Productivity and Competitiveness
Measuring competitiveness
There is no single method of measuring
competitiveness, hence it can be measured in a number of ways,
including:
-
Relative export prices, which are
one country’s export prices in relation to other countries, expressed as
an index.
-
A country's
terms of trade, which is an index of the ratio of a country's
export and import prices.
-
Labour productivity, which is usually expressed as GDP per worker, or GDP per hour of employment.
-
Unit labour costs, which are the cost
of labour per unit of output.
Price competitiveness
Price competitiveness refers to how well UK
exports compare in terms of price. This is affected by a number of
factors, including:
-
Relative inflation - even small annual
differences can build-up over time and become significant.
-
The relative real exchange rate (RER) – which is the
nominal exchange rate deflated by an index of prices. In the UK it is
measured by dividing the trade weighted Sterling Index by the RPI (or
the Consumer Price Index – CPI), x 100. For example, if the Sterling
Index rises by 7% and UK prices rise by 2%, the RER is
107/102 x 100 = 105, hence the real value of Sterling rose by 5%.
-
Labour costs - including wage and non-wage
costs, such as
employer contributions to pensions.
Non-price competitiveness
Non-price competitiveness refers to how well
UK exports of branded goods and services do in overseas markets in
aspects of competition not associated with price, such as:
-
Product quality and design.
-
Business Research and Development (R&D), especially
new product development
-
Product reliability
-
The strength or weakness of ‘local’ brands
-
The effectiveness of marketing in overseas markets
-
Levels of productive and dynamic
efficiency of
firms.
-
Levels of ‘x’ inefficiency, including poor
management, excessive bureaucracy, and
government failures.
-
How effective the economic and political system
is in allowing markets to form - are there
missing
or incomplete markets?
-
Investment in new technology,
which helps
improve quality and reliability
-
Investment in human capital, which
improves skill levels and reduces skill shortages – low skills, and
labour shortages, can both seriously reduce competitiveness.
