Report from the Commission to the European Parliament and the Council on the implementation of Regulation (EC) No 450/2003 of the European Parliament and of the Council of 27 February 2003 concerning the labour cost index (LCI)
Date: 2009-02-03
Institutions: European Commission
Subjects: European Economic and Social Committee, data transmission, labour market, price index, wage cost

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 3.2.2009 
COM(2009) 33 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

on the implementation of Regulation (EC) No 450/2003 of the European Parliament and 
of the Council of 27 February 2003 concerning the labour cost index (LCI) 

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1. 

INTRODUCTION 

Labour  costs  are  an  important  factor  in  the  analysis  of  short-  and  medium-term  economic 
development. The timely production of a labour cost index for the European Union as well as 
the Euro zone 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 
developments  in  the  labour  market.  The  labour  cost  index  is  also  important  for  the  social 
partners  in  wage  negotiations  and  for  the  Commission  itself  in  monitoring  short-term 
developments  in  labour  costs.  The  Labour  Cost  Index  is  one  of  the  Principal  European 
Economic Indicators (PEEI).1 

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 and transmission 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.2 

In  July  2003,  the  Commission  adopted  an  implementing  regulation  (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. Since the last report to the European Parliament and the Council from 
20063, a new Commission Regulation EC No 224/2007 of 1 March 2007 (OJ L 64, 2.3.2007, 
p. 23) has been adopted. It amends the implementing regulation of 2003 and extends the scope 
of the labour cost index to cover the economic activities defined by NACE Rev. 1, sections L, 
M,  N  and  O.  This  extension  means  that  non-market  services,  which  account  for  the  major 
share  of  these  sections  and  which  may  have  different  dynamics  from  market  services,  will 
also be covered.  

Article 13 of Regulation (EC) No 450/2003 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.  The  provision  of 
annual national quality reports is required under Article 8(2) of this Regulation. In Annex I of 
the  implementing  regulation  (Regulation  EC  No 1216/2003),  the  quality  of  the  labour  cost 
index has been set out to cover the following dimensions: relevance, accuracy, timeliness and 
punctuality, accessibility and clarity, comparability, coherence and completeness.  

Since considerable progress has been made with respect to comparability and completeness, 
the  present  report  will  focus  on  accuracy,  timeliness  and  coherence.  Small  irregularities  in 
transmission delays are not reported, as these by their nature are normally temporary.  

The  annex  to  this  report  indicates  forthcoming  national  improvement  actions  for  those 
Member States which have provided this information.  

2. 

GENERAL PROGRESS SINCE THE LAST REPORT  

Since  the  last  report  in  2006,  substantial  progress  has  been  achieved,  especially  in  the 
availability and the quality of the labour cost index (LCI). In general, revisions of past data 
have become smaller, and the volatility of the index has decreased. Back data, which in many 

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Eurostat's website: http://epp.eurostat.ec.europa.eu/ 
The quarterly news release is published on the dates set in the release calendar; both can be found on 
Eurostat's website 
COM(2006) 801 final of 14.12.2006 

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cases were still missing in 2006, have in the meantime been delivered by all Member States. 
Both new Member States (Bulgaria and Romania) have been able to supply the LCI according 
to the quality standards laid down in Regulation (EC) No 450/2003. By now, all EU Member 
States have implemented the LCI and the data are, with some exceptions, delivered regularly 
to the Commission (Eurostat) within the mandatory deadlines. 

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

While the Member States have implemented the necessary facilities for the production of the 
LCI,  the  Commission  (Eurostat)  has  maintained  and  enhanced  its  production  system  that 
allows  reception,  verification,  manipulation,  storage  and  dissemination  of  the  Labour  Cost 
Index data in a timely manner. These processes, which became fully operational in 2005, are 
continuously reviewed and updated. 

2. 1 

Extension to NACE Rev. 1 sections L to O and transition to NACE Rev. 2 

Regulation  (EC)  No  224/2007  of  1  March  2007  (OJ  L  64,  2.3.2007,  p.  23)  extended  the 
coverage  of  the  LCI  to  non-market  services.  Since  the  first  quarter  of  2007,  non-seasonally 
adjusted LCI data for NACE sections L to O have to be transmitted to Eurostat each quarter. 
As  soon  as  four  years  of  data  are  available  for  a  Member  State,  the  series  also  have  to  be 
transmitted  in  working  day  adjusted  and  seasonally  adjusted  form.  Currently,  these  data, 
including  the  working  day  adjusted  and  the  seasonally  adjusted  data,  are  transmitted  by  all 
Member  States  who  do  not  have  a  derogation.  The  derogations  for  Belgium,  Denmark, 
Greece,  Spain,  France,  Ireland,  Italy,  Cyprus,  Luxembourg,  Malta,  Austria,  Poland  and 
Sweden  will  expire  on  the  deadline  set  for  the  delivery  of  data  of  the  first  quarter  of  2009. 
From then on, data series for all Member States will have to include NACE Rev 1. sections L 
to O.  

