Introduction
Labor costs are the wages that any employer pays to the employees. They are categorized into two branches, which include direct costs and the indirect costs. The wages that any employer pays to the employee who physically makes the product are called the direct costs while the indirect costs are those costs that an employer pays the employee depending on the support labor they provide to the employer. A unit labor cost is the average labor cost of an output given per unit of output. Unit of labor cost is calculated by comparing the ratio of the real output and the total output. The unit of labor is therefore an indication of the economies output from the wages.
Exports are the goods that are produced within the boundaries of a country and traded outside the country to other foreign countries (Chen, Milesi-Ferretti and Tressel 2013). A relative export is thus the export when it is compared to the other goods in the specific foreign country where the good was exported to. A good is determined to be relative as compared to the other goods by comparing their respective prices in the specific market where they are traded. There are different trade regulation policies, which also contribute in determining the prices of the exports in any country. Trade regulation policies are the laws and control measures that govern the trade activities and the movement of goods and services in any country.
Relative unit labor costs and the relative exports are an indicator of a country’s extent and strength in the international trade market and the comparison between these two economic factors helps to determine the economic growth of a country. Setting up fair and market friendly labor costs and the relative export prices is therefore a key factor in improving the household’s economic status and their ability to purchase different export products.
Comparison between Relative Unit Labor Costs and Relative Exports
Exports are closely related to the unit labor costs in every country. The exchange rate and the strength of the currency also influence the export rate and prices in every country, as this helps to determine the rate of exchange of different products. The currency strength of the local country as compared to the value of the foreign currency is therefore a fundamental aspect in determining the cost of labor and the export prices of the respective goods. The wage rate of every employee in each country is very key to the price of the export in the specific country. The level of income of every household in an economy has a great impact on the prices of the exports of every product in a given economy. The productivity of the employee in every organization or firm is the key aspect to the real value of the wage paid to him either directly or indirectly depending on the indirect support labor provided by the employee to the employer. The wage that every single individual earns from the employer thus gives the capacity of the individual to purchase the different goods in the market (Jones 2016).
The wage rate of every single individual also influences and changes their respective tastes and preferences. Labor is therefore a key pillar in the development of the economy, as it also comprises of the social contributions from the employer to the employee. These compensations from the employer to employee represents the main source of income to the employee; thus, is a significant determinant of the competition between different businesses (DynaFederico 2014). The labor costs and relative exports impact on the economy is well depicted in the Netherlands and Belgium, where the two economic factors are very related. Labor costs in the Netherlands and Belgium for example, show the level and extent to which the specific country performs in the international markets. In the Netherlands, the labor costs per unit hour that an individual work has increased significantly in the last few years. In Belgium, the labor costs are very high as compared to the other European nations (Sinn 2016). The higher or lower the labor unit determines the competitive level of the country in the international trade market. These net earnings are therefore very key to the economic growth of any country and different sectors of the economy.
It is therefore of a significant value to study the comparison between the relative labor costs and the relative exports. The study of these helps to regulate and direct the economy towards achieving its core goals, which is the stability, full employment and equitable distribution of various resources within the economy. Relative export ensures that the economy is fully stable and in a position to provide the households and various economic agents with the steady supply of goods and services. This ensures that the economic activities within the economy are always functioning and that the households can also conduct their activities freely within the economy. Relative export also ensures that the entire economy is in a position to get access to different goods and services that the economy cannot provide sufficiently. The relative labor costs are therefore very fundamental and important to the economy (Dyna 2014).
The production output of the firm or company owned by the employer is a key determinant to the value and ratio of the labor costs. The output of the firm gives the indication of the work ratio of the employees within the firm. It depicts the productivity of the employees, and this is exactly what the employer uses to rate his/her employees in the industry. The earnings of the employees on the other hand is a significant determination of the purchasing power, and this is very useful to the economy, as it also determines the demand of the various goods and services.
According to the basic law of demand, as an individual, level of earnings increases the individuals demand, and ability to purchase more goods increases proportionately. This is also postulated by the basic economic psychological law, which states that as an individual earns more than the previous income, the individuals desire to live and to acquire better things increases. The labor costs, according to research therefore influences the rate of exporting goods in any country, as it determines the rate of demand and the purchasing power of different households and economic agents in the economy.
In different countries, different trade unions are formed to facilitate and to influence the employer to provide an efficient and a true value of the labor costs in the different firms and to ensure that the employees are not frustrated and that their rights are not infringed by their various employers (Dustmann et al. 2014). The unions also ensure that the employees are awarded according to their contribution towards the success of the firm. Trade unions do this by the help of the various industrial courts in the different countries. Different classical economists therefore argue that the comparative relation between the relative unit of labor and the relative unit of export is a key determinant of the business environment in any country. According to the Keynesian argument, different households should be paid according to their previous nominal wage level, and the various economic factors must be considered to get the respective cost of labor by the employers. There is therefore a need to come up with policies and regulations that will ensure that the relative unit labor costs and the relative exports are controlled and not misapplied within the economy.
Policy Recommendation
In different countries, various policies and trade regulations have been put into place to control and to facilitate healthy trade. For export trade to be successful and easily accepted in different markets, various policies must be put in place to ensure that this is achieved (David, Dorn and Hanson 2013; David, Dorn and Hanson 2015). The two countries trading must have come in terms when it comes to some trade regulations that control movement of goods across different boundaries. The two countries should also remove some trade barriers such as tariffs and quotas that make entry of some of the exports difficult. This will enable the exported goods to also compete fairly with the local goods in the market.
Different policies should also be put into place by different trade regulation bodies in different countries to ensure that the cost of labor units are fair and free to adjustment, as was done in Netherlands by creating a wage regulatory commission. This will enable the entire households in the workforce to have the ability to live according to their demands, to have a good purchasing power and to create a recommended demand that allows the exported goods to sell well. Various countries such as the Netherlands and Belgium should strengthen the trade unions available and even come up with unions dealing with respective economic sectors to ensure a fair and a free trade with better export prices and controlled labor costs. This also helps the economy to grow and develop, as required by the development policies of a given country.
Bibliography
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David, H., Dorn, D. and Hanson, G.H., 2015. Untangling trade and technology: Evidence from local labor markets. The Economic Journal, 125(584), pp. 621-646.
Dustmann, C., Fitzenberger, B., Schönberg, U. and Spitz-Oener, A., 2014. From sick man of Europe to economic superstar: Germany's resurgent economy. The Journal of Economic Perspectives, 28(1), pp.167-188.
DynaFederico, S., 2014. Industry Dynamics and Competition from Low‐Wage Countries: Evidence on Italy. Oxford Bulletin of Economics and Statistics,76(3), pp.389-410.mics of the Eurozone Crisis, p.79.
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