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: 2013-02-12
Institutions: European Commission
Subjects: EU statistics, hourly wage, labour force, wage cost, wage indexing

EUROPEAN 
COMMISSION 

Brussels, 12.2.2013  
COM(2013) 69 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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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) 

1. 

INTRODUCTION 

Regulation (EC) No 450/2003 of the European Parliament and of the Council of 27 February 
2003 concerning the labour cost index1 (referred to here as the ‘LCI Regulation’) establishes 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 index2. Complete data are available online, broken down by economic activity and 
labour cost components. In addition to the index figures, both quarter-on-quarter and year-on-
year growth rates are published. 

In July 2003, the Commission adopted Regulation (EC) No 1216/20033, setting out in greater 
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  224/20074.  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, are also covered. In August 2007, the Commission adopted Regulation (EC) 
No 973/ 20075. This amended a number of regulations on specific statistical domains, among 
them the Labour Cost Index, in order to implement the statistical classification of economic 
activities NACE Revision 2. 

Pursuant to Article 13 of Regulation (EC) No 450/2003 the Commission must submit a report 
to the European Parliament and the Council every two years. The report should examine the 
quality of the LCI data in particular. The current report refers to the transmissions of LCI data 
from reference quarter 2010Q3 to quarter 2012Q2. 

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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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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As  in  the  last  reporting  period,  the  level  of  accuracy,  accessibility  and  clarity  remains 
satisfactory. This report will therefore focus on improvements made concerning relevance and 
coverage and address the issues of coherence with national accounts data and comparability 
with respect to  working-day  adjusted  data. Particular attention is paid to the problem of  the 
punctuality of data transmissions, and the impact of late data transmissions on the quality of 
the published European aggregates. 

2. 

GENERAL PROGRESS SINCE THE LAST REPORT 

The major changes  introduced in 2009  relating to the introduction of the new NACE Rev.2 
classification  and  the  coverage  of  non-market  services  were  described  in  the  2010  report6. 
Since the last report, progress has been made on a number of specific issues. 

Generally  speaking,  the  availability  and  quality  of  the  labour  cost  index  (LCI)  continued  to 
improve. Progress was made in making seasonally adjusted data available, to the extent that in 
the  foreseeable  future  the  seasonally  adjusted  LCI  could  become  the  main  reference  in 
Eurostat’s  press  releases,  as  is  the  case  for  all  other  infra-annual  macroeconomic  statistics. 
National  quality  reports  were  increasingly  provided  on  time  and  almost  all  Member  States 
now  report  the  metadata  on  a  quarterly  basis,  explaining  changes  in  the  data  and  providing 
useful background information. The volatility of the index has decreased, thanks mainly to the 
improvement in the hours-worked series, which continues to be closely monitored. 

One of the areas that have received more attention during the last two years is the coherence 
of  the  Labour  Cost  Index  with  other  Labour  Cost  statistics,  with  a  particular  focus  on 
quarterly national accounts data. Coherence has been analysed from both a theoretical and an 
empirical point of view and the results have been discussed with the Member States. 

The Commission (Eurostat) has also improved the availability of timely data on hourly labour 
cost  levels  using  estimates  which  make  prominent  use  of  the  labour  cost  index.  Feedback 
from users on this innovation was very positive. Member States were involved in the process 
and experiences relating to this exercise were shared. 

Despite these positive developments, there are still a number of issues which require further 
efforts by certain Member States in order to complete the harmonisation process. These issues 
are discussed below. 

While the Member States have implemented and maintained the necessary infrastructure for 
the  production  of  the  LCI,  the  Commission  (Eurostat)  has  maintained  and  enhanced  its 
production system for the 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. 

3. 

EVALUATION OF QUALITY AND THE IMPACT ON EUROPEAN AGGREGATES 

3.1 

Relevance 

Changes in labour costs per hour worked are a significant indicator for the analysis of short- 
and medium-term economic developments. The Commission and the European Central Bank 

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COM (2011) 102. 

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rely  on  an  index  of  labour  costs  per  hour  worked,  which  shows  the  short-term  evolution  of 
labour  costs,  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)7. 

