DOCPROPERTY "Classification"  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 concerning the labour cost index (LCI)
Date: 2011-03-08
Institutions: European Commission
Subjects: EU statistics, data transmission, labour force, statistics, wage cost, wage indexing

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EUROPEAN COMMISSION  

Brussels, 8.3.2011 
COM(2011) 102 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 concerning the labour cost index (LCI) 

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1. 

INTRODUCTION 

When  analysing  short-  and  medium-term  economic  development,  labour  costs  per  hour 
worked are important. The Commission and the European Central Bank rely on an index of 
labour costs per hour worked to assess possible inflationary pressure due to developments in 
the labour market. The index needs to be calculated promptly, for each Member State, for the 
whole EU and for the Euro area. 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  (LCI)  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  index2  (referred  to  here  as  the  ‘LCI  Regulation’)  creates  a 
common  framework  for  producing  and  transmitting  comparable  labour  cost  indices  in  the 
European Union. The Commission (Eurostat) publishes a quarterly news release on the hourly 
labour cost index.3 

In July 2003, the Commission adopted Regulation (EC) No 1216/20034, 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.  Then  in  March  2007,  the  Commission 
adopted  Regulation  (EC)  No  224/20075.  It  amends  Regulation  (EC)  No 1216/2003  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. In August 2007,  the Commission  adopted Regulation 
(EC)  No  973/  20076  which  amended  certain  Regulations  on  specific  statistical  domains, 
among  them  the  Labour  Cost  Index,  in  order  to  implement  the  statistical  classification  of 
economic activities NACE Revision 2.  

Article 13 of Regulation (EC) No 450/2003 states that the Commission must submit a report 
to  the  European  Parliament  and  the  Council  every  two  years.  The  report  should  look  in 
particular  at  the  quality  of  the  data  transmitted.  Annual  national  quality  reports  are 
compulsory  under  Article  8(2)  of  the  LCI  Regulation.  In  Annex  I  of  Regulation  EC 
No 1216/2003,  the  quality  of  the  labour  cost  index  is  defined  in  terms  of  the  following 
dimensions:  relevance,  accuracy,  timeliness  and  punctuality,  accessibility  and  clarity, 
comparability, coherence and completeness.  

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COM (2002) 661, Communication of the Commission to the European Parliament and the Council on 
Eurozone Statistics. 
OJ L 69 , 13.3.2003, p.1. 
The quarterly news release is published on the dates set in the release calendar; both can be found on 
Eurostat’s website (http://ec.europa.eu/eurostat). 
Commission  Regulation  (EC)  No  1216/2003  of  7  July  2003  implementing  Regulation  (EC)  No 
450/2003 of the European Parliament and of the Council concerning the labour cost index (OJ L 169 , 
8.7.2003, p.37). 
Commission Regulation (EC) No 224/2007 of 1 March 2007 amending Regulation (EC) No 1216/2003 
as regards the economic activities covered by the labour cost index (OJ L 64, 2.3.2007, p. 23). 
Commission  Regulation  (EC)  No 973/2007  of  20  August  2007  amending  certain  EC  Regulations  on 
specific  statistical  domains  implementing  the  statistical  classification  of  economic  activities  NACE 
Revision 2 (OJ L 216 , 21.8.2007, P. 10 ). 

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Comparability  and  completeness  have  improved  considerably,  so  this  report  will  focus  on 
accuracy,  timeliness  and  coherence.  Small  irregularities  in  transmission  delays  will  not  be 
mentioned, as they were temporary.  

2. 

GENERAL PROGRESS SINCE THE LAST REPORT  

Since the last report adopted in 20087, substantial progress has been made. The new NACE 
Rev.2  classification  was  implemented  as  requested  in  the  first  transmission  in  June  2009. 
Introducing NACE Rev.2 required a lot of resources in Member States. In many cases, it also 
prompted  an  in-depth  review  of  the  data  collection  methods,  leading  to  changes  aimed  at 
improving  the  quality  of  the  LCI.  At  the  same  time,  the  derogation  for  non-market  services 
expired and all Member States provided the figures in the course of 2009. 

Timeliness has improved considerably and only two Member States (Belgium and Ireland) are 
still facing some difficulties in complying with the legal transmission dates. There have been 
major  revisions  to  past  data,  but  this  was  unavoidable  given  the  introduction  of  the  new 
NACE  Rev.2  classification  and  the  changes  introduced  in  the  collection  systems  in  certain 
Member  States.  To  assist  users  and  to  be  open  about  the  extent  of  the  revisions,  Eurostat’s 
website displays all the figures released for the European Union and the Euro area since June 
2009.  