At  the  same  time,  Regulation  (EC)  No  1893/2006  of  20  December  2006  (OJ  L  393, 
30.12.2006, p 1) concerning the change of nomenclature from NACE Rev 1 to NACE Rev. 2 
will start to affect the LCI. Data delivered for the first quarter of 2009 will have to be already 
coded  according  to  NACE  Rev.  2.  The  necessary  changes  to  the  production  environment 
following this change in the classification of economic activities have been implemented by 
the Commission (Eurostat) and the Commission is monitoring the progress of Member States 
with regard to the implementation of the change of classification which is under way. In order 
to prepare a smooth transition to the new nomenclature, a workshop was held in 2007 which 
was exclusively dedicated to the introduction of NACE Rev.2 in the Member States. A second 
workshop,  which  reviewed  progress  with  implementation  and  provided  a  forum  for 
discussion, was held in November 2008.  

3. 

3.1 

EVALUATION OF COMPLIANCE (UP TO SEPTEMBER 2008) 

Overview  

The  following  Member  States  have  taken  all  necessary  measures  to  comply  fully  with  the 
Regulation:  Belgium,  Bulgaria,  the  Czech  Republic,  Denmark,  Germany,  Estonia,  Spain, 
France,  Italy,  Cyprus,  Latvia,  Lithuania,  Luxembourg,  Malta,  Poland,  Portugal,  Romania, 
Slovenia, Slovakia and the United Kingdom. The Netherlands also delivered data of sufficient 
quality during the reporting period, although with an exceptionally long delay for almost all 

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quarters; consequently, the Netherlands did not comply with the timeliness requirement laid 
down  in  the  Regulation.  Hungary,  Finland  and  Sweden  did  regularly  deliver  data,  but  to 
differing  degrees  do  not  comply  fully  with  the  definitions  of  the  LCI  as  described  in  detail 
below.  Ireland,  too,  does  not  fully  comply  with  the  accuracy  requirements  of  the  LCI  and, 
moreover,  has  not  provided  data  in  time  for  all  quarters  in  2008.  Greece  and  Austria  have 
delivered  data  on  time  for  most  of  the  reporting  period,  but  are  currently  revising  the  LCI 
owing  to  quality  concerns.  Overall,  this  result is  an  improvement  compared  to  the  situation 
described  in  the  report  from  2006,  where  -  in  addition to more serious quality problems - a 
number of back data series, as well as working day and seasonally adjusted series, were still 
missing. 

3.2 

Details of quality shortcomings  

3.2.1 

Accuracy 

Accuracy concerns can relate to a variety of aspects of the LCI. Generally, they are due to 
shortcomings  of  the  source  data  and  can  lead  to  high  volatility  of  the  LCI  series.  Also, 
inaccurate data may not be fully comparable with those of other Member States, and can in 
addition  lead  to  inconsistencies  between  the  LCI  and  other  data  sources  which  measure 
similar  aspects  (e.g.  development  of  hourly  compensation  of  employees).  Generally,  known 
accuracy problems are discussed by the affected Member States in the yearly quality report, 
and the Commission (Eurostat) monitors the progress made or planned in the implementation 
of better sources.  

At  the  moment,  six  Member  States  are  affected  by  accuracy  problems.  Ireland,  Hungary, 
Finland and Sweden currently have no appropriate source data at their disposal that would 
allow  them  to  comply  fully  with  the  regulation.4  LCI  data  delivered  by  Greece  show 
unexplainable growth rates which cannot be reconciled with the developments in the labour 
market.  Austria  has  stopped  delivering  data  for  the  same  reasons  and  is  currently 
investigating the sources of these quality problems.  

