Comparisons and Performance
2. Indicators for measuring competitiveness 2.1 SUPPLY OR DEMAND SIDE MEASUREMENT? Unit Labour Cost: the Main Indicator of Supply-side Competitiveness Literature frequently uses ULC (unit labour cost) as an indicator of supplyside competitiveness. Its use is limited however to manufactured goods and sporadically also to services, for the following reason. Endowments with natural resources and also weather or climatic conditions are key factors of the levels of capacity utilization in agricultural and mining production and this is why the ULC indicator cannot be reliably applied for measuring competitiveness in these sectors. The idea underlying the ULC indicator is the following. If two technically identical goods are compared, the one which is more competitive is the one produced with a lower unit labour cost. This assumption is strong in such a simplified form, and it surely becomes quite contestable if it is brought a bit closer to business practice. Namely it is rather obvious that competition never takes place between goods where their distinction or differentiation is possible uniquely on the basis of labour costs. If this is the case then other differences between these goods will also have an impact on competitiveness. The ULC indicator has wage and wage-related costs (for example social security and unemployment contributions) in its numerator, and value added created in the given industry or sector in its denominator. The ULC indicator is rarely used in a strictly product-level approach: ULCi = (Wi + Ci)/VAi. This indicator is used for competitiveness measurement in international comparative analyses...
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