On the long-run neutrality of profits–wages ratios in the determination of international relative prices: an empirical evaluation*
J Illnait Ferrer & Luis Daniel Torres Gonzalez
What the paper says
This paper provides the first empirical assessment of the assumption that total profits–wages ratios (TPWR) are neutral in the long-run determination of international relative prices (IRP). According to Shaikh’s theory of IRP based on ‘Real Competition’, the long-run behaviour of the IRP of any pair of tradable commodity bundles is determined exclusively by their relative total unit labour costs (ULC). By accounting inspection, the authors show that this thesis requires industrial TPWR to be sufficiently similar across countries. Using data from the World Input–Output Database for 42 countries over the period 2000–2014, the authors document strong statistical regularities in the distributions of TPWR, capital intensities and wage shares, characterised by clustering around central values with limited variability and asymmetry. However, Bayesian hypothesis tests of mean overlap reveal that, for the vast majority of country pairs (e.g. Spain–Germany, Mexico–United States), mean TPWR values are statistically distinct, leading to a rejection of the condition required for IRP to equal relative total ULC. These findings challenge the foundations underlying the use of relative ULC as indicators of international price-competitiveness and point to the need to incorporate additional determinants in explanations of IRP and price- and cost-competitiveness.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.