UK labour costs have grown more slowly than any other major EU economy
The UK’s labour costs have stalled more than any other major EU economy, with no increase at all in the five years since the crisis, according to official European statistics released this morning.
Denominated in euros, labour costs actually dropped 0.3 per cent between 2008 and 2013, illustrating both the slow pace of UK wage growth and the drop in the value of the pound: in euros, labour costs per hour actually dropped 10 per cent between 2008 and 2009 alone.
But what do the changes for other countries tell us about the European labour market?
The chart doesn’t immediately show an obvious trend: some countries, like Germany and Austria, have seen unemployment fall or rise only slightly, during a significant increase in labour costs. Others, like Portugal and Greece, have seen unemployment spike while costs go through the floor.
Greece can reasonably be taken as an exceptional case: the country’s economic crisis is on a scale that makes direct comparison to other countries, even in southern Europe, difficult.
Portugal is more interesting: average labour costs have dropped, but increased from €12.20 per hour to €12.60 per hour between 2008 and 2011, but dropped back to €11.60 by 2013. Similarly, though unemployment has risen considerably over the period since the crash, it peaked at 17.6 per cent in January last year, and has since dropped to 15.3 per cent.
Spain’s joblessness seems to have stabilised, though at a much more elevated level: unemployment has dropped from 27.2 per cent in March 2013 to 25.8 per cent at the beginning of the year. Labour costs per hour also stopped growing after 2011, with a drop from €21.20 in 2011 to €21.10 in 2013.
In comparison, Italy, with constantly swelling hourly labour costs, has only seen unemployment increase. Italian labour costs have grown in every year since the crisis, steadily ticking upwards. Similarly, the rate of joblessness is now at a record 12.9 per cent, from 11.7 per cent in February 2013 and 9.3 per cent in the same month one year earlier.
Italian labour costs, Source: IMF
It would be churlish and unscientific to put down all changes in unemployment to labour costs: but it’s also reasonable to say that Italy’s constantly climbing labour costs, outstripping productivity increases, haven’t helped either.
In comparison, the UK’s flexible currency and flexible labour market have likely gone some distance to the lower peak in unemployment, as well as the recent and more rapid improvement in the job market.