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: 2015-02-03
Institutions: European Commission
Subjects: cost analysis, data collection, disclosure of information, economic activity, economic indicator, exchange of information, national statistics, wage cost













EUR-Lex - 52015DC0042 - EN











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52015DC0042

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) /* COM/2015/042 final */









1.           Introduction
Regulation
(EC) No 450/2003 of the European Parliament and of the Council of 27 February
2003 concerning the labour cost index[1]
establishes a common framework for the production and provision to the Commission
of comparable labour cost indices by Member States. The Commission (Eurostat)
publishes a quarterly news release on the hourly labour cost index on its
website.[2]
It contains a complete data set, broken down by economic activity and by the
components of labour costs. It also includes both quarter-on-quarter and
year-on-year growth rates.
In
July 2003, the Commission adopted Regulation (EC) No 1216/2003,[3]
setting out in greater detail the procedures that Member States must follow
when sending their indices to the Commission, the seasonal adjustments to be
made to the indices and the content of the national quality reports. In March
2007, the Commission then adopted Regulation (EC) No 224/2007.[4] It
amends Regulation (EC) No 1216/2003 and extends the scope of the labour
cost index to cover the economic activities defined in NACE Revision 1 sections
L, M, N and O. This extension means that non-market services, which account for
the largest proportion of the economic activities specified in these sections
and which may have different dynamics from market services, are also covered.
In August 2007, the Commission adopted Regulation (EC) No 973/2007.[5] This
amended a number of regulations on specific statistical domains, including the labour
cost index, in order to be able to implement the statistical classification of
economic activities set out in 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, in particular, examine the quality of the labour cost index data. The
present report relates to the labour cost index data provided to the Commission
for the reference quarters from 2012Q3 to 2014Q2 (inclusive).
In
Annex I of Regulation (EC) No 1216/2003, the quality of the labour cost
index is defined in terms of the following criteria: relevance, accuracy,
punctuality of delivery of data, accessibility and clarity, comparability, consistency
and completeness.
As
was the case in the last reporting period, the level of accuracy, accessibility
and clarity remains satisfactory. This report will therefore focus on
improvements made in relation to relevance and coverage, and will address the
issues of the consistency of the data with national accounts data and the comparability
of working-day adjusted data. Particular attention is given to the problem of
data not being provided by Member States within the deadlines set, and the consequences
of this for the quality of the published European aggregates.
2.           General
progress since the last report
Over
the last reporting period, Eurostat has worked on simplifying and harmonising the
standards relating to both data and metadata (quality reports) being sent by
Member States to the Commission. Nomenclatures and variables used in the labour
cost index data have been brought into line with the SDMX[6]
standard, which is the new worldwide reference for sharing statistical
information. Most Member States have started sending their data in SDMX format,
and Eurostat has asked those that have not yet adopted this format (Belgium, Denmark, Ireland, Greece, Croatia, Luxembourg and Romania) to do so by the
end of 2014.  
The
quality reports submitted by Member States have been migrated to the European Statistical
System Metadata Handler, an IT tool that allows each Member State to load their quality reports remotely and to update the parts that have changed during
the previous year without having to re-submit them in full. In addition, this
IT tool allows the national quality reports to be placed on Eurostat’s
reference database, thus making them available to all users.
Both
initiatives have helped to simplify the production process, improving the
service provided to users while reducing the burden on national statistical institutes.
In
general, the availability and quality of the labour cost index has continued to
improve. Seasonally adjusted data are now available from all Member States
except Ireland and Croatia. Eurostat has decided not to make the seasonally
adjusted labour cost index the main point of reference in the news releases, although
the figures are highlighted on the relevant page of the Statistics Explained site.[7]
National quality reports for the reference year 2013 were provided by all
Member States except Greece and Croatia, and have been made available to the
public.
One
of the areas that continues to receive attention is the consistency of the labour
cost index with other statistics on labour costs, in particular the quarterly
national accounts data. This has been analysed from both a theoretical and an
empirical point of view and the results have been discussed with Member States.
Moreover, the Commission (Eurostat) will organise a workshop with Member States
in 2015 at which they will assess and try to further improve the overall quality
of statistics on labour costs.
The
Commission (Eurostat) has also improved the availability of estimates of hourly
labour costs by publishing averages for a one-year period that are largely
based on the labour cost index and can be produced soon after the end of the
reference period. As a result, national annual labour cost statistics, which
used to be collected under a gentlemen’s agreement, are no longer being
provided by Member States for publication by the Commission. While the Member
States have implemented and maintained the necessary infrastructure for producing
the labour cost index, the Commission (Eurostat) has maintained and improved its
system for receiving, verifying, processing, storing and disseminating the data,
allowing data to be published promptly. These processes, which became fully
operational in 2005, are continuously being reviewed and updated.
