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Economy in Brief

Euro-Zone Labor Costs Slower than in US
by Carol Stone March 18, 2004

Eurostat today published hourly labor cost data for the Euro-Zone for Q4 2003. Total labor costs are seen to have moderated last year after a pick-up in 2001 and 2002. This pattern was exhibited in both wage costs and "other" costs, i.e. benefits. All of the major economies in Europe - Germany, France, Italy and Spain - participated in the slowing trend during 2003, although changes for individual quarters do vary.

It is comforting that ongoing labor cost pressures in Europe look so temperate. A particular aspect of this trend seems somewhat unexpected: these labor costs in Europe are running more slowly than those in the US. Eurostat includes a calculation of comparable hourly labor cost and wage data for the US, and as shown in the Table below, they rose considerably more last year, 4%, than the 2.5% in Europe. While the rates of advance were similar in 2002, the US also saw larger increases in the prior two years. This spread is sometimes due to wage cost differentials, but much more consistently, it is benefits where the US outstrips Europe. These data very much resemble the US's ECI information. Over the past four years the ECI benefits measure has far outrun the "other" component in the European data, and unpublished BLS data on health insurance suggest that item may well be the culprit. As that cost has accelerated into a double-digit pace in the last several years, it looks that the US practice of financing health care through employment arrangements is weighing on the competitive structure of private US labor costs.

Seasonally Adjusted
 Annual Rate
4th Qtr/4th Qtr
% Changes
Q4-2003 Q3-2003 2003 2002 2001 2000
Euro-Zone: Total Labor Costs 2.2 2.6 2.5 3.4 3.4 2.6
Wages & Salaries 2.6 2.2 2.5 3.3 3.5 2.8
Other Labor Costs 2.6 2.6 2.8 3.8 3.2 1.6
US: Total Labor Costs 3.2 4.4 4.0 3.2 4.1 4.4
Wages & Salaries 2.6 3.2 3.1 2.8 3.8 3.9
Memo: ECI Benefits 4.9 5.6 6.4 4.7 5.1 5.6
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