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This article was first published on www.marctomarket.com, written by Marc Chandler

This Great Graphic was tweeted by Sam Ro at Business Insider.  It shows the unit labor costs, which combined compensation and productivity, and adjusted for currency moves for the G7 countries, excluding the UK.

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While US unit labor costs are rising just below German and France indexed since the end of 2002.  If the dollar continues to appreciate, and productivity does not accelerate, US unit labor costs will continue to rise.  This is part of the adjustment process.

What is striking is not the unit labor costs in Italy are firm, but how Canadian unit labor costs are the highest among this select group but also rising even though the Canadian dollar has weakened.  This is reflected in the erosion in Canada’s non-oil exports, for example.

It also complicates the story many euro skeptics want to tell.  The rigidities of monetary union saddle countries in the periphery, like Italy, with a loss of competitiveness.  However, the Canadian dollar has weakened by 18.75% against the US dollar since the end of 2013, but unit labor costs ended their two-year downtrend and began recovering.  Currency depreciation is not a panacea.  It is a poor substitute of the structural reforms needed to boost growth potential.  It provides no incentive to curtail rent-seeking behavior in favor of the pursuit of profit.

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