FRANKFURT (MNI) – The Eurozone’s nominal work-day adjusted hourly
labor costs rose in the last three months of 2010 at the fastest pace
since the first quarter of the year, according to data from the EU’s
statistical agency Eurostat, released on Wednesday.

The 1.6% yearly gain was well above the median forecast of 0.7% in
an MNI survey of economists. Total labor costs in 3Q were revised up 0.1
point to 0.9%.

Broken down by components, gains in non-wage costs outpaced wage
outlays. The former grew 1.9% on the year, while the latter increased
only 1.4%.

Among larger countries, France saw the sharpest gains, with total
yearly hourly labor cost growth of 3.0% (2.7% wage, 3.8% non-wage).
German hourly labor costs grew at 1.5% (1.4%/1.7%).

By contrast, annual labor costs in Greece fell 6.5%, likewise Irish
costs (non work-day adjusted) fell 1.2% — in both cases likely a
reflection of cost cutting in the face of severe fiscal situations.

Spanish gains were more modest 0.7% (0.9%/-0.2%), perhaps an
indication of the still-dire situation in the country’s labor market.
Spanish unemployment has hovered around 20% for several months now.

Following years of wage moderation, German trade unions are now
intensifying efforts for generous pay rises in response to the country’s
robust economic growth. Negotiations are currently taking place in many
major sectors, such as construction. Train drivers, a relatively small
but powerful lobby, are threatening an open-ended strike if their
demands of a 5% pay rise and a sector-wide pay contract to fight wage
dumping are not met.

German unemployment is relatively low, thus weakening employer
leverage to force wage moderation.

European policymakers are concerned that higher wages could put
further upward pressure on prices.

European Central Bank President Jean-Claude Trichet clearly stated
in his monthly press conference nearly two weeks ago that the bank would
not stand by if new labor deals were to stoke inflation.

“Our message for all price-setters, not only for the social
partners, is that they have to take into account that we will deliver
price stability in the medium term in the future as we have done for the
last twelve years,” Trichet said.

“Wage moderation, which takes due account of labor productivity
progress but permits unit labour costs to preserve the highest level of
competitiveness, is essential to combat unemployment,” he added.

— Frankfurt bureau: +49-69-720-142; email: tbuell@marketnews.com —

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