European comparison of trends in labour and unit labour costs in 2015: German labour costs in stabilising

Based on Eurostat data the Macroeconomic Policy Institute (IMK) regularly analyses the development of labour costs and unit labour costs in Europe. This report presents labour cost trends in the private sector, disaggregated for private as well as public services, and in manufacturing industry, for a selection of European countries, the Euro Area and the European Union. A special focus is put on the effects of the statutory minimum wage of 8.50 € per hour, introduced at the beginning of 2015 in Germany, on the increase in labour costs. Subsequently, the report examines the development of unit labor costs in Europe and its impact on price competitiveness. In 2015 hourly labour cost in the German private sector averaged 32.70 €. The German economy is in eighth position in the ranking of EU countries, as in the previous year. With an annual rate of change of 2.7 %, the rise in labour costs in the German private sector was above the European average. In most of the so-called European crisis countries hourly labour costs decreased or stagnated again. Hourly labour costs in German manufacturing and in private services rose at the same rate (2.7 %). Consequently, the percentage difference in labour costs between the two sectors still exceeds 21 %. This is the largest intersectoral wage gap of all the EU countries. The adjustment process in the European crisis countries continued in 2015. Such that the average rate of change in unit hourly labour cost in the Eurozone of 1 % was significantly below the ECB's inflation target of slightly below 2 % per annum. Therefore, the development of unit labour costs in the Euro Area as a whole does not comply with the ECB's inflation target. In Germany unit labour costs rose by 2 %. Overall, since the start of the currency union the rate of growth of unit labour costs in Germany has been substantially below the ECB's inflation target. Therefore, wages in Germany should grow at a substantially above average rate for several years to support the adjustment process in the European crisis countries.