The alternate explanation, proposed by Dr. Michael Porter, is that environmental
regulation actually causes firms to be more productive. The logic behind his hypothesis is that
efficient regulation forces firms to innovate, implementing new ideas and practices that improve
efficiency and cut costs (17). This, his paper proposes, will negate the cost of compliance,
ultimately causing firms to decrease Unit Labor Costs and become more competitive. A
commonly accepted reason as to why this doesn’t seem to be the case for large countries like the
United States is that regulation is not efficient, and fails to promote innovation. For smaller states,
such as the EU member states, this could provide a solution to their problems.
In November of 2014, the Confederation of European Paper Industries agreed on a pact
with the Juncker Commission to increase their spending on environmentally friendly
technologies and processes to make the paper industry cleaner. This was after coming off a year
where the paper industry had declined by around 9% according to the European Competitiveness
Report (18). According to this same report, foreign firms gained an advantage in production due
to the lack of need to comply with the EU’s strict environmental standards. Instead of lowering

14. environmental compliance costs, the EU usually adds new restrictions each year.
Methodology
Beginning in 2005, the EU instituted a cap and trade program on CO2 emissions called
the European Trading Mechanism. This program initially allocated permits to firms that allowed
them to produce varying numbers of tonnes of CO2, with the threat of heavy fines if they
exceeded this limit. Firms could also sell permits to other more heavily polluting firms for a
profit, resulting in an equilibrium of permits. This falls under the “polluter pays” theory of
economic regulation, which admits that pollution is bound to exist, but that there should be a cost
to incentivize minimal production of it. The problems with examining the effects of this program
on competitiveness are rather large. First, the recession of 2008 took its toll on European
industries, meaning that a decrease in competitiveness was universal. The ability to examine its
effects is beyond the scope of this paper, but they must still be acknowledged. Second, because
of how new the ETS is, we cannot use traditional methods like regression analysis to determine
precisely how related environmental taxes are to changes in competitiveness. However, by
measuring changes in production levels, changes in costs of carbon emission and changes in Unit
Labor Costs, we can still get an estimate as to whether or not environmental taxation influences
changes in competitiveness.
A problem encountered with the initial analysis of how European Trading Mechanism
carbon permit costs and how carbon emission costs stemming from permit purchases affect
unit labor costs is that most countries do not keep track of how much CO2 is emitted by paper
and wood pulp firms. However, the Confederation of European Paper Industries does release
EU-wide CO2 emission levels from paper producers(19)(20). Additionally, Eurostat releases
statistics on metric tonnes of paper production by country. Obtaining costs of permits was done
using a graph produced for the Wall Street Journal that gave the cost of carbon emission per
tonne on April 22nd of calendar years 2005-2012, shortly before the permit collection date of

15. April 30th (21). With all of this data compiled, I have created an equation for determining the
total cost of carbon emissions per country was done with the following equation:
Metric Tonnes of CO2 * (Paper produced per State in Tonnes/Total Tonnes Produced) * Cost per Tonne of Carbon
*Equation for Determining Total Carbon Costs*
First, the portion of the equation in parenthesis tells us the percentage of paper produced by each
state. After that, we multiply the number of tonnes of CO2 emitted each year by this percentage
to find the number of tonnes of CO2 produced per state. Finally, we multiply this by the cost of
carbon permits to find total price. We can only use this equation if we understand that states in
the economic union are bound to follow Best Associated Techniques, which are the rules and
guidelines that apply to all states in the EU and indicate which production practices are permitted
based on environmental and economic efficiency. This means that each firm will produce the
same number of tonnes of carbon per tonne of paper as any other firm.
Cost Added From Carbon Dioxide Taxation
(Figure 8: Cost of Emission in Euros. Data from Eurostat)
In order to better understand if there is a direct relationship between carbon permit costs
0
50000000
100000000
150000000
200000000
250000000
2006 2007 2008 2009 2010 2011 2012
CostofEmission
Year
Cost of Emission
Germany
France
Greece
UK

16. and competitiveness, we should first determine if emission costs have an effect on the level of
production. Figure 8 above graphs the changes in costs of emission over time since data became
available in 2006. Cost of emission is most heavily affected by the fluctuation of the cost of
carbon permits. For example, Germany paid more in Carbon permits in 2009, its lowest
producing year, than it did in 2007, its highest producing year, strictly due to the massive
increase in carbon permit costs. The volatility of the carbon market has fluctuated from lows of
one euro per tonne to highs of 30 euros per tonne, as it was in 2008. The drastic changes in prices
have an immediate impact on production costs, which should impact production levels over time.
However, as Figure 9 shows, production has remained moderately consistent, with a slight
decline over time. The period from late 2007 to mid-2009 should be considered a result of the
global recession rather than changes related to this paper’s subject matter.
(Figure 9: Production of Paper Products Measured in Tonnes. Data from Eurostat (22))
Based on the information available, it does not appear that carbon permit expenditures
have a significant impact on production levels of paper. What we could expect to see from the
graphs that would indicate correlation would be a decrease in production when cost increases,
and the opposite if cost decreases. However, there seems to be a slight downward trend in
0
5000000
10000000
15000000
20000000
25000000
2006 2007 2008 2009 2010 2011 2012
TonnesofPaper
Years
Production in Tonnes
Germany
France
Greece
UK

