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N° 1994 - 10 |
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| September |
| French and German Productivity Levels in
Manufacturing: A Comparison Based on the Industry-of -Origin Method |
Michael Freudenberg
Deniz Ünal |
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The major problem with international comparisons
of output and productivity levels is finding a suitable conversion factor to express
output in a common monetary unit. Commonly used approaches applying purchasing
power parities or market exchange rates have important methodological inconveniences.
This study on France's and West Germany's manufacturing sector is based on the
so-called 'industry-of-origin' method, where producer price ratios are used as
conversion factors. These producer price ratios are based on ex-factory unit values
for about 240 products corresponding to some 18% of total manufacturing.
The relative level of producer prices thus calculated suggests that, compared to Germany, France benefits from a competitive price advantage since about 1987. This price gap may be necessary to compensate the German non-price competitiveness which is often evoked in international trade comparisons. Despite this remaining price gap for total manufacturing, there is a remarkable convergence in relative price levels among major branches.
In terms of the volume of output and factors of production, the relative French-German levels show quite a contrasting pattern during the last two decades. Whereas the 1970s saw France catch up with Germany, the 1980s reversed most of these relative gains. In the beginning of the 1990s, the relative size of French manufacturing was again at almost the same level as 20 years before, at about half of German manufacturing.
During the whole time period, joint factor productivity was very close in both countries, whereas its two components show a clear divergence. At about the same level until the early 1980s, French labour productivity increased strongly and capital productivity declined substantially when compared to Germany's.
The symmetric evolution of relative labour and capital productivity is closely linked to the much stronger substitution of labour by capital in France than in Germany. French capital intensity in manufacturing rose increasingly above Germany's, despite lower labour costs and higher real interest rates. This paradox might be a major reason for the high French unemployment rate, despite relatively high growth rates in the late 1980s. |
Abstract |
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| Relative price level, sectoral
productivity, unit labour costs, growth accounting, desinflation competitive policy. |
Keywords |
| E31, J24, J30, L60, O47 |
JEL classification |
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