Study reveals wide labour-cost gaps

By Tim King

Date: 15/07/04

THE cost of employing someone differs hugely across the European Union and the gaps are not necessarily narrowing, according to a study just published by Eurostat, the statistical office of the European Commission.

Labour Costs in Europe, 1996-2002 presents a statistical overview of how labour costs have changed over time, using statistics from most (but not all) EU states. (Some states were excluded from the analysis because they have not supplied Eurostat with data on a yearly basis.)

Labour costs are made up of wages/salaries, employers' social contributions, plus various other items such as costs for training, recruitment and taxes based on wage bills.

Eurostat observes that labour costs usually make up the main part of production costs for goods and services so can strongly influence socio-economic policy decisions.

The divergences are stark. In 2002, hourly labour costs were €2.90 in Lithuania compared to €26.90 in Germany. But it is not just a matter of the gulf between the old EU-15 and the ten new states.

In Spain, hourly labour costs in 2002 were €13.6, about half the rate in Germany. In Greece, labour costs are still less at €12.5 and in Portugal lower still at €9, a third of the cost in Germany.

Perhaps unsurprisingly, the rate of change in labour costs is highest in some of the new countries. The average annual growth rate was 14.3% in Lithuania, 11.7% in Estonia, 11.6% in the Czech Republic, 9.9% in Poland, 8.4% in Latvia, 8.4% in Slovakia and 7.7% in Hungary.

By contrast, the growth rate in Germany was 1.7%, 2.2% in France and 3.1% in Finland. In Spain, costs actually declined by an average of 0.9%.

Fluctuations in exchange rates between the national currencies and the euro complicate the picture and are, Eurostat says, partially responsible for the high growth rates in Lithuania, Estonia and the Czech Republic, and in the UK, whose hourly labour costs have risen from €14.2 to €25.2 in 2002.

After examining both the hourly costs and the growth rates, Eurostat concludes that the countries examined can be divided into three sets. Those with low average hourly labour costs are: Bulgaria, Romania and seven of the ten new EU states - Latvia, Lithuania, Estonia, Slovakia, the Czech Republic, Hungary and Poland.

Those with medium-sized hourly labour costs are Cyprus, Slovenia and three of the old EU states, Portugal, Greece and Spain.

The third group with high hourly labour costs comprises the UK, Finland, Luxembourg, France, Germany, Sweden and Denmark.

Eurostat goes on to examine the composition of labour costs across the different states, in particular the division between wages and salaries on the one hand and employers' social contributions on the other. Wages and salaries always make up the greater part, but the share varies considerably according to the state.

The highest percentages are in Denmark (87.4%) Luxembourg (84.4%) and Cyprus (84.2%). The lowest percentages are in Sweden (66.5%), Romania (69%), the Czech Republic and Hungary (both 70%). Plotted over time, some of the new EU states show significant shifts.

Employers' social contributions fell in Hungary from 32.6% to 27.7% and in Slovenia from 17.7% to 14.6%.

In Poland, employers' social contributions fell between 1996 and 2000 from 29.3% to 16.2%.

According to a study, 'Labour costs in Europe, 1996-2002', released by the European Commission in June 2004 (see Related URL), the cost of employing someone differs greatly across the European Union. The study looks at how labour costs have changed over time, using statistics from most Member States.

• Primary Source

Eurostat: Statistics in Focus: Population and Social Conditions: No.9, 2004: Labour costs in Europe 1996-2002 http://ec.europa.eu/eurostat/documents/3433488/5301993/KS-NK-04-009-EN.PDF

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