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ox III.3: Unit labour costs
Chapter III — Drivers of Sector Growth and Competitiveness
As presented in Figure III.12., unit labour cost growth is expressed in terms of growth rates of the ratio of labour
compensation (gross wages 44 ) per employee to labour productivity growth (production by employee). Unit labour
costs are to be interpreted cautiously. Unit labour costs are not an exhaustive measure of cost competitiveness, as
only labour costs are taken into account. In sectors where capital expenditure costs play a large role, unit labour
costs levels and changes over time play a lesser role than in industries largely driven by labour costs.
Mining, tobacco and leather and footwear displayed very
high growth rates of ULC for the whole period 2000‑2010. 45
At the other extreme, unit labour costs declined in
44 Total labour compensation usually includes not only gross wages
and salaries of employees, but also other costs of labour that are
paid by employers, including employers’ contributions to social
security and pension schemes. Here only gross wages are taken
into account.
45 An analysis at macroeconomic level, with data for the European
Union, the United States and Japan, is presented regularly in the
series of quarterly reports ‘Price and cost competitiveness’ by the
European Commission, Directorate-General for Economic and
Financial Affairs.
computer, electronic and optical products, pharmaceuticals
and pulp and paper, cf. Figure III.13.
FIgURE III.13: Average annual growth in unit labour costs in EU manufacturing by industry 2001-10 (%)
Mining and quarrying
Leather and footwear
Tobacco
Furniture
Metal products
Non-metallic mineral products
Rened petroleum
Other transport eq.
Machinery n.e.c.
Wood and wood products
Clothing
Basic metals
Textiles
Rubber and plastics
Food
Manufacturing
Repair of machinery
Electrical eq.
Beverages
Printing
Motor vehicles
Other manufacturing
Chemicals
Pulp and paper
Computer, electronic and optical products
Pharmaceuticals
-3 -2 -1 0 1 2 3 4 5 6 7
Source: own calculations using Eurostat data.
III.3 Factors of production
Improving productivity can be achieved through the mix
of different factors of production. The combination of
factors of production with the production technology
can significantly improve the performance of firms and
industries. This section looks at the inputs of labour, human
capital, investment, energy and technology.
iii31 labour
In the manufacturing sectors, increases in outputs have not
been mirrored by equivalent increases in employment. While
this has triggered higher productivity growth, it has also
meant that manufacturing growth was not labour intensive.
Most jobs have come from the services industries, illustrating
the move from primary and secondary sectors to the tertiary
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