Study analyses labour costs in manufacturing and services

In Germany’s private economy, total hourly labour costs share a middle ranking among a list of European countries in relation to the EU15 average when the services sector is taken into account. This is the result of a June 2006 study by the Macroeconomic Policy Institute of the Hans-Böckler Foundation (IMK). Based on a survey that follows the Eurostat labour cost index methodology, the IMK findings challenge the belief that labour costs in the German manufacturing sector are extraordinarily high. They also reveal that labour costs in the country’s private services sector are lower than in other western and northern European Member States.

Germany’s position at the top end of international rankings of labour costs plays a key role in discussions about the competitiveness of the country’s private economy, its unemployment rate and wage agreements.

About the study

In June 2006, the Macroeconomic Policy Institute of the Hans-Böckler Foundation (Institut für Makroökonomie und Konjunkturforschung an der Hans-Böckler Stiftung, IMK) published a study on labour costs in Germany (in German, 508Kb PDF), which uses the methodology of the Eurostat labour cost index. Previous comparative studies have been solely based on national data relating to labour costs in the German manufacturing sector.

In addition to methodological differences in data collection, such as including the manufacturing sector’s white-collar workers, the Eurostat labour cost index considers data relating to both the manufacturing and services sectors. Comparative data are available for the manufacturing sector, as well as for the retail, hotel and restaurant, communications, transport and storage, and financial intermediation sectors.

Hourly labour costs

In 2004, the total hourly labour costs in the German private sector extended only slightly above the EU15 average and were lower than in most northern and western EU Member States. This can be attributed to the relatively low level of hourly labour costs in the services sector.

German employers paid their employees, on average, €26.22 per hour worked in manufacturing and private services. In Denmark, Sweden, Belgium, Luxembourg, France, the Netherlands and Finland, total hourly labour costs were higher than in Germany, ranging from €26.80 to €30.70 per hour worked. However, labour costs were slightly lower in Austria and the United Kingdom (UK), amounting to €25.30 and €24.70 respectively per hour worked. German labour costs are only substantially higher than those of the southern EU Member States, particularly Spain, Greece and Portugal, and the new Member States that joined the EU in May 2004.

Labour costs gap in manufacturing and services

A striking feature of the German economy is the discrepancy between relatively high hourly labour costs in manufacturing and relatively low hourly labour costs in services. Germany shows the widest gap between these two sectors of all the countries surveyed.

The survey findings confirm that German manufacturing labour costs of €29.90 per hour worked are among the highest in a ranking of EU Member States; however, the findings also show that manufacturing labour costs are similar to those in other western and northern EU Member States.

The IMK study differentiates between three groups of Member States in relation to labour costs in manufacturing, namely:

1. those with above-average hourly labour costs, such as Belgium, Germany, Denmark, Sweden, the Netherlands, Finland, France, Austria and Luxembourg;

2. those with hourly labour costs slightly below the EU average, such as the UK, Italy, Spain, Greece and Portugal;

3. the new Member States where hourly labour costs are substantially below the EU average.

In general, hourly labour costs in manufacturing rose above the EU average in Belgium, Denmark, the Netherlands and the UK, while they grew less than the average amount in Germany.