In 1994 Austria's Competitiveness Declined Despite a Drop in Unit Labor Costs
The international labor cost position of Austria's economy has changed significantly during the first half of the nineties. Changes in the exchange rates beginning with September 1992 brought about enormous shifts in the international hierarchy of labor cost positions. In 1994, the hourly wage in Austria's manufacturing sector was Sch 248. Thus Austria belongs to the group of countries with the highest labor costs, just behind West Germany (Sch 309), Switzerland, and Belgium. As late as 1991 Austria was ranked number ten. In 1994 the average hourly wage in manufacturing in EU countries was 12 percent lower than in Austria. In Italy and in the U.S., business pays one fifth less for labor, in the U.K., 37 percent less than in Austria. The devaluation of these currencies in the spring of 1995 has further increased the disparity. Huge differentials continue to exist vis-à-vis the economies in East-Central Europe: hourly labor costs as a percent of the level in Austria are 13 in Hungary, 10 in Poland, 9 in the Czech Republic and 8 in the Slovak Republic. This low-wage competition in Austria's immediate proximity so far has been held in check by the problems encountered during the transition period, large differentials in productivity, and in infrastructure. During the eighties Austria's manufacturing sector succeeded in compensating relative increases in labor costs induced by the appreciation of the schilling by above-average productivity gains, and managed even to improve Austria's competitive position. During the nineties, however, the turbulences in the foreign exchange markets were not fully offset despite sustained high productivity increases (+4.9 percent per year). Since 1990, the increase in relative unit labor costs in Austria measured in a common currency was about ½ percentage point higher than in Austria's trading partners and in the EU on average. The slowdown in wage inflation and labor shedding (hourly productivity rose by 8.1 percent) combined to lower unit labor costs in Austria's manufacturing sector in 1994 by 3.6 percent. But the cost position of Austria's manufacturing sector continued to deteriorate because in Austria's trading partners the drop in unit labor costs was even more pronounced: 3.9 percent in all OECD countries, 4.5 percent in the EU countries. Of particular importance to Austria was the development in West Germany: low wage increases and high productivity gains due to labor force reductions resulted in a drop of 5.6 percent in unit labor costs. The cost competitiveness of Austria's manufacturing sector deteriorated by 0.3 percent vis-à-vis the OECD countries, and by 2.0 percent vis-à-vis West Germany.
Verschlechterung der Wettbewerbsfähigkeit trotz sinkender Lohnstückkosten; In 1994 Austria's Competitiveness Declined Despite a Drop in Unit Labor Costs
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