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Labour Costs

Volume 973: debated on Wednesday 14 November 1979

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asked the Chancellor of the Exchequer why he believes that a comparison of relative normal unit labour costs is a meaningful measure of international competitiveness; what account this measure takes of changes in productivity in manufacturing; and whether he believes that in 1978 British exports were in fact more competitive than they were in 1974 and 1975.

There are many ways of measuring international competitiveness; discussion of the merits of the various measures was published in the Treasury's Economic Progress Report in February 1978. Academic research has generally shown that relative normal unit labour costs is helpful in explaining movements in the United Kingdom's exports of manufactures; an example of these research findings was published in the Bank of England's Quarterly Bulletin for June 1978. The productivity trends used in the calculation of relative normal unit labour costs are based on those estimated by J. R. Artus and A. C. Turner of the IMF's Research Department*. The different measures of competitiveness show differing movements between 1975 and 1978: on some measures we were less competitive in 1978 than in 1974 and 1975 and on others, including relative normal unit labour costs, we were more competitive.

*"Measures of Potential Output in Manufacturing for Ten Industrial Countries 1955–1980" (Mimeo May 1978).