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Glossary:Labour cost

From Statistics Explained

Labour cost or total labour cost is the total expenditure borne by employers for employing staff.

Total labour cost consists of:

  • employee compensation (including wages, salaries in cash and in kind, employers’ social security contributions);
  • vocational training costs;
  • other expenditure such as recruitment costs, spending on working clothes and employment taxes regarded as labour costs;
  • minus any subsidies received.

Eurostat publishes annually the following three core indicators:

  • average monthly labour cost: total labour cost per month divided by the corresponding number of employees (including apprentices), expressed as full-time equivalents;
  • average hourly labour cost: total labour cost divided by the corresponding number of hours worked;
  • structure of labour cost: wages and salaries, employers’ social security contributions and other labour costs, expressed as a percentage of total labour cost.

Beside these annual labour cost data collection Eurostat also publishes the detailed results of the four-yearly Labour cost survey (LCS) and the series of the quarterly labour cost index (LCI).

The Eurostat definition closely follows the international one laid down by the International Conference of Labour Statisticians (Geneva, 1966) in its resolution on the statistics of labour cost.

The labour cost includes both direct and indirect costs.

  • Direct costs (compensation of employees):
    • gross wages and salaries paid in cash;
    • direct remuneration (pay) and bonuses;
    • wages and salaries in kind (company products, housing, company cars, meal vouchers, crèches, etc.).
Direct costs are dominated by wages and salaries paid in cash.
  • Indirect costs:
    • employers’ actual social contributions (i.e. statutory, collectively agreed, contractual and voluntary social security contributions);
    • employers’ imputed social contributions (mostly guaranteed pay in the event of sickness or short-time working, plus severance pay and compensation instead of notice);
    • vocational training costs;
    • recruitment costs and work clothes given by the employer;
    • taxes paid by the employer (based on their wages and salaries bill or on the numbers they employ)
    • minus subsidies received by the employer (intended to refund part or all of the cost of direct pay).
Indirect costs are dominated by employers’ actual social contributions, in particular by employers’ statutory social security contributions.

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