The availability and the quality of the labour cost index (LCI) generally improved. A number 
of  Member  States  introduced  changes  in  their  data  collection  systems  to  remove  any 
remaining divergences from the quality standards and concepts laid down in Regulation (EC) 
No 450/2003. For example, Ireland and Sweden now include irregular payments and Finland 
now covers all types of employees and not only full-time employees. There has also been a 
marked  improvement  in  the  metadata  reporting  by  Member  States.  More  of  them  have 
provided  national  quality  reports  on  time  and  almost  all  of  them  now  report  the  metadata 
quarterly,  explaining  changes  in  the  data.  The  volatility  of  the  index  has  decreased,  thanks 
mainly to the improvement in the hours worked series, which are more closely monitored than 
in the past.  

Receiving the LCI from all Member States means Eurostat can compile the European Union 
aggregates and make sufficiently accurate comparisons of the development of hourly labour 
costs between the Member States. There are, however, a number of 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 infrastructure for the production of 
the  LCI,  the  Commission  (Eurostat)  has  maintained  and  enhanced  its  production  system  for 
reception, verification, processing, 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. 

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COM(2009) 33. 

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3. 

EVALUATION OF COMPLIANCE (UP TO SEPTEMBER 2010) 

3.1 

Overview  

A number of Member States mentioned as not totally compliant in the 2008 report have taken 
the  necessary  measures  to  become  compliant.  The  Netherlands  has  complied  with  the 
timeliness requirements laid down in the LCI Regulation. Sweden, Finland and Ireland made 
the necessary changes in their collection systems to comply with the definitions of the LCI. 
Austria  reviewed  its  estimation  method  and  improved  the  timeliness  of  data  delivery. 
However, NACE Rev.2 sections G to S showed rather large revisions on their first estimates, 
needing further investigations. Greece improved on many aspects but the figures for the LCI 
are still very volatile. 

Now  that  all  Member  States  are  reporting  the  core  LCI  variables  laid  down  in  the  LCI 
Regulation, the compliance exercise can focus more on other requirements laid down in the 
LCI  Regulation.  For  example,  the  quality  of  the  seasonal  adjustment  procedures  will  be 
evaluated more in depth in the future, with the idea that the seasonally adjusted LCI will be 
the  main  reference  in  Eurostat’s  press  releases,  as  happens  with  all  other  infra-annual 
macroeconomic  statistics.  Sweden  and  Finland  are  the  only  Member  States  not  sending 
seasonally adjusted figures to Eurostat. In the case of Finland this is justified by the short time 
series available with their new collection system (from 2007). Regulation (EC) No 1216/2003 
provided  for  a  number  of  Member  States  to  carry  out  feasibility  studies  to  assess  how  to 
obtain  an  index  estimating  total  labour  costs  excluding  bonuses  (TEB).  In  many  cases  the 
results of the feasibility studies were negative and no substantial progress has been made in 
recent  years.  Currently  Austria,  Bulgaria,  Malta,  Germany,  Italy,  France  and  Ireland  do  not 
estimate  a  TEB.  Bulgaria,  Germany  and  Ireland  will  be  in  a  position  to  do  so  in  the  near 
future. Austria and Italy could estimate a TEB, but with a very partial coverage in terms of 
NACE sections or unit size. France and Malta do not consider it feasible to estimate a TEB. 

3.2 

Details of quality shortcomings  

3.2.1 

Accuracy 

There  are  accuracy  concerns  with  various  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  as  measured  by 
national  accounts).  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,  three  Member  States  are  affected  by  accuracy  problems.  Germany  and 
Hungary  currently  do  not  use  source  data  that  would  allow  them  to  comply  fully  with  the 
regulation. LCI  data delivered by Greece often show unexplainable growth rates  which  are 
difficult to reconcile with the developments in the labour market.  

Germany:  in  the  first  quarter  of  2010  Germany  started  using  the  new  Quarterly  Earnings 
Survey as the main source for estimating the LCI. Before, national accounts data were used as 
a source. The change to a specific source should be considered as an improvement, but it also 
meant  there  was  less  coverage  of  small  enterprises  in  certain  economic  sectors.  Currently, 
methods  are  used  that  reduce  the  coverage  problem.  Employees  of  small  enterprises  are 

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covered in the weights used to compute the labour cost index for aggregating NACE Rev.2 
sections B to S.  

