KILM 17. Hourly compensation costs

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KILM 17. Hourly compensation costs

Introduction

This indicator looks at the levels, trends and structures of employers’ hourly compensation costs for the employment of production workers in manufacturing in selected economies. The data on cost levels are expressed in absolute figures in US dollars, and a comparison in percentage terms shows the relative position of economies in relation to the United States (on the basis of US = 100). The indicator also shows the amount of non-wage labour costs as a percentage of total compensation costs, as well as the annual percentage change in total compensation costs over the period 1980-2001. As seen in tables 17a and 17b, this international comparison encompasses 30 economies, 22 among the developed (industrialized) economies, five in the Asia and Pacific region, Mexico and Brazil from the Latin America and Caribbean region, and Israel from the region of the Middle East and North Africa. Data are not available by sex.

Average hourly compensation cost is a wage measure intended to represent employers’ expenditure on the benefits granted to their employees as compensation for an hour of labour. These benefits accrue to employees either directly in the form of total gross earnings or indirectly in terms of employers’s contributions to compulsory, contractual and private social security schemes, pension plans, casualty or life insurance schemes and benefit plans in respect of their employees. This latter group of benefits is commonly known as “non-wage benefits”. Its equivalent, employers’ expenditure, is termed “non-wage labour costs”.

Compensation cost is closely related to labour cost, although it does not entirely correspond to the ILO definition of total labour cost contained in the 1966 resolution concerning statistics of labour cost, adopted by the 11^thInternational Conference of Labour Statisticians (ICLS),^[1] in that it does not include all items of labour costs (see box 17a). In particular, the costs of recruitment, employee training, and plant facilities and services, such as cafeterias, medical clinics and welfare services, are not included. It is estimated that the labour costs not included in hourly compensation costs account for some 4 to 5 per cent of total labour costs for those economies for which information is presented. This measure is also closely related to the “compensation of employees” measure used in the system of national accounts,^[2] which can be considered a proxy for total labour costs.

Trends

Figure 17a. Relative hourly compensation costs (US=100), 2001

In 2001, hourly compensation costs in five European economies – Belgium, Denmark, Germany, Norway and Switzerland - were higher than that of the United States. Over the last two years (1999 to 2001), however, six other economies moved from having higher compensation costs to lower compensation costs than the United States: Austria, Finland, Japan, Luxembourg, Netherlands and Sweden. Over the last five years, declines in compensation costs were particularly pronounced – 15 per cent or more – in Australia, Brazil (48 per cent), Italy, New Zealand and Sweden. The disparity in compensation costs between economies continues to be wide, ranging from US$0.48 per hour in Sri Lanka to US$22.99 in Germany in 2000.

Figure 17b. Annual percentage change in hourly compensation costs, selected economies, 1990-95 and 1995-2001

The largest increases in compensation costs were in the non-European economies, specifically the Asian economies of Hong Kong (China), the Republic of Korea, Singapore and Taiwan (China). The increase in the Republic of Korea from 1990 to 1995 was among the highest of any economies studied and reflected the strong appreciation of the Korean won after years of financial crisis. The majority of economies showed less movement in the latter period – 1995 to 2001 – than in the first half of the decade – 1990 to 1995 – and all economies but Israel, Hong Kong (China), Mexico, Singapore, the United States and the United Kingdom had compensation costs that declined between 1995 and 2001.

Figure 17c. Proportion of non-wage costs to total compensation costs, 1980, 1990 and 2000

The ratio of non-wage costs to total costs for most economies increased by 1 to 6 percentage points between 1980 and 2000, with the largest increase in the Republic of Korea (20 percentage points). On the other hand, the ratio decreased by 10 percentage points in Singapore and by 2 percentage points in Norway and the United Kingdom over the same period. Changes were not so great in the period from 1990 to 2000. It can be seen that the structure of compensation costs varies strongly from one economy to another, mainly reflecting different tax, pension and social security systems. Among European economies, for example, the share of non-wage costs in 2001 as a percentage of total compensation costs ranged from 8 per cent in Denmark, where social protection is mainly financed through income tax, to 31 per cent in France.

^[1] Resolution concerning statistics of labour cost, adopted by the 11th International Conference of Labour Statisticians, Geneva, 1966; website: http://www.ilo.org/public/english/bureau/stat/download/res/labcos.pdf.

^[2] United Nations: System of National Accounts 1993, prepared under the auspices of the Inter-Secretariat Working Group on National Accounts (SNA), Brussels/Luxembourg, New York, Paris, Washington, DC, 1993. Additional information relating to the SNA is available from the United Nations, Statistics Division, New York; website: http://unstats.un.org/unsd/nationalaccount/default.htm