Decline in unit wage costs: What effects?

- "There has been a fall in unit wage costs due to the slowdown in wages and companies’ efforts to improve productivity in Japan and the United States, and we are starting to see the same development in the euro zone."
- "A fall in unit wage costs can have two effects:
• if profit margins do not change, there will be a fall in prices, leading to a rise in real interest rates;
• but there may also be a continued rise in prices and in company earnings; companies can deleverage, but also end up accumulating financial (or real estate) assets."
- "In the first case (seen more in Japan), this development is negative for asset prices and investment; in the second case (seen in the United States currently, but also partially in Japan and in the future in the euro zone), it is positive (asset purchases by companies)."
- "In the first case, the fall in prices curbs the fall in real wages and improves competitiveness, but not in the second case: the consequences on asset prices and demand are therefore opposite, but for each there is a negative consequence."

Natixis Flash Economics 399 20100818

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