3.           Evaluation
of the quality of the data and its effect on European aggregates
3.1         Relevance
Changes in labour costs per hour worked are an important indicator
for analysing short- and medium-term economic developments. The Commission and
the European Central Bank use an index of labour costs per hour worked, which
shows the short-term evolution of labour costs, to assess possible inflationary
pressure caused by developments in the labour market. The index needs to be
calculated as soon as possible after the data becomes available, for each Member State, for the whole EU and for the euro area. The labour cost index is also
important for social partners involved in wage negotiations and for the
Commission itself for monitoring short-term developments in labour costs. The labour
cost index is one of the Principal European Economic Indicators.[8]
There
is demand not only for information on quarterly percentage changes in labour
costs, as measured by the labour cost index, but also, increasingly, for
information on labour costs in absolute terms (euros per hour). In April 2012,
Eurostat published early estimates (for 2011) of hourly labour costs in euros
and in national currencies for the first time. These estimates, which were
based on the labour cost index, were deemed to be of sufficient quality. As
they can also be published much sooner after the end of the reference year than
can the annual labour costs collected on the basis of a gentlemen’s agreement, a
decision was taken to stop sending the latter data as of 2014.
The
publication of estimates of annual labour costs based on the labour cost index increased
the already strong user demand for comprehensive and quick-to-produce information
on the level of hourly labour costs. The Commission has received positive
feedback on the publication of these estimates, and several users have
expressed an interest in seeing breakdowns by NACE section as well as by cost
component. The estimates were also published in the online database for the
first time in 2013, in order to increase availability. The feasibility of publishing
more detailed information will be evaluated further to analysis of the results
of the 2012 Labour Cost Survey.
3.2         Punctuality and revisions
Member
States’ punctuality in sending data to the Commission has improved since the
previous report published in 2012. With the exception of one country,[9] only
minor delays have been encountered. Providing data on time is of the utmost
importance for the production of the labour cost index, as delays in data
delivery mean that estimates have to be used for EU and euro-area aggregates.
This can result in unnecessarily large revisions at a later date. Figure 1
shows the proportion of total EU labour costs in euros for which data was
available for each quarter at the time of the news release.
Figure
1: Available labour cost index data at time of publishing, percentage of total EU
labour costs in euros
Two
Member States (Croatia and the United Kingdom) each sent their data more than
two days late on one occasion between the reference quarters 2012Q3 and 2014Q2.
The data were, however, still delivered in time to be included in the news
release. At the time of writing this report, only one Member State, Greece, had a structural problem preventing it from producing and delivering the labour cost index
figures. Throughout the reference period, its data were consistently delivered
too late to be included in the news release. Eurostat held a bilateral meeting
with the Greek statistical office in May 2014, during which a roadmap for tackling
these structural issues was agreed. Some progress has since been made in
reducing the time taken to deliver data.
The
labour cost index is made up of a number of different variables (e.g. labour
costs and 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. If adjustments to data relate to the reference
year, the whole series has to be revised. Revisions of the EU headline figure[10]
(year-on-year growth rate) have exceeded 0.3 percentage points three times
since the first quarter of 2012. In most quarters, the estimates have been revised
upwards, reversing the trend seen in the previous report (see figure 2).
Eurostat is continuing to investigate this issue in detail, making use of
longer time-series.
Figure
2: Changes to data between the first figure published and the 2014Q2 release for
EU-27/28 NACE Revision 2 sections B to S, aggregate in percentage points
3.3         Comparability: working-day
adjustment
Article
1 of Commission Regulation (EC) No 1216/2003 states that labour cost index
figures must be provided in non-seasonally adjusted, working-day adjusted and seasonally
and working-day adjusted form. There are some exceptions made to this: a number
of Member States have derogations for the delivery of non-seasonally adjusted
data, and Croatia and Ireland only provide series for NACE Revision 2 sections
O to S, which are too short for seasonal adjustment. Regulation (EC) No
450/2003 does not explicitly state whether working-day and seasonal adjustments
have to be made using the direct or the indirect approach. Indirect adjustment is
where the basic series is adjusted, and then used to construct higher-level
aggregates. Direct adjustment means that every single series, including
higher-level aggregates, is adjusted individually. Both approaches have their
advantages and drawbacks, and both are supported by the European Statistical
System guidelines on seasonal adjustment.[11]
Member States can use either approach when adjusting the labour cost index.
