Labour cost index - recent trends

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Data from December 2011, most recent data: Further Eurostat information, Main tables and Database.

The labour cost index (LCI) shows the short-term development of the labour cost, the total cost on an hourly basis of employing labour. In other words, the LCI measures the cost pressure arising from the production factor “labour”. This article takes a look at the most recent evolutions of the LCI, both at the level of the European Union (EU) and the Member States.

In addition, Eurostat estimates of the annual labour cost per hour in euros are provided for some European countries; they were obtained by combining the four-yearly Labour cost survey (LCS) with the quarterly labour cost index. Some Member States voluntarily transmit annual labour costs figures, but coverage is not yet complete enough to compute European aggregates.

Figure 1: Total nominal hourly labour costs, % change compared to previous quarter, seasonally adjusted

Contents

Main statistical findings

Figure 2: Total nominal hourly labour costs, % change compared to same quarter of previous year, working day adjusted
Figure 3: Total nominal hourly labour costs in 2011 - 3nd quarter, % change compared to same quarter of previous year, working day adjusted
Figure 4: Estimated labour cost per hour in the business economy, 2010
Figure 5: Labour cost per hour in euros, 2008-2010

EU and euro area

Hourly labour costs in the euro area rose by 2.7 % in the year up to the third quarter of 2011, compared with 3.3 % for the previous quarter. In the EU, the annual rise was 2.6% up to the third quarter of 2011, compared with 3.2 % for the previous quarter.

The two main components of labour costs are wages & salaries and non-wage costs. In the euro area, wages & salaries per hour worked grew by 2.6 % in the year up to the third quarter of 2011, and the non-wage component by 3.2 %, compared with 3.2% and 3.8% respectively for the second quarter of 2011. In the EU as a whole, hourly wages & salaries rose by 2.6% and the non-wage component by 3.2 % in the year up to the third quarter of 2011, compared with 3.1 % and 3.6 % for the second quarter of 2010.

The breakdown by economic activity shows that in the euro area hourly labour costs rose by 2.9 % in industry, 2.4 % in construction and 2.6 % in services in the year up to the third quarter of 2011. In the EU, labour costs per hour grew by 2.9 % in industry,2.2% in construction and 2.6 % in services.

Member States

Among the Member States for which data are available for the third quarter of 2011, the highest annual increases in hourly labour costs were registered in Bulgaria (+9.8 %), Romania (+7.9 %) and Slovakia (+7.2 %), and the smallest increases in Portugal (+0.8 %) and Cyprus (+1.4 %). A decrease was observed in Ireland (-1.1 %).

Hourly labour cost in euros

This section provides Eurostat estimates of the annual labour cost per hour in euros for some European countries, obtained by combining the four-yearly Labour cost survey (LCS) and the quarterly labour cost index. Some Member States voluntary transmit annual labour costs figures, but the coverage is not yet complete enough to compute European aggregates.

The hourly labour cost in the business economy (NACE Rev.2 sections B to N) for the EU-27 was 22.5 € in 2010 compared with 22.1€ in 2009 (+1.5 %). For the euro area (EA-17) it was 26.9€ in 2010 compared with 26.5€ in 2009 (+1.6 %).

Among the Member States for which estimates are available the highest labour costs per hour in the business economy were obtained for Belgium (38.2 €), Denmark (37.6 €), Sweden (36.0 €), France (33.1 €)and Luxembourg (32.8 €). The Netherlands (30.4 €), Germany (29.1 €), Finland (28.9 €), Austria (28.0 €), Ireland (27.9 €) and Italy (26.1 €) stood above the EU-27 average.

The lowest labour cost per hour were obtained for Bulgaria (3.1 €), Romania (4.2€), Lithuania (5.3 €), Latvia (5.7 €), Poland (7.0 €), Hungary (7.3 €) and Estonia (7.7 €). Slovakia (8.0 €), the Czech Republic (9.9 €), Malta (11.5 €), Portugal (12.0 €), Slovenia (14.1 €), Cyprus (16.2 €), Greece (17.5 €), the United Kingdom (20.0 €) and Spain (20.2 €) stood below the EU-27 average.

The hourly labour cost in manufacturing (NACE Rev.2 section C) for the EU-27 was 22.7 € in 2010 compared with 22.5 € in 2009 (+1.1 %). For the euro area (EA-17) it was 28.4 € in 2010 compared with 28.1 € in 2009 (+1.0 %). The hourly labour cost in manufacturing is very similar to the hourly labour cost in the business economy as a whole. In a majority of Member States the difference is less than +/- 10 %. The exceptions are Germany on one side, where the hourly labour cost in manufacturing was 13 % higher, and Luxembourg, Latvia, Portugal, Bulgaria, Romania and Cyprus, where the hourly labour cost in manufacturing was between 13 % and 20 % lower.

Data sources and availability

Labour cost index

The labour cost index is defined as the Laspeyres index of labour costs per hour worked, chain-linked annually and based upon a fixed structure of economic activity at NACE Rev.2 section level. The current reference year of the index is 2000. In addition to the index numbers, annual and quarterly growth rates of labour cost are also calculated.

EU Member States produce the necessary estimates by using surveys, other appropriate sources such as administrative data and statistical estimation procedures.

