Labour Cost Index YoY

The Labour Cost Index (LCI) is a quarterly euro-indicator and a core European Union gauge, compiled by Eurostat, the statistical office of the European Union. It tracks change, not levels, in average hourly costs, or total labour costs divided by hours worked, in nominal terms without price adjustment. It covers enterprises of any size in NACE Rev. 2, the European activity classification, sections B to S, excluding agriculture, training, recruitment and work clothes. It is not a genuine labour price index, a pure wage-rate gauge, because shifts in hours or low-paid staff can move it without pay changes.

Each reference quarter covers one full calendar quarter, and states must send data within 70 days after quarter end. Eurostat, the statistical office of the European Union, publishes about 75 days after quarter end at 11:00 CET on dates fixed in its release calendar. A flash estimate for the European Union and euro-area totals only appears around 50 days after quarter end. Full data reach the European Central Bank under embargo the evening before release. Each release shows headline growth with wage and non-wage splits and business and country tables. All data are subject to revision each quarter; European aggregates are rarely revised by more than 0.2 percentage points.

Headline growth moves with its two cost parts and with activity mix across business and mainly non-business sectors.

• Wages and salaries: direct pay in cash or kind, including bonuses, allowances, paid leave and saving-scheme payments.
• Non-wage costs: employer social contributions plus payroll taxes minus subsidies that refund direct pay.
• Business economy (B-N), 70-75%: industry, construction and market services from trade through support activities.
• Mainly non-business economy (O-S), 25-30%: public administration, education, health, arts and other services.

The December 19, 2022 release for the third quarter of 2022 showed costs up 2.9% in the euro area and 3.4% in the European Union. These calendar-adjusted rates split into 5.3% non-wage growth in both areas, against 2.1% wage growth in the euro area and 2.8% in the Union. Fading subsidies, recorded with a negative sign, lifted the non-wage part without extra employer payments, as the methods note explains. Wage gains hit 16.6% in Hungary and 16.3% in Bulgaria, against 0.1% total growth in Germany. The second quarter was revised from 4.0% to 3.8% for the euro area and from 4.4% to 4.2% for the European Union.

1. Hourly cost: For each activity section, divide total labour costs in national currency at current prices by hours worked in that quarter. This means fewer hours can lift hourly costs even with flat pay.
2. Fixed weights (Laspeyres index): Combine section changes with weights fixed for one year, so shifts in activity mix do not distort the quarter. A Laspeyres index here means a base-weighted average.
3. Annual weights: Item weights are shares of 1000 within each country, and country weights are shares of EU totals in euro, updated yearly around mid-June.
4. Chain link: Multiply yearly base-weighted links into one series with 2020 at 100, so new weights apply without breaks. For example, a 10% rise in a 40% section and 0% in a 60% section give 104, i.e. 4.0%.
5. Aggregates and adjustment: European Union totals are weighted averages of national data compiled in national currency, so exchange moves do not distort them. Calendar-adjusted figures, which remove calendar effects, are read year on year, while seasonally adjusted figures, which also remove seasonal patterns, suit quarter-on-quarter analysis.
6. Growth rates: The annual rate compares the index with the same quarter last year, and the quarterly rate compares it with the prior quarter. Annual figures equal the mean of the four quarterly values.