Report from the Commission to the European Parliament AND to the Council Report for 2006 on the implementation of Regulation (EC) No 450/2003 of the European Parliament and of the Council
Date: 2006-12-14
Institutions: European Commission
Subjects: EU statistics, application of EU law, data transmission, labour force, national implementing measure, report, statistics, wage cost, wage indexing

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 14.12.2006 
COM(2006) 801 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT  
AND TO THE COUNCIL 

report for 2006 on the implementation of Regulation (EC) No 450/2003  
of the European Parliament and of the Council 

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1. 

INTRODUCTION 

Labour  costs  are  generally  regarded  as  an  important  factor  in  the  analysis  of  short-  and 
medium-term  economic  development.  The  timely  production  of  a  labour  cost  index  in  the 
euro area is thus considered by the Commission and the European Central Bank to be of the 
utmost  importance  for  assessing  the  inflationary  pressure  that  may  arise  from  short-term 
developments  in  the  labour  market.  The  labour  cost  index  is  also  important  for  the  social 
partners  in  wage  negotiation  and  for  the  Commission  itself  in  monitoring  short-term 
developments in labour costs. 

Regulation  (EC)  No  450/2003  of  the  European  Parliament  and  of  the  Council  of 
27 February 2003  concerning  the  labour  cost  index  (LCI)  establishes  a  common  framework 
for  the  production,  transmission  and  evaluation  of  comparable  labour  cost  indices  in  the 
Community  (OJ  L  69,  13.3.2003,  p.  1).  The  Commission  (Eurostat)  publishes  a  quarterly 
news release on the labour cost index. 

Article  13  of  the  above  Regulation  requires  the  submission  of  biennial  reports  on  the 
implementation of the Regulation. These reports must evaluate in particular the quality of the 
transmitted LCI series data and the quality of the transmitted back data. 

An  implementing  regulation  was  adopted  by  the  Commission  in  July  2003  (Regulation  EC 
No 1216/2003,  OJ  L  169,  8.7.2003,  p.  37),  setting  out  in  more  detail  the  procedures  for 
transmitting the index, the specific (seasonal) adjustments to be made and the content of the 
national quality reports.  

The provision of annual national quality reports is required under Article 8(2) of Regulation 
(EC) No 450/2003. There the quality of the labour cost index has been reported in terms of 
the  following  aspects:  relevance,  accuracy,  timeliness  and  punctuality,  accessibility  and 
clarity, comparability, coherence and completeness. In the present report, emphasis has been 
put on the highlighted items.  

Small irregularities in transmission delays have not been reported, as by their nature these are 
normally temporary. 

Annex of this report indicates coming national improvement actions for those Member States 
who have provided this information.  

2. 

GENERAL PROGRESS SINCE THE LAST REPORT  

Since  the  implementation  of  reporting  in  20041,  substantial  progress  has  been  achieved, 
especially in the general availability of the labour cost index. By now, all EU Member States 
have implemented the LCI and the data are delivered regularly to the Commission (Eurostat) 
although not necessarily within the mandatory deadlines. 

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COM(2004) 833 final of 27.12.2004. 

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The availability of the LCI from all EU Member States allows the European Union aggregates 
to be compiled and makes it possible to compare with sufficient accuracy the development of 
the hourly labour costs between the Member States. There are, however, a number of quality 
issues  which  still  require  extra  effort  from  certain  Member  States  in  order  to  complete  the 
harmonisation process. These issues are discussed below. 

Just as the Member States have implemented the necessary facilities for the production of the 
LCI,  the  Commission  (Eurostat)  has  also  implemented  a  production  system  that  allows 
reception, verification, manipulation, storage and dissemination of the Labour Cost Index data 
in a timely manner. These processes became fully operational in 2005. 

3. 

QUALITY EVALUATION (UP TO OCTOBER 2006) 

3.1 

Member States with a sufficient quality of labour cost index  

The  following  Member  States  have undertaken all necessary  measures to comply fully with 
the  Regulation:  Czech  Republic,  Denmark,  Germany,  Estonia,  Spain,  Latvia,  Lithuania 
Luxembourg, the Netherlands, Austria, Poland, Portugal, Slovenia, Slovak Republic and the 
United Kingdom. 

