Spain's Labor Costs Decline to Below Germany's

 

Spanish and Portuguese relative unit-labor costs have fallen below Germany's for the first time since 2005, according to an index compiled by the Organization for Economic Cooperation and Development.

The index, which sets a common starting point of 100 for euro area countries in 2005, shows Spain's relative unit-labor costs dipping below those of Germany late last year and Portugal's slipping under the German level several quarters earlier, the Paris-based OECD said in a report today.

"Some re-balancing continued among countries in the euro area," the OECD said. "The decline in unit-labor costs in Spain reflected significant wage cuts in combination with rising productivity."

The crossover suggests that at least some euro-area countries are addressing the underlying economic divergence that helped generate the region's sovereign debt crisis.

Spanish unit-labor costs have dropped or held steady in every quarter except one in the past 3 years, the index shows.

The shift is also being helped by higher wages in Germany, where unit-labor costs rose 1.3% in Q4, the biggest increase in three years, the report showed. German unit-labor costs have risen for 10 straight quarters.

The OECD index shows unit-labor costs in France and Italy broadly paralleling the German rise over the past 2 years.