Unit labour costs
Unit labour costs (ULCs) reflect total labour costs relative to a volume of output. Hence, the growth in unit labour costs is often viewed as a broad measure of (international) price competitiveness of firms within a country.
Over the last 15 years, many OECD countries improved their competitiveness relative to others by keeping ULCs in check in both manufacturing and business sector services, as was the case of Germany, Ireland, Israel and Poland. In these countries, low increases in ULCs reflected relatively strong labour productivity growth and/or moderate wage increases. In other countries, such as Lithuania, the Slovak Republic and Slovenia, large productivity gains contributed to keep ULCs in check in the manufacturing sector while wage inflation, in particular, in business sector services, led to substantial increases in ULCs.
Within Europe, Greece, Ireland, Portugal and Spain, saw strong falls in their ULC since the onset of the financial crisis. However, care is needed in interpreting these results as improved relative competiveness, as they need to be balanced against the significant falls in output and labour input seen during that period. In Germany, improvements in competitiveness prior to the crisis show signs of being reversed in recent years.
Definition
ULCs are defined as the average cost of labour per unit of output produced. They can be expressed as the ratio of total labour compensation per hour worked to output per hour worked (labour productivity). Compensation of employees is defined as the total remuneration payable by an enterprise to an employee in return for work done by the latter during the accounting period. It includes wages and salaries payable in cash or in kind, as well as social insurance contributions paid by employers. Total labour compensation is for total persons employed and so includes employees and the self-employed.
Information on data for Israel: https://doi.org/10.1787/888932315602.
Comparability
The data are presented for the total economy, manufacturing and business sector services (which exclude real estate activities) according to the ISIC Rev. 4 classification. All the ULC components are sourced from the OECD National Accounts Statistics (database), respectively the OECD Productivity Statistics (database). The figures present the data for those countries for which time series of sectoral hours worked are available in the OECD National Accounts Statistics (database).
Manufacturing ULCs are often perceived as more representative for assessing competition in tradable products. Services prices are often not very reliable, which may affect the cross-country comparability of measured business sector services ULC.
Sources/online databases
OECD National Accounts Statistics (database), https://doi.org/10.1787/na-data-en.
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.