Based on the transmitted index series and especially the accompanying metadata from these 
Member  States,  the  quality  of  the  labour  cost  index  time  series  has  not  been  called  into 
question and is therefore considered to be sufficient. 

However,  the  Netherlands  has  not  delivered  the  regulatory  quality  report.  The  quality 
evaluation  for  the  Netherlands  is  therefore  still  uncertain  and  a  full  guarantee  on  quality 
cannot be given. Also, even if the quality is evaluated as sufficient for the current part of the 
LCI series, shortcomings with historical time series still remain in two Member States: 

Latvia 

Comparability. The historical data are missing (1996). 

United Kingdom 

Completeness. The index series are not provided in working-day adjusted or in seasonally and 
working-day adjusted form (1996-1999). 

3.2 

Member States with quality shortcomings 

After inspection, the Commission (Eurostat) found that the quality of the LCI is not sufficient 
in  all  respects  to  fulfil  the  requirements  of  Regulation  (EC)  No  450/2003  for  the  following 
Member States: Belgium, Greece, France, Ireland, Italy, Cyprus, Hungary, Malta, Finland and 
Sweden. 

Cyprus  has  not  delivered  the  standard  regulatory  quality  report,  a  fact  which  may  make  the 
evaluation of all the quality aspects less precise. 

Detailed breakdown of detected quality shortcomings: 

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Belgium  

Timeliness. The timeliness of the transmitted index series does not fulfil the legal obligation. 
The  delay  was  up  to  more  than  200  days  in  2005  (instead  of  the  required  70  days).  After 
trying several solutions in 2006, the Belgian authorities have managed to shorten the delay in 
making administrative data available. 

Completeness. The index series are not provided either in working-day or in seasonally and 
working-day adjusted form.  

Greece  

Timeliness. The timeliness of the transmitted index series does not fulfil the legal obligation. 
The  delay  was  up  to  almost  270  days  in  2005  (instead  of  the  required  70  days).  Some 
improvement  has  been  seen  in  2006,  but  the  transmission  delay  still  exceeds  the  legal 
deadline. 

Comparability. The historical series are missing (1996-1999). 

France 

Accuracy. The hours worked measure has been replaced by the contractual paid hours of full-
time employees in enterprises of 10 and more employees. 

Ireland  

Accuracy.  The  hours  worked  measure  reflects  hours  paid  rather  than  hours  worked.  One 
defect is that irregular payments to employees are not included in the measurement of labour 
costs in the labour cost index.  

Timeliness. The timeliness of the transmitted index series does not fulfil the legal obligation. 
The  delay  was  up  to  around  100  days  in  2005  (instead  of  the  requisite  70  days).  Some 
improvement  has  been  seen  in  2006,  but  the  transmission  delay  still  exceeds  the  legal 
deadline. 

Comparability. The historical series are partially missing (1996-1997) 

Completeness.  The  index  series  are  not  supplemented  by  working-day  or  seasonally  and 
working-day adjusted form (partially supplemented in 1996-1997).  

Italy 

Accessibility.  The  Italian  labour  cost  index  has  been  classified  by  the  Italian  authorities  as 
'confidential'  from  the  second  quarter  of  2005;  therefore  it  cannot  be  published  but  can  be 
used for European Union aggregates only. This is due to uncertainties about the quality of the 
related hours worked series. 

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Cyprus 

Comparability. The historical series are partially missing (1996-1999) 

Completeness. The index series are not complete, as they are not delivered in seasonally and 
working-day adjusted form.  

Hungary 

Accuracy. The data relate to private enterprises employing at least 5 persons and government 
organizations of all size classes. 

Malta 

Comparability. The historical series are partially missing (1996-1999) 

Completeness.  The  index  series  are  not  complete,  as  they  are  not  delivered  in  working-day 
adjusted or in seasonally and working-day adjusted form. 