Greece: High volatility of LCI series and large revisions. The quality report sent in 2009 is too 
concise to allow any conclusions to be drawn as to the causes of the accuracy problems.  

Hungary:  The  source  data  do  not  cover  very  small  enterprises,  those  with  less  than  5 
employees, and no imputation is made for them.  

3.2.2 

Timeliness 

Timeliness has continued to improve since the last report in 2008. Nevertheless, for a variety 
of  reasons,  some  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  importance,  since 
delays  in  data  delivery  mean  that  estimates  have  to  be  used  for  European  Union  and  Euro 
Area  aggregates.  This  can  result  in  unnecessarily  large  revisions.  Listed  below  are  the 
Member  States  that  delivered  the  data  so  late  (>  t+75)  that  it  could  not  be  included  in  the 
quarterly press release issued by the Commission. Eurostat had to use extrapolations of the 
LCI values of these countries for the EU and EA aggregates published for that quarter. 

Belgium  failed  to  deliver  the  data  on  time  on  three  occasions  in  the  last  four  quarters. 
Transmission  delays  have  been  considerably  reduced  compared  to  those  in  previous  years. 
Belgium  is  making  further  efforts  regarding  the  work  with  administrative  registers  and  the 
streamlining  of  procedures.  Belgium  has  committed  to  reaching  full  compliance  from  2011 
onwards. 

Ireland failed to deliver data on time in the last two quarters of 2009 and has not delivered any 
data for the two quarters of 2010. The reasons are problems with the implementation of the 
new NACE Rev.2 classification and to the introduction of a new data collection system. The 
situation is expected to improve in 2011.  

The  Commission  asked  the  countries  to  take  the  appropriate  measures  to  ensure  that  the 
deadlines for the submission of the data are respected in the future. 

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 in national accounts (ESA95 definition). Both 
data  collections  measure  the  same  phenomenon  with  divergences  in  the  definitions, 
exhaustiveness  of  the  sources  and  methodology  for  calculating  the  growth  rates.  Full 
coherence cannot be expected, but the degree of coherence between the two can be used as an 
indicator for the quality of the LCI. Since not all Member States produce quarterly data for 
hourly  compensation  of  employees  (national  accounts  data),  a  complete  overview  of 
coherence is not possible. The following overview is based on the quality reports from 2008. 
Furthermore, as national accounts still use the NACE rev.1 classification while the LCI uses 
NACE  rev.2,  the  comparison  is  restricted  to  a  very  small  number  of  aggregated  NACE 
sections.  

Cyprus and Malta: Since national accounts are the source for the LCI (Malta), or the LCI is 
the source for national accounts (Cyprus), coherence is inevitable. 

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Czech Republic, Germany, Greece, Spain, Italy, the Netherlands, Austria, Slovenia: Sufficient 
degree  of  coherence.  The  directions  of  growth  rates  are  generally  the  same,  and  the  growth 
rates are of similar size. 

Denmark,  France,  Estonia,  Lithuania,  Romania  and  Slovakia:  Low  coherence;  large 
discrepancies in the growth rates from the two sources. 

Belgium,  Bulgaria,  Ireland,  Latvia,  Luxembourg,  Hungary,  Poland,  Portugal,  Finland, 
Sweden  and  the  United  Kingdom:  No  quarterly  national  accounts  data  available  or  not 
mentioned in the quality report. 

Eurostat  analyses  in  detail  the  coherence  of  the  LCI  with  National  Accounts  data  and  the 
Labour  Cost  Survey  and  will  continue  to  do  so.  The  results  of  the  analysis  are  frequently 
discussed  with  Member  States  with  a  view  to  improving  coherence  across  the  different 
statistical domains. 

4. 

CONCLUSIONS 

Overall, the degree of compliance with the LCI Regulation has continued to increase since the 
previous  report  in  2008.  Most  Member  States  are  now  compliant.  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. 

The  timeliness  of  data  delivery  has  improved,  and  the  number  of  Member  States  with 
accuracy problems has decreased.  

In recent years, the Commission (Eurostat) has regularly 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  are  not  advancing  appropriately,  the  relevant  national 
authorities will be approached, and the Commission will take the necessary action to enforce 
compliance.  

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