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International labour costs in manufacturing, 1960-88.

Comparative labour costs in the manufacturing industries have been analysed in four previous issues of this Review (1) based on surveys of labour costs published by the Swedish Employers' Confederation (2). These contain time series of wages for time worked, social charges and total labour costs in manufacturing for most OECD countries and convert them into a common currency. Although no allowance is made for the different purchasing power of the wages paid (`PPPs') the comparison is useful since the products of the industries of various countries compete on international markets on the basis of current exchange rates.

The latest. Swedish survey makes it possible to extend the analysis to three decades. This note starts with the definition of the data used, continues with the comparison of labour costs in recent years and then surveys the developments in the almost thirty years from 1960 to 1988.

Definitions

The statistics in the Swedish report are based on national sources. Hourly earnings represent gross wages for time worked, including time or piece-rate wages, shift and overtime supplements, regularly paid bonuses and premia. Payments for annual leave, public holidays and other paid individual absences are included insofar as the corresponding days or hours are also taken into account to calculate earnings per unit of time. Total labour costs consist of hourly earnings as defined above; pay for time not worked (such as, vacations, public holidays); payments in kind and other cash payments; employers' social security expenditure of any type; cost of vocational training and of welfare services; taxes of social nature or otherwise regarded as labour cost (for example, in Italy and Sweden); and all other labour costs not classified elsewhere. Social charges are calculated as the difference between total labour costs and hourly earnings (both as defined above); they are expressed in this note as a percentage of the latter.

Both hourly earnings and total labour costs have been converted from national currencies to Swedish kronor at the official annual average exchange rates, as published by the National Bank of Sweden.

The recent years

Table 1 shows that since 1986, on the basis of current exchange rates and without adjustment for price differences (PPPs), hourly earnings in France, Austria and Ireland were comparable to the British; they were probably lower than the British in italy and much lower in Greece and Portugal. In all other countries they were higher.

Social charges differ greatly by country. The 40 per cent of earnings in the UK is among the lowest; in Europe, only in Denmark are they lower, whereas in the original EC5 countries they are twice as high, at around 80 percent of earnings. In both the US and Canada these charges are lower and in Japan only about 20 per cent.

Combining hourly earnings and social charges in total labour costs gives a different picture. In the past two years, only in Greece and Portugal-and to a marginal extent in Ireland-were total labour costs lower than in the UK. In all other countries these costs exceeded the British. Counting the UK as 100, the indicators for the various countries range from 96 in Ireland and 118 in France (the two countries with the lowest total labour costs in 1988) to 172 in Norway and 168 in Germany, the two countries with the highest costs. Judged by hourly earnings, Switzerland may also be among the highest, but Swiss social charges are difficult to calculate, presumably because of variations by canton.

One interesting message from the table is that North American and Japanese labour costs are on a crudely comparable level, well below those in Germany, the Nordic countries and, presumably, Switzerland.

The figures also indicate that although the UK still has lower total labour costs than most other countries, using the measurement method described, the gap has narrowed. For example, the combined indicator of the EC5 countries (with the UK again as 100) changed from 153 in 1986 to 148 in 1988 and, on the provisional estimate, to 140 in 1989. Apart from changes in relative exchange rates this was largely due to a faster rise in British wages; table 2 shows that in 1989 labour costs rose more than twice as rapidly in the UK as in the EC5 countries.

Finally, table 3 presents a comparison of all (men plus women) labour costs in the main categories of manufacturing. The data indicate that in 1988 total labour costs were the lowest in the UK in each industry, with the following exceptions:

- Greek and Portuguese costs were far the lowest, at one half (or even less) of the UK level;

- in some industries Irish costs were also lower;

- and in two industries, printing/publishing and footwear, labour costs in North America were lower than in the UK.

Workers in the printing/publishing trade are the highest paid in the UK (relative to other industrial categories shown) with an average income 35 per cent above the manufacturing average, a considerably wider differential than in the main continental countries and the US. Wages in the footwear industry do not seem to be out of line in Europe but US wages in this industry appear very low. (Table 4.)

Changes since 1960

Chart 1 illustrates the longer term changes in total labour costs, hourly earnings and social charges. In 1960, total labour costs in the EC5 countries were roughly comparable to those in the UK; in the Nordic countries they were some 20 per cent higher than in the UK, while US costs were three times as high and Japanese less than one half those of the British. By the late 1960s EC5 labour costs started to overtake the British; in Japan they reached the UK level in the mid-1970s. Meanwhile, the level of costs in the US gradually fell in relation to the UK and that in the Nordic countries rose. From the late mid-1970s to the early 1980s all the indicators came nearer to the UK's and after variable movements during the 1980s, by 1988 the levels of hourly earnings and total labour costs were much nearer to each other than at any time earlier, with the exception of 1980. The huge discrepancies of the 1960s had disappeared and the US wages were no longer the highest: both the Nordic and the EC5 levels were well above the American and the Japanese very near the latter.

Hourly earnings developed in a way similar to total labour costs but by 1988 Japanese earnings were the highest and although the UK remained the lowest, the difference against the EC5 was smaller than for total costs.

Social charges provided the link between earnings and total labour costs. The chart indicates a gradual, uninterrupted increase of social charges everywhere in Europe and America since 1960, but Japanese social charges changed very little. Social charges are highest in the EC5 countries (85 per cent of hourly earnings in 1988) followed by the Nordic countries (59 per cent), the UK (40 per cent), and the US (37 per cent) but only 19 per cent in Japan.

Exchange rates

Since labour cost data have been converted from national currencies into a common currency on the basis of annual average exchange rates, fluctuations in those exchange rates have a considerable impact on the comparison. These have been very significant in the past thirty years, as shown in chart 2. in 1960, one pound Sterling was worth 2.80 US dollars, 11 1/2 D-mark, and 14 1/2 Swedish Kronors. By 1988-9 these values were halved in the case of the Dollar, declined to one quarter of the 1960 value for the D-mark and fell vis-a-vis the Swedish Kronor as well, though only by about 25 per cent in view of the latter's devaluation. The chart also indicates the temporary revival of Sterling around 1980, particularly against the dollar, and its sharp subsequent fall to the mid- 1980s.

NOTES

(1) Labour costs and international competitiveness, National/Institute Economic Review, no. 61, August 1972; Labour costs in OECD countries 1964-75, National Institute Economic Review, no. 78, November 1976; industrial labour costs 1971-83, National Institute Economic Review, no. 110, November 1984; and Labour costs in manufacturing, National institute Economic Review, no. 120, May 1987.

(2) Wages and total labour costs for workers -international survey, annual, published by the Swedish Employers' Confederation, Stockholm. We are grateful to the Confederation, and particularly Ms Marianne Lindahl, chief statistician, for permission to use the information contained therein and for making it available to us.
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Author:Ray, George F.
Publication:National Institute Economic Review
Date:May 1, 1990
Words:1416
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