OECD-ECLAC-PSE EU-LAC Forum

1. Global Change, labour market and the Sectoral
Structure of Production
Xavier Ragot
Paris School of Economics, CNRS
II - Latin America Economic Forum, May, 2014

2. Introduction
Recent European history.
Histories of two big shocks : German reuni…cation and euro
zone.
Inertia in price formation : real divergence.
Now (after 2007) helping economies to converge with
constrained …scal tools : Industrial policy

3. Diagnosis (1/4): Weighted Unit Labor Cost
Source Dustman et al. JEP.
The euro exchange rate is only part of the solution.

4. Diagnosis (2/4): Unit labor cost service sector

5. Diagnosis (3/4): wage and productivity
Verdugo (2013) on …rm level data.

6. Diagnosis (4/4): Real Interest rate
In‡ation 1 or 2% higher in Spain Italy, France or Germany.
Diverging real interest rate.

7. E¤ect on the production Sector (1/3)
Technology

8. E¤ect on the production Sector (3/3)
Pro…t rate by size
217 big …rms (5000+): 60% of R&D, 50% of exports.

9. A Summary
Exogenous shock to prices : only nominal interest rates
converged.
Production sector moves slowly.
Real/Nominal wage rigidities : the labor market is the anchor.
Financial sector (housing) absorbed imbalances.
Market forces magni…ed imbalances.

10. Policy implications
1 Prices
Fiscal devaluation : CICE, and tax cut on social contribution
1.5% of GDP
wage moderation : labor market institutions.are key.
2 Industrial policy:
sectoral aid ? (but WTO).
R&D, and productivity gains is not the answer
Save …rms in the transition : defensiev industrial policy.
(Competition policy?)
3 New thinking of State and Markets : di¤erent from Keynesian
short-run view and "structural reform".
4 We need social constructivism : The political economy is key.