17. production regardless of changes in cost. Ultimately, this leads us to the understanding that
production levels are not correlated with carbon permit costs, and are instead controlled
primarily by other factors. However, before drawing any definite conclusions, we should look at
Unit Labor Costs to see if there is any movement that indicates a relationship between total
carbon cost and competitiveness.
Unit Labor Costs
(Figure 10: Graph of Unit Labor Costs for Paper Manufacturing of Selected States.Data from Eurostat)
Figure 10 acts as an indicator of overall trends in paper manufacturing in Europe among
selected countries. Unit Labor Costs have increased slightly since the beginning of the ETS,
ignoring the obvious spike during the recession era. Table 1 gives exact ULC levels, using 2010
as a base year. While the carbon tax is potentially a contributing factor to the slight upward trend
in all countries except for Greece, there is no indication that these taxes have caused large
negative effects on competition by way of Unit Labor Cost increases. What we can notice is that
there is a convergence in ULC around 2010, with only Greece diverging around the middle of
0
20
40
60
80
100
120
140
2006 2007 2008 2009 2010 2011 2012
UnitLaborCosts
Years
ULC Of Paper Manufacturing
Germany
France
Greece
UK

18. 2010.
We can conclusively determine that the Carbon permit costs implemented by the ETS
have not had a significant impact on competition in any way. Unit Labor Costs so far have
moved independently of total carbon costs, and are likely to continue to do so unless carbon
permit costs rise and remain consistently high. This does not conclusively disprove conventional
beliefs regarding the negative effects of regulation, as more time is required to determine
whether costs of regulation will correlate with increased ULC. In time, we will be better able to
determine whether trends in ULC and carbon spending are correlated. However, we can know
with greater certainty that the Porter Hypothesis of increased competitiveness with increased
regulation is not provable based on current observations. Increased ULC, although generally
slow and slight, actively disprove any assertion that could be made about regulation and
increased costs improving competitiveness.
2006 2007 2008 2009 2010 2011 2012
Germany 93.28 92.34 97.91 115.39 100 96.2 100.7
France 95.05 94.48 99.21 101.56 100 97.99 99.47
Greece 77.4 80.49 86.86 82.97 100 98.21 92.36
UK 88.83 91.86 93.88 98.23 100 99.73 101.9
Table 1: Unit Labor Costs of Paper Manufacturing. Data from ECB(23).
Conclusion
Overall competitiveness in Europe has declined due to the recession, but some states
managed to avoid serious damage and have staged recoveries. This paper primarily focused on
changes in Unit Labor Costs to determine changes in competitiveness. Germany, the shining star
of Europe, has effectively fought off recessionary woes, remaining one of the European Union’s
most prominent members. France, on the other hand, has failed to manage the same kind of
recovery, in part due to rigid labor markets that have been known to force companies to continue

19. to pay even after having closed down. As Germany continues to rise, France continues to be less
economically relevant. The United Kingdom, being the perennial exception to the rules, has
maintained its position of influence due to its ability to depreciate its own currency, something
most other EU states are unable to do. The UK has actually risen in relative economic power in
comparison to the rest of the world, becoming more competitive over time instead of less.
Finally, Greece, who has suffered continual financial hardship, austerity measures, and civil
unrest, has deceptively low Unit Labor Costs. However, this is the result of a massively depleted
labor force mixed with low production rather than market efficiency and high levels of
investment. The EU in general is in a state of decline in comparison to China, with upward ULC
trends that need to decrease if the EU is to regain its position of economic power in the world.
To determine whether or not costs stemming from environmental regulation have a
significant effect on Unit Labor Costs, we need to determine the total cost of emission. Emission
costs could effectively decrease production levels and increase total costs, changing ULC.
Graphs showing trends in total cost and unit labor costs do not currently correlate, and are not
likely to unless carbon prices increase significantly and stabilize. This agrees most with Hitchens’
analysis, which states that regulation is unlikely to significantly raise Unit Labor Costs, and
definitely won’t decrease them. What we can learn from this study is that environmental
regulation is most likely to benefit society in the form of cleaner production of goods, but
unlikely to help businesses, as it only raises costs. However, these costs are likely to be marginal
on a large scale. Time will tell whether or not environmental regulation will yield the desired
positive economic activity, or if it will result in stagnation of the European economy.

20. Appendix
Chart Demonstrating Changes in Carbon Permit Price:
* Source: Plumer, Brad; “Europe’s Cap and Trade Program is in Trouble. Can It
Be Fixed?”. Wall Street Journal. Online. Published 4/20/13. Viewed 4/10/15.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/20/europes-cap-and-
trade-program-is-in-trouble-can-it-be-fixed/. Graph by Hans Dieter of Oxford
University.

21. Bibliography and Citations
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Viewed 4/10/15. http://ec.europa.eu/enterprise/policies/industrial-competitiveness
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(5) ECORYS; Study on the Cost Competitiveness of European Industry in the Globalisation Era
– Empirical Evidence on the Basis of Labour Unit Costs at Sectoral Level. Online, Cambridge
Econometrics. Published 9/2008. Viewed 4/10/15. http://ec.europa.eu/enterprise/newsroom
/cf/itemdetail.cfm?item_id=5628
(6,17) Porter, Michael; Toward a New Environmental-Competitiveness Relationship; Volume of
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