Eurozone nominal hourly labour costs, workday-adjusted y/y:

total wage costs non-wage costs

3Q11 +2.7% y/y +2.6% y/y +3.2% y/y
2Q11 +3.3% y/y +3.2% y/y +3.8% y/y
1Q11 +2.5% y/y +2.3% y/y +3.4% y/y
4Q10 +1.7% y/y +1.6% y/y +2.0% y/y
3Q10 +1.2% y/y +1.1% y/y +1.5% y/y
—

PARIS (MNI) – The annual increase in Eurozone labor costs slowed
markedly in 3Q to 2.7%, reflecting weaker gains in both wages and
employer payroll contributions, Eurostat said Friday.

After an acceleration from the middle of last year, labor cost
trends peaked in 2Q with an annual rise of 3.3% (revised down from
+3.6).

Wages in 3Q were up 2.6% on the year, while non-wage costs, which
include social security contributions and employment taxes, rose 3.2%.

The slowdown in labor cost gains was most marked in industry, where
the annual rise declined from 4.2% in 2Q to 2.9% in 3Q. Labor cost gains
in the services eased from 2.9% to 2.6%, those in construction from 2.5%
to 2.4%.

The Eurozone trend was driven by Germany, where annual wage cost
increases slowed from 4.5% in 2Q to 2.9% in 3Q. France registered a
slowdown from +3.4% to +3.1%. Italy saw a modest pick-up from +2.1% to
+2.2%. In Spain, the annual increase jumped from 2.6% to 3.9%,
accentuated by a decline in working days due to extra holidays in 3Q and
the base effect of declines a year earlier.

Quarterly changes obtained from Eurostat show that labor costs were
nearly stable in 3Q at +0.1% after gains of 1.0% in both 2Q and 1Q.
Labor costs seem to peaking, and future pay accords should reflect the
cyclical downturn and rising unemployment.

Eurozone employment already declined by 170,000 in 3Q, and the rise
in the number of jobless accelerated to 355,000. This is only the
beginning of a trend likely to continue throughout next year and perhaps
beyond if economic growth remains anemic.

The PMI polls have been flagging stagnant employment for months.
The European Commission’s surveys show hiring prospects have eroded in
recent months. Employment expectations were below average in November in
all main sectors except in industry and retail.

Last month the OECD forecast a 0.3% decline in employment next
year, more than retracing this year’s recovery, and a pick-up of 0.2% in
2013. The jobless rate would jump 0.4 point to 10.3% next year and
remain there in 2013.

Under such conditions wage gains will remain subdued and probably
lag inflation for a while, leaving little leeway for a recovery in
consumption.

“Looking ahead, it is likely that the pattern of higher, albeit
still moderate, wage growth will by and large continue in the near
term,” the ECB said Thursday, noting that countries with wage indexation
would probably see high cost-of-living adjustments. “More generally,
however, there appears to be little pressure for stronger wage growth,
in view of the ongoing slack in the labor market.”

With the recovery of output after the recession, labor productivity
gains outpaced labor costs last year, resulting in a 0.7% decline in
unit labor costs — a key component of firms’ price competitiveness,
according to calculations by the ECB. Productivity gains slowed over the
first half of this year as economic activity lost steam, resulting in a
1.3% jump in unit labor costs in 2Q.

“The latest surveys point to a further slowdown in productivity in
the coming quarters, which could drive up growth in unit labor costs,”
the central bank noted.

–Paris newsroom +331 42 71 55 40; e-mail: ssandelius@marketnews.com

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