Finland 

Accuracy. The data relate only to full-time employees. The quarterly change in labour costs 
since  the  first  quarter  of  2005  has  been  measured  by  the  change  in  earnings  for  regular 
working time. In general, there are significant delays – up to about 2 years - in several of the 
sources used for compiling the LCI. Consequently, the present application of the labour cost 
index does not fully take account of the short-term development of hourly labour costs with 
the desirable precision in Finland, and major revisions limit its usability.  

Sweden 

Accuracy. One shortcoming is that irregular bonuses are not included in the measurement of 
labour costs. Data cover the private sector only. 

Completeness.  The  index  series  are  not  delivered  in  working-day  adjusted  or  in  seasonally 
and working-day adjusted form.  

4. 

RECENT  ACTIONS  BY  THE  EUROPEAN  COMMISSION  (EUROSTAT)  AND  MEMBER 
STATES 

In  2006,  the  Commission  (Eurostat)  together  with  the  Member  States  completed  the 
evaluation  of  the  feasibility  studies  on  extending  the  scope  of  the  LCI  to  cover  economic 
activities such as public administration, education and health care (NACE Rev.1 sections L to 
O)  and  to  develop  an  index  excluding  irregular  bonuses  (Article  10  of  Regulation  (EC) 
No 450/2003).  The  draft  Commission  Regulation  for  the  extended  data  collection  has  been 
introduced  in  November  2006.  On  a  contrary,  a  decision  over  an  index  excluding  irregular 
bonuses has not yet been taken as investigations showed that more efforts are still needed in 
the  definitions  and  especially  searching  the  means  making  this  sub-index  operational  with 
acceptable quality. 

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Further issues concerning the relevance and accuracy of the LCI have been given preliminary 
consideration. First, a user requirement for separating the index into private and public sectors 
has been identified. A partial solution will be the above-mentioned NACE extension and the 
breakdown by economic activity which it offers. Secondly, as the high volatility of some of 
the index series has been traced to the high volatility of the underlying hours worked series, 
there might be an interest in and possibly a need for receiving separately the two components 
of the LCI – quarterly labour costs and quarterly hours worked. 

5. 

CONCLUSIONS 

Fifteen Member States are in compliance with the Regulation as regards the quality aspects 
evaluated.  However,  two  of  these  are  still  having  problems  as  regards  the  availability, 
comparability or working-day and seasonal adjustment of the historical LCI series. 

Ten  Member  States  still  have  shortcomings  concerning  one  or  more  quality  aspects  of  the 
LCI. These are mainly related to the accuracy element of quality. Definition and coverage of 
some of the aspects of the LCI do not fully correspond to the legal requirement. Insufficient 
timeliness,  missing  working-day  and  seasonally  adjusted  series  and  incomplete  historical 
series also play their part in lowering the quality of the LCI series.  

Two Member States have not completed the regulatory quality reporting. 

The  Commission  (Eurostat)  will  be  monitoring  the  remaining  non-compliance  and  quality 
issues regularly through the data delivered and other national documentation. Where desired 
or  planned  improvements  have  not  advanced  appropriately,  the  corresponding  national 
authorities will be contacted. 

As  the  European  Union  labour  cost  index  series  are  being  used  frequently  in  monitoring 
labour  cost  developments  for  the  EU  and  its  Member  States,  it  is  of  the  utmost  importance 
that  the  national  authorities  provide  data  of  the  highest  quality.  However,  it  should  be 
underlined  that  the  situation  has  improved  substantially  since  the  Regulation  became  fully 
applicable  at  the  beginning  of  2005.  All  Member  States  -  not  only  those  applying  the 
Regulation  fully  -  have  directed  resources  into  implementing  actions  to  achieve  more 
comparable  and  timely  index  series.  This  has  clearly  raised  the  overall  quality  and  thus 
increased the usefulness of the data. 

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Details  of  forthcoming  National  Improvement  Activities  (Member  States' 
contributions) 

ANNEX  

Spain 

The main problem of the Labour Cost Index in Spain is timeliness.  

