Unit Labour Cost
|Release Date:||Usually released on a quarterly basis|
|Released By:||Organization of Economic Cooperation and Development|
Unit Labor Cost (ULC) is a labor statistic which is the amount of money that is needed to pay the staff of a company to manufacture one unit of that company’s product. It measures the relationship between productivity and the cost of labor used in generating output. Unit Labor Costs are also informally known as wage inflation.
Even though the data covers the years starting from 1929, the latest System of Unit Labor Cost and Related Indicators, which is what produces the data referred to as the Unit Labor Costs, was devised in 2007 by the Organization of Economic Cooperation and Development, and covers member countries of the OECD (Australia, Norway, US, Canada). This report details a series of Unit Labor Costs reported annually and quarterly for the following economic sectors:
- Total Economy
- Market Services
- The Business Sector
A specific method is used in computing the data so that uniformity and comparability in measuring the data across the various OECD member states. The data will include:
- annual unit labor costs
- total labor costs
- total employment to staff
- labor income share ratio
- real and nominal output
- labour productivity
- Sectorial breakdown of compensation packages for staff: manufacturing, marketing, construction, industry, etc.
Time of Release
The Unit Labor Cost is usually released on a quarterly basis by the Organization of Economic Cooperation and Development. The data can be seen on the OECD website as well as on independent financial news websites such as Bloomberg, the Economist and Thomas Reuters.
Interpreting the Data
Unit Labor Costs represent the most direct data which measures the costs of labor experienced by employers of labor. Measuring the Unit Labor Costs to an employer of labor is a function of the total wage bill (usually hourly wages) and the speed at which those staff are able to manufacture one unit of their products. Unit Labor Costs are also expressed in growth rate terms as being roughly equal to growth in wage costs minus growth in productivity of the staff per unit of product. A rise in the unit labor costs of firms in an economy may be good or bad for the currency, depending on the relationship to productivity. If unit labor costs rise far higher than any rise in productivity of the labor force, this will negatively impact an economy’s cost competitiveness (even if the labor force is happy due to higher wages), especially if other costs are not reduced to offset the rising labor costs.
When wages rise faster than productivity leading wage inflation, there will be an increase in consumer prices as a result of higher spending power of the work force. A little inflation will not cause concern in countries that manufacture goods. In contrast, where unit labor costs rise above 5%, this is an indication that firms are paying their workers more to hold on to them even when productivity levels have peaked. This is a problem in countries which are more dependent on natural resources and cannot outsource manufacturing to cheaper sources to cut these labor costs.