Ireland: Hours paid is the measure used instead of hours worked. Irregular payments are not 
included in the index. This should change as soon as the new data source (planned for 2009) 
can be used for all economic activities. Also, the series does not cover all employees but has a 
lower cut-off point for enterprises with 10 or more employees for Industry (NACE C, D and 
E) and Construction (NACE F) sectors. The Services sectors (NACE G, H, I, K) have a lower 
cut-off  point  for  Services,  namely  enterprises  with  five  or  more  employees,  while  NACE  J 
(Financial Intermediation) only covers banking, insurance and building society enterprises.  

Greece: High volatility of LCI series and large revisions. So far, no adequate explanation has 
been given for the extreme volatility. Moreover, the yearly quality report was not delivered in 
either  2007  or  2008;  the  report  sent  in  2006  is  too  concise  to  allow  any  conclusions  to  be 
drawn as to the causes of the accuracy problems.  

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

Austria:  In  September  2008,  data  delivery  was  stopped  because  of  implausible  and  volatile 
results.  

Finland:  The  data  relate  to  full-time  employees  only.  The  quarterly  change  in  labour  costs 
since  the  first  quarter  of  2005  has  been  measured  by  the  change  in  earnings  for  regular 

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See the Annex for planned actions for Ireland, Finland and Sweden. 

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working  time.  In  order  to  calculate  the  annual  change  in  the  labour  cost  index,  the  labour 
force survey, the structure of earnings statistics and national accounts data have been used. In 
general,  there  are  significant  delays  –  of  up  to  2  years  –  in  several  of  the  sources  used  for 
compiling the LCI. Consequently, the current application of the labour cost index in Finland 
does  not  fully  take  account  of  the  short-term  development  of  hourly  labour  costs  with  the 
desirable precision, and major revisions limit its usability. 

Sweden:  Irregular  bonuses  are  not  included  in  the  measurement  of  labour  costs.  Data  cover 
the private sector only. 

3.2.2 

Timeliness 

Timeliness  has  continued  to  improve  since  the  last  report  from  2006.  Nevertheless,  for  a 
variety of reasons, several Member States have failed to deliver the LCI in time (70 days after 
the  reference  quarter)  for  some  of  the  quarters.  Timeliness  is  of  the  utmost  relevance  since 
delays in data delivery mean that estimations have to be used for EU and EA aggregates. This 
can  result  in  unnecessary  large  revisions.  Listed  below  are  those  Member  States  who 
delivered the data so late (> t+75) that it could not be included in the quarterly press release 
issued  by  the  Commission,  and  extrapolations  of  the  LCI  values  of  the  respective  countries 
had to be used for the EU and EA aggregates published for that quarter. 

Belgium:  Failed  to  deliver  the  data  in  time  on  three  occasions  during  the  reporting  period. 
After  an  improvement  in  the  situation  compared  to  the  report  from  2006,  several  incidental 
factors led to late delivery of the LCI in the first half of the 2008 reporting period. Data for 
the third reference quarter of 2008 are expected to be delivered in time.  

Cyprus, Italy, Luxembourg: Did not deliver data in time on one occasion. This is not due to a 
structural  production  problem  and  therefore  is  expected  to  remain  as  incidental  non-
compliance. 

Ireland: Did not deliver data in time on three occasions. Delivery is not expected to resume 
before 2009. 

Greece:  Did  not  deliver  data  in  time  on  three  occasions.  This  is  not  due  to  a  structural 
production problem and is therefore expected to remain as incidental non-compliance.  

The  Netherlands:  Major  non-compliance  in  2007.  During  the  reporting  period,  data  were 
extremely late for five quarters. However, on-time data delivery was resumed in the reference 
quarter 2008Q1. 

Austria:  Did  not  deliver  data  on  time  on  three  occasions  during  the  reporting  period  due  to 
quality shortcomings and unexplained volatility of the data. Punctual data delivery is expected 
to be resumed in the reference quarter 2008Q4. 

3.2.3  Coherence  

In the annual quality report, Member States are asked to compare the growth rates of the LCI 
with those of hourly compensation of employees of national accounts (ESA95 definition). Both 
data collections measure the same phenomenon with small divergences in the definitions, and 
a  higher  level  of  detail  available  for  the  LCI  which  usually  involves  the  use  of  other  or 
additional sources. Therefore, full coherence cannot be expected. Nevertheless, growth rates 
which are going in the same direction and are of comparable size indicate that the quality of 
the LCI data is comparable to the quality of national accounts data. The degree of coherence 
is thus a good indicator of the quality of the LCI data. Since not all Member States produce 
quarterly  data  for  hourly  compensation  of  employees  (national  accounts  data),  a  complete 

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overview of coherence is not possible. The following overview is based on the quality reports 
from 2007.  

