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Chapter III — Drivers of Sector Growth and Competitiveness
FIgURE III.11: Average annual growth in labour productivity 1997-2010 (%). Production per employed
15
10
5
0
-5
-10
-15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: own calculations using Eurostat and OECD data.
iii22 unit labour costs
Unit labour costs (ULC) are defined as the ratio of labour
costs per employee to value added per employee. Since
developments in ULC show if nominal wages increase in line
with productivity, it can be regarded as a measure of cost
competitiveness. Cost competitiveness across EU sectors
appears to be very variable. High EU ULC growth rates
during 2009 are explained by production decreasing more
than employment at given labour costs. This occurred in many
manufacturing industries. Box III.3 provides more insight into
the methodology and interpretation of unit labour costs.
The performance of manufacturing industries, together
with mining and quarrying, in terms of ULC growth rates
is compared below. The comparison aims to show which
industries perform particularly well relative to aggregate
manufacturing. The comparison is made for different time
periods since 2000 to facilitate a comparison of ULC growth
rates before and during the latest crisis. The period 2000‑
2005 was clearly influenced by relatively high labour
productivity developments and characterised by low
ULC growth. Manufacturing as a whole witnessed almost
stable ULC at +0.6 %. Almost all sectors, with the particular
exception of leather and footwear, tobacco, clothing
and other transport equipment, were characterised by
increasing ULC. during the period 2005‑10 the situation
deteriorated for mining and aggregate manufacturing,
and for almost all manufacturing subsectors This is the
normal situation during recessions when production falls
rapidly while adjustments of labour are more sluggish
The same developments also explain why labour productivity
growth decreases during recessions. Both ULC and labour
productivity move pro‑cyclical.
Computer, electronic and optical products, pharmaceuticals,
and clothing did not see their ULC increase. A word of
caution is necessary when interpreting the figures. The
results in the table are strongly dependent on the chosen
time period. The recovery during 2010 has increased
productivity growth while, at the same time, wage
increases have been modest. That lowers ULC growth rates
substantially in industries such as basic metals and motor
vehicles. Choosing 2000‑2009 yields higher ULC growth
rates than 2000‑2010 since production, and consequently
productivity growth, fell heavily during 2009, cf. Table III.2.
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