The source of information for compiling the LCI is the Quarterly Labour Cost Survey (QLCS) 
which has been conducted by the National Statistics Institute (INE) since 2000. The ongoing 
work  to  obtain  the  results  takes  80  days  or  more,  depending  on  the  quarter.  During  the 
summer  months,  the  industrial  holidays  have  the  effect  of  extending  the  data  collection 
period. 

Since wages and salaries in Spain are usually paid on a monthly basis and payments of Social 
Security  contributions  are  also  made  monthly  by  law,  the  QLCS  questionnaire  asks  for 
monthly  data.  The  information  requested  is  based  on  the  official  documents  that  employers 
have to submit to the worker and to the Social Security. Therefore, the legal time limits for the 
submission  of  these  documents  are  observed  and,  consequently,  it  is  not  possible  to  bring 
forward the final results. 

In order to obtain the LCI results on time, at t+70 days, a provisional LCI of one quarter t is 
obtained  and  published  with  the  information  received  and  validated  up  to  that  time.  The 
validation and imputation processes continue until t+80, when the QLCS is published with the 
final  results.  The  revised  LCI  is  obtained  at  t+80.  At  (t+1)  +70,  the  provisional  LCI  for 
quarter t+1 is published, together with the revised LCI for quarter t. 

Ireland 

Ireland is in the process of implementing a strategy to improve the coverage of information on 
earnings and labour costs. One element of this is a new annual structural survey of employees 
(the National Employment Survey, or NES) that will collect information on earnings and the 
factors that influence earnings (age, occupation, length of service etc.). The NES will monitor 
the structure of earnings on an annual basis, as well as providing a vehicle for collecting other 
enterprise-related data on matters such as vocational training etc.  

The  other  element  is  a  new  quarterly  survey:  the  Earnings,  Hours  and  Employment  Costs 
Survey (EHECS). This survey will provide comparable and timely data on labour costs across 
all  sectors  of  the  economy  and  will  measure  earnings  and  employment  in  a  more 
comprehensive and consistent way across the different sectors. It will be aimed at enterprises 
employing three or more persons. 

This  survey  will  collect  data  on  wages  and  salaries,  employers’  social  contributions,  other 
non-wage  costs,  and  hours  worked  for  the  entire  quarter.  The  expansion  of  coverage  to 
include these non-wage costs, which are not traditionally included as earnings, will enable the 
survey to better reflect the cost of employment and the pressure on competitiveness.  

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The  main  output  of  the  survey  will  be  an  index  of  labour  costs  per  hour  worked,  and  the 
survey  is  designed  to  monitor  the  short-term  change  in  labour  costs.  Given  the  breakdown 
requested  in  the  survey,  it  will  be  possible  to  routinely  disseminate  hourly  earnings 
information with and without bonuses and by broad occupational group.  

The EHECS survey is designed to meet national needs and EU requirements and, once it is 
fully up and running, Ireland will be able to  supply LCI data which will be fully compliant 
with  Regulation  (EC)  No  450/2003.  The  new  EHECS  survey  will  also  mean  that,  in  the 
future,  it  will  not  be  necessary  to  carry  out  a  dedicated  four-yearly  Labour  Costs  Survey 
(LCS). 

The EHECS survey will ultimately replace all existing short-term earnings surveys currently 
being  carried  out  by  the  CSO.  The  EHECS  was  launched  in  2005  for  the  industrial  and 
financial sectors. In early 2007 it will be extended to cover the public sector and then, later in 
the  year,  the  distribution  sector.  By  2008  it  will  cover  most  sectors  of  the  economy  from 
industry to personal services (NACE C to O).  

Finland 

The  Finnish  model  of  compiling  the  Labour  Cost  Index  is  based  on  data  from  several 
statistical sources. The accuracy of the index improves gradually with each revision, as slower 
statistical sources become available.  

In 2005, Statistics Finland started a project for implementing a new production model for the 
LCI  based  on  direct  quarterly  collection  of  primary  data  from  enterprises.  Through  these 
measures Finland should be able to comply fully with the Regulations of the LCI from 2009. 

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