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Spain’s Labor Costs Decline to Below Germany’s, OECD Index Shows

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March 21 (Bloomberg) -- Spanish and Portuguese relative unit-labor costs have fallen below Germany’s for the first time since 2005, according to an index compiled by the Organization for Economic Cooperation and Development.

The index, which sets a common starting point of 100 for euro area countries in 2005, shows Spain’s relative unit-labor costs dipping below those of Germany late last year and Portugal’s slipping under the German level several quarters earlier, the Paris-based OECD said in a report today.

“Some re-balancing continued among countries in the euro area,” the OECD said. “The decline in unit-labor costs in Spain reflected significant wage cuts in combination with rising productivity.”

The crossover suggests that at least some euro-area countries are addressing the underlying economic divergence that helped generate the region’s sovereign debt crisis. Spanish unit-labor costs have dropped or held steady in every quarter except one in the past three years, the index shows.

The shift is also being helped by higher wages in Germany, where unit-labor costs rose 1.3 percent in the fourth quarter, the biggest increase in three years, the report showed. German unit-labor costs have risen for 10 straight quarters.

The OECD index shows unit-labor costs in France and Italy broadly paralleling the German rise over the past two years.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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