Germany,  Malta:  High  degree  of  coherence,  since  national  accounts  are  the  source  for  the 
LCI. 

Bulgaria,  Cyprus,  Czech  Republic,  Denmark,  Estonia,  France,  Lithuania,  Luxembourg, 
Poland,  Romania,  Slovenia:  Sufficient  degree  of  coherence.  The  sign  of  growth  rates  are 
generally the same, and the growth rates are of similar size. 

Finland:  Low  coherence;  large  discrepancies  in  the  growth  rates  of  both  sources.  These 
discrepancies can be explained by the accuracy problems of the LCI described in detail above. 

Belgium, Spain, Greece, Italy, Latvia, the Netherlands, Portugal, Sweden, Slovenia, Slovakia, 
UK : No quarterly national accounts data available or not reported on in the quality report 

4. 

CONCLUSIONS 

Overall, the degree of compliance with the Regulation has increased since the previous report 
in 2006. All Member States have continued to channel 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. 

All  missing  back  data  series  as  well  as  missing  working-day  and  seasonally  adjusted  series 
have been delivered in the meantime. The timeliness of data delivery has improved, and the 
number  of  Member  States  with  accuracy  problems  has  decreased.  However,  nine  Member 
States still have shortcomings concerning one or more quality aspects of the LCI. For three 
Member  States  these  shortcomings  are  due  to  the  incidental  late  delivery  of  data  only,  and 
therefore  of  a  transitory  nature.  Six  Member  States  have  more  serious  problems  with  the 
accuracy  aspect  of  quality.  This  compares  favourably  to  the  situation  in  2006,  when  10 
Member States reported accuracy problems.  

The  Commission  (Eurostat)  has  urged  Member  States  to  step  up  their  improvement  efforts. 
The  Commission  will  be  monitoring  the  remaining  non-compliance  and  quality  issues 
regularly through the data delivered and other national documentation. Where the desired or 
planned  improvements  have  not  advanced  appropriately,  the  corresponding  national 
authorities will be contacted, and the Commission will take the necessary actions to enforce 
compliance.  

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Details of forthcoming National Improvement Activities  

ANNEX  

Ireland 

Ireland is in the process of implementing a strategy to improve the coverage of information on 
earnings and labour costs.  

One 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 manner 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.  

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. Data for these sectors are now available and currently used in the LCI. Data 
collection has been extended to cover the public sector and the distribution sector, but the data 
are  not  currently  being  used.  By  2009,  the  EHECS  will  cover  most  sectors  of  the  economy 
from industry to personal services (NACE C to O).  

Greece 

The  Commission  has  urged  Greece  to  take  immediate  remedial  action  concerning  the 
accuracy issues in the LCI. Greece is expected to present details of the actions it intends to 
take. 

The Netherlands 

The  source  for  the  compilation  of  the  LCI  in  the  Netherlands  has  changed  in  the  reporting 
period. The quarterly flash estimate was previously based on a sample of early responses to 
the Quarterly Survey on Employment and Wages. In the meantime, the quarterly survey has 
been replaced  by  a  monthly updated register on employment,  wages and benefits. Although 
the initial use of this new register has led to long delays in the data delivery during 2007 and 
2008,  it  is  believed  that,  in  the  long  term,  the  use  of  this  register  will  lead  to  much  faster 
convergence  with the  final  estimates, i.e. significantly reducing the scale of revisions to the 
LCI  figures  for  the  Netherlands.  From  the  second  quarter  of  2008  onwards  data  will  be 
delivered within the deadline set in the Regulation. 

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Austria 

A comprehensive quality improvement programme for the Austrian LCI was launched. Since 
several data sources of differing quality and statistical units are used in the compilation of the 
LCI, efforts to trace the source of the current irregularities are still ongoing. These measures 
include  the  evaluation  of  the  computation  methods  and  data  sources  used,  as  well  as  an 
evaluation of compliance with the Regulation. It is planned to re-launch the LCI for the 4th 
quarter of 2008 and for missing back data in March 2009. 

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 
several statistical sources become available only over the course of time.  

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.  By  taking  these 
measures, Finland should be able to comply fully with the LCI Regulations from 2009. 

Sweden 

Starting  with  the  data  covering  the  first  quarter  of  2009,  the  Swedish  data  delivered  will 
include irregular bonuses, as well as the public sector. Sweden will then fully comply with the 
LCI Regulations. 

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