Besides  the  demand  for  information  on  quarterly  percentage  changes  in  labour  costs  as 
measured  by  the  LCI,  there  is  a  growing  interest  in  information  on  labour  costs  in  absolute 
terms (euros per hour). In April 2012, Eurostat published for the first time early estimates (for 
2011)  of  hourly  labour  costs  in  euro  and  national  currencies.  These  estimates  are  based  on 
2008 Labour  Cost  Survey benchmark data, which have been extrapolated to  2011  using the 
LCI  non-seasonally  adjusted  data.  The  estimates  meet  a  strong  user  demand  for  timely  and 
complete  information  on  the  level  of  hourly  labour  costs.  The  Commission  has  received 
positive feedback regarding this use of the LCI figures, and several users have expressed their 
interest in breakdowns by NACE sections as well as cost components. In order to meet this 
demand, Eurostat is now in the process of implementing a regular production environment so 
as  to  make  full  use  of  the  available  information from the LCI.  Member States are, and will 
continue to be, involved in all decisions concerning the details of this publication. 

3.2 

Punctuality and Revisions 

The  punctuality  of  data  transmissions  from  Member  States  has  not  improved  since  the 
previous report delivered in 2011. 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. 
Punctuality  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  afterwards.  Figure  1  shows  the  available  data  (as  a  share  of  EU  total  labour 
cost levels in euro) for each quarter at the time of the press release. 

Figure 1: Available LCI data at time of release, % of EU total labour cost level in euro 

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COM(2002) 661, Communication of the Commission to the European Parliament and the Council on 
Eurozone Statistics. 

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Some Member States (Germany, Luxembourg, Malta, Poland and the UK) sent their data late 
once between the reference quarters 2010Q3 and 2012Q2. At the time of writing this report 
none of these Member States had a structural problem with producing and delivering the LCI 
figures on time. Both Belgium and Ireland did not send data on time twice during the relevant 
period, and Greece four times. While the issues preventing Ireland and Belgium from sending 
data  on  time  have  now  been  solved,  Greece  does  seem  to  have  a  structural  problem  with 
producing and delivering LCI data on time. 

Concerning  revisions,  it  should  be  borne  in  mind  that  the  LCI  is  made  up  of  different 
variables (labour costs, hours worked), which may be taken from several sources. This means 
that revisions may occur at any time, affecting the last quarter, several quarters or whole years 
of  data.  Whenever  data  for  the  base  year  is  concerned,  the  whole  series  has  to  be  revised. 
Revisions  of  the  EU-27  headline  figure  (year-on-year  growth  rate)  have  exceeded  0.3 
percentage points three times since the first quarter of 2011. In all three cases, the revision can 
be traced back to the amount of data available at the time of the press release. Another issue is 
the  possible  upwards  bias  of  first  releases  compared  to  later  transmissions  (see  figure  2). 
Eurostat is currently investigating this issue in detail, making use of longer time-series. 

Figure 2: Revision between reference quarter and 2012Q2 of EU-27 NACE Rev. 2 B_N aggregate in percentage points 

3.3 

Comparability — Working day adjustment 

Article  1  of  Commission  Regulation  (EC)  No  1216/2003  states  that  LCI  figures  have  to  be 
transmitted  in  non-seasonally  adjusted  (NSA),  working-day  adjusted  (WDA)  and  working-
day and seasonally adjusted (SA) form. There are some exceptions, as some Member States 
have  derogations  on  the  delivery  of  NSA  data  and  some  Member  States  can  only  provide 
series  which  are  too  short  for  seasonal  adjustment  for  NACE  Rev.  2  sections  O  to  S.  This 
Regulation  does  not  explicitly  state  whether  working  day/seasonal  adjustments  have  to  be 
made using the direct or the indirect approach. Indirect adjustment implies that the adjustment 
is  made  only  on  the  basic  series,  which  are  then  used  to  construct  higher-level  aggregates. 
Direct  adjustment  implies  that  every  single  series,  including  higher-level  aggregates,  are 
adjusted  individually.  Both  approaches  have  their  advantages  and  drawbacks,  and  both  are 
supported  by  the  European  Statistical  System  (ESS)  handbook  on  seasonal  adjustment. 
Member States employ either approach when adjusting the LCI. 

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Usually, both approaches produce similar results, and no problems arise due to the choice of 
one or the other. However, if the identification of a correct model for adjustment is difficult in 
view of the  volatility of the raw  data,  problems may occur, generally  when using the direct 
approach. For instance, it might happen that the adjusted index of the total cost component is 
either higher or lower than the adjusted index of all its sub-components. Therefore, Eurostat 
has systematically checked the data delivered by all Member States for coherence of the total 
index and its sub-components by NACE section. 

In one case only, the discrepancies were found to be so large that Eurostat did not publish the 
working-day  adjusted  data  for  the  relevant  periods.  Instead,  the  year-on-year  growth  rate 
which was published had to be calculated on the basis of non-seasonally adjusted data. The 
discrepancies had arisen in this case because the working-day adjustment had been applied to 
a series which did not in fact exhibit significant working-day effects. 

