Great Graphic: Europe's Unit Labor Costs and Productivity

These Great Graphics were posted  Fabrizio Goria (@FGoria), a financial reporter for EuroIntelligence.  They draw on research by Societe Generale and data from Eurostat.  

I have posted graphs of Europe's unit labor costs before.  It is probably the best single indicator of not just external competitiveness, but also of internal robustness of an economy.  

Those that saw the largest increase in unit labor costs before the crisis, like Ireland, Greece and Spain have seen the largest correction since the crisis began.  

What is born out by the chart, as we discussed recently, is that Italy now has the highest unit labor costs in the euro area and has seen no substantial improvement since the onset of the crisis. 

France also has seen little improvement.  The labor market reforms are pending and may change change this, but it is too early to tell.   In addition, Portugal's improvement seems to have stalled recently.  

The narrowing of the divergence in unit labor costs in the euro area is not only a function of reductions in the periphery, but also an increase in German unit labor costs.  Germany still boosts the lower unit labor costs, but the increase since the onset of the crisis has been greater than previous decade.  

Unit labor costs have two components, the cost of labor (wages and benefits) and productivity.  

The second chart here shows the changes in productivity several euro area countries.   The productivity gains since 2008 in Ireland and Spain have been the most pronounced.  Greece lags, but has saw improvement last year, which lifted it off the bottom.  Italy has taken its place.   France and Germany appear to have flat lined and Portugal appears to have lost its momentum.