Also, different estimation methods are used, as for example estimations of separate growth rates for labour costs and hours worked, or the application of growth rates of some labour cost components to all labour cost components.

Since annual or even 4-yearly benchmark surveys as well as estimation methods play an important role for the production of quarterly LCI figures in most Member States, revisions are frequent and can go back several years.

EU aggregates are obtained as weighted aggregates of the national data. The weights reflect the share of labour costs that each Member State has in the total EU aggregate. While the LCI itself is compiled in national currency and thus not influenced by exchange rate movements, the share of the Member State for the EU aggregates is measured in euro and can therefore vary according to the value of the national currency against the euro. In practice, these variations are however very small and have no influence on the comparability of the LCI series over time.

Eurostat has labour cost index data available for all Member States, the euro area and the EU on a quarterly basis from the year 2000 on. Data are broken down by cost items (Total cost, Wages and salaries, Other labour costs) and by economic activity (NACE sections). Index numbers and growth rates are made available for the total cost index as well as for the subdivisions wages and salaries and non-wage labour cost by economic activity.

All series are available in working-day adjusted form; this means that differences in hourly labour cost which arise due to a varying number of working days are corrected for. Also, all series are available on a seasonally adjusted basis. Seasonal adjustment corrects for infra-annual variations in the labour cost index which can arise due to recurring events, such as new school and university graduates entering the labour market in the autumn. Quarter-on-quarter growth rates are based on seasonally adjusted data, year-on-year growth rates are based on working-day adjusted data.

New data are released every quarter, about 75 days after the end of the reference quarter.

Hourly labour cost

Description of the sources

The Labour cost survey (LCS) provides structural information on labour costs. The survey is conducted every four years. The most recent LCS refers to information for the year 2008. The LCS covers observation units with 10 or more employees and all economic activities except agriculture, forestry and fishing, public administration, private households and extra-territorial organisations. The labour cost per hour from the LCS is calculated as:

Compensation of employees + Vocational training costs + Other expenditure + Taxes – Subsidies.

For the EU-27 the weight of each variable in the labour cost per hour in 2008 was:

Compensation of employees 98.4%
Vocational training costs 0.8%
Other expenditure 0.54%
Taxes 0.54%
Subsidies 0.28%

The labour cost index (LCI) shows the short-term development of the total hourly costs. The LCI covers all business units irrespective of the number of employees and all economic activities except agriculture, forestry and fishing, private households and extra-territorial organisations. The index equals 100 in 2008 and is available 75 days after the reference quarter. The labour cost per hour from the LCI is calculated as:

Compensation of employees + Taxes – Subsidies

From the table above it can be concluded that for the EU-27 the LCI labour cost concept covers approximately 98.7 % of the LCS labour concept. This percentage varies from country to country. The lowest percentage is observed in the Netherlands, where the LCI concept represents 96.7 % of the LCS labour cost concept.

Estimates for years after 2008 are obtained by extrapolating the 2008 LCS levels using the LCI. Some Member States voluntary transmit annual labour costs figures, but the coverage is not complete enough to compute European aggregates (see article on wages and labour costs).

Caveats

Using the LCI to extrapolate the LCS values means assuming the following hypothesis:

  • the labour cost per hour of all business units behaves the same way as the labour cost per hour of business units with 10 or more employees;
  • 'Vocational training costs' and 'Other expenditure' behave similarly to 'Compensation of employees', 'Taxes' and 'Subsidies'.

These assumptions, especially the first one, can lead to a small over- or underestimation of the annual labour cost per hour.

Adjustments to the LCI index

The LCI of countries is unaffected by exchange rate movements, which are only taken into account when calculating the European aggregates. In order to use the LCI for calculating monetary estimates in euros, exchange rate movements have to be incorporated. Therefore, for certain non-euro area countries a exchange-rate adjusted LCI index is used in these calculations instead of the official LCI available at Eurostat's database.

The non-calendar-adjusted LCI is used except for the countries for which it is not available where the calendar-adjusted LCI is used.

Context

The labour cost index is an essential part of the range of statistics that are relevant for an understanding of the inflationary process and the cost dynamics in the economy.

Information on labour costs is required for economic and monetary policies, wage bargaining and economic analyses. Labour costs are an important potential source of inflation since they account for a large proportion of the total costs borne by private businesses, which may pass higher labour costs, in particular if not reflected in higher productivity, on to consumers via higher end prices, thus fuelling inflation. A timely labour cost index is therefore of utmost importance for the European Central Bank (ECB) in order for it to be able to monitor inflation in the euro area.

Further Eurostat information

News release

Publications

Main tables

Labour costs
Main tables
Labour costs (t_lc)
Labour cost index (teilm100)

Database

Labour costs
Data base
Labour costs (lc)
Labour cost index (lci)
Labour cost index - Quarterly data (lc_lci_r1_q)
Labour cost index - Annual data (lc_lci_r1_a)
Labour cost index - Country weights (lc_lci_r1_cow)
Labour cost index - Item weights (lc_lci_r1_itw)
Labour cost index - Quarterly data (Nace R2) (lc_lci_r2_q)
Labour cost index - Annual data (Nace R2) (lc_lci_r2_a)

Dedicated section

Methodology / Metadata

Other information

External links

See also

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