To  avoid  similar  cases  in  the  future,  Eurostat  has  communicated  to  the  Member  States 
concerned  that  adjustments  should  only  be  made  if  working  day  effects  are  statistically 
significant. 

3.4 

Coherence with national accounts figures 

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). 
Full  coherence  cannot  be  expected.  Even  if  almost  identical  definitions  of  labour  cost  are 
used,  statistical  treatments  and  sources  differ.  Furthermore,  the  collection  of  hours-worked 
data  is  particularly  difficult  in  both  domains.  Despite  these  differences,  the  degree  of 
coherence (or lack thereof) between the two data collections can be used to identify potential 
problems in either collection. Not all Member States produce quarterly data for compensation 
of  employees  or  quarterly  hours  worked  in  national  accounts.  An  overview  of  coherence  is 
therefore  not  possible  for  Greece,  Malta,  Luxembourg,  Portugal  or  the  United  Kingdom. 
Latvian data is available, but cannot be used for the purpose of this exercise due to a break in 
the compensation of employees series in 2011. 

For this quality report, Eurostat compared the non-seasonally adjusted NACE Rev. 2 section 
B  to  N  aggregates.  For  at  least  one  quarter,  data  from  Estonia,  Ireland,  Spain,  Hungary, 
Poland,  Romania  and  Slovenia  exhibited  large  discrepancies  and  diverging  signs  in  the 
growth  rates  of  the  LCI  and  the  growth  rate  of  hourly  compensation  of  employees  derived 
from  national  accounts.  Moreover,  Bulgaria,  the  Czech  Republic  and  Sweden  showed 
relatively large discrepancies in the growth rates of the LCI and compensation of employees 
per hour. 

Eurostat has been analysing 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 
discussed with Member States so as to identify and address underlying problems, in particular 
with  respect  to  hours  worked,  with  a  view  to  improving  coherence  across  the  different 
statistical domains. 

3.5 

Completeness 

Sweden and Finland now also deliver seasonally adjusted data. Now that seasonally adjusted 
data  for  all  Member  States  is  available,  it  becomes  feasible  to  publish  quarter-on-quarter 
growth  rates  not  only  in  Eurostat’s  online  database  but  also  in  the  quarterly  press  release. 
Careful analysis of data quality and user needs will however precede such a step. 

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In  September  2012,  Eurostat  released  for  the  first  time  EU  and  EA  aggregates  including 
NACE  Rev.  2  sections  O  to  S.  These  NACE  sections  encompass  public  administration  and 
defence, compulsory social security, education, human health and social work activities, arts, 
entertainment and recreation, and other service activities. NACE Rev. 2 O to  S data for the 
EU  and  EA  aggregates  is  available  from  2008  onwards.  They  make  up  about  30 %  of  the 
NACE Rev. 2 B to S aggregate for the EU-27, and complement the data available so far with 
important  information.  Users  have  been  particularly  interested  in  information  about  the 
evolution  of  labour  cost  in  the  public  sector,  mainly  covered  by  NACE  Rev.  2  section  O 
(public administration and defence). 

The quarterly news release has been adapted to show the NACE Rev. 2 B to S aggregate now 
as the headline indicator, while still showing full information on the previously used NACE 
Rev.  2  B  to  N  aggregate.  In  addition,  figures  for  the  NACE  Rev.  2  O  to  S  aggregate  are 
published in the press release. 

4. 

CONCLUSIONS 

Overall, the quality of the LCI has continued to increase since the previous report in 2010; the 
improvements in relevance and completeness are particularly noteworthy. Moreover, the full 
availability  of  aggregates  (including  the  NACE  Rev.  2  sections  O  to  S)  has  added  to  the 
overall usefulness of the LCI. The publication of yearly estimates of labour-cost levels based 
on the LCI provides users with significant new added value. The punctual delivery of data by 
Member  States  is  still  not  fully  satisfactory,  although  no  country  except  for  Greece  was 
systematically late. Member States will have to continue channelling resources into measures 
to achieve punctual data transmissions. 

In recent years, the Commission (Eurostat) has regularly urged Member States to step up their 
efforts. On the basis of the data delivered and other national documentation, including quality 
reports,  the  Commission  will  continue  the  regular  monitoring  of  the  remaining  non-
compliance  and  quality  issues.  Where  the  desired  improvements  are  not  taking  place  as 
planned,  the  relevant  national  authorities  will  be  approached  and  the  Commission  will  take 
the necessary measures to enforce compliance.  

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