Both
approaches usually produce similar results, and, in general, the choice of one
or the other does not lead to any problems. If, however, the identification of
a correct model for adjustment is difficult due to the volatility of the raw
data, the direct approach in particular may give rise to certain problems. For example,
the adjusted index of the total cost component could prove to be either higher
or lower than the adjusted index of its two sub-components. Eurostat has therefore
systematically checked the data delivered by all Member States, to ensure that
the total index is consistent with its sub-components by NACE section. Eurostat
has introduced a policy of publishing only the total index, hiding the
components if they differ by more than two basis points from the total.
3.4         Consistency with national
accounts figures
For
the annual quality report, Member States are asked to compare the growth rate
of the labour cost index with that of employees’ hourly compensation found in the
national accounts (ESA95 definition). It is not realistic to expect the figures
to be exactly the same. Even if almost identical definitions of labour cost are
used, statistical treatments and sources may differ. Furthermore, collecting
data on hours worked is particularly difficult for both the labour cost index
and the national accounts. Despite these differences in methodology, the level
of agreement (or lack thereof) between the two data sets can be used to
identify potential problems in either. It was not possible to carry out this
comparison exercise for Belgium, Croatia, Luxembourg and Malta, as these countries do not compile quarterly national accounts data for compensation
of employees or hours worked.
Since
the publication of the last report, Eurostat has started including the data
from national accounts directly in its labour cost index database, making it
easier to compare both sets of data.
For
this quality report, Eurostat compared the non-seasonally adjusted NACE Revision
2 sections B to S aggregates. Any variation between the growth rate of the
labour cost index and that of the hourly compensation of employees of more than
two percentage points across the two-year period analysed for the report (i.e.
one percentage point per year) is considered to warrant further analysis. This
was the case for the Czech Republic, Estonia, Italy, Hungary, Poland, Portugal and   Slovenia. The discrepancy between the two figures was over five percentage
points for Italy and Portugal. In the case of Ireland and Sweden, the growth rate of the labour cost index and that of the hourly compensation of
employees included in the national accounts data showed opposite signs in at
least one quarter.
Eurostat
has been analysing in detail the consistency of the labour cost index with national
accounts data and the Labour Cost Survey, and will continue to address this
question. The results of the analysis are discussed with Member States so as to
identify and resolve underlying problems, in particular with respect to data on
hours worked, with a view to improving consistency across the different
statistical domains.
3.5         Completeness
Croatia and Ireland are the only Member States that
do not currently provide seasonally adjusted data. Given that seasonally
adjusted data are available for all other Member States, these data were to be
published in the quarterly press release as well as in Eurostat’s online
database. After careful analysis of data quality and user needs, it was, however,
decided to continue using working-day adjusted data only for the headline
figures. This also ensures clarity and consistency with other price statistics
(e.g. the consumer price index).
The
quarterly news release has been adapted since the publication of the last
report. In particular, the footnotes have been simplified and more of the
technical information has been moved to the online Statistics Explained page.[12] As
was previously the case, figures for NACE Revision 2 sections B to S provide
the headline data, with some further breakdowns given in the tables.
4.           Conclusions
Overall, the quality of the labour
cost index has continued to improve since the
previous report, published in 2012. The improvements in Member States’
punctuality in delivering data and in the completeness of the data are
particularly noteworthy. Moreover, the full availability of aggregates
(including the NACE Revision 2 sections O to S) has added to the overall
usefulness of the labour cost index. User needs are being better met thanks to
the publication of yearly estimates of labour costs based on labour cost index
data. Delivery of data by Member States is close to satisfactory.
With the exception of Greece, no country was systematically late in providing
data to the Commission.
In recent years, the Commission (Eurostat) has regularly urged Member
States to make greater efforts to conform to requirements in this area. The
Commission will continue to monitor as-yet-unresolved issues relating to
non-compliance and data quality on a regular basis, using the data delivered
and other national documentation, including quality reports. Where no or
insufficient improvement is seen, the relevant national authorities will be
approached and the Commission will take the necessary measures to enforce
compliance.
[1]               OJ L 69,
13.3.2003, p.1.
[2]               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).
[3]               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).
[4]               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).
[5]               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).
[6]               http://sdmx.org/.
[7]               http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Labour_cost_index_-_recent_trends.
[8]               COM(2002) 661, Communication of the Commission to the
European Parliament and the Council, Towards improved methodologies for
eurozone statistics and indicators.
[9]               Portugal was unable to deliver the labour cost index
for 2012Q4 on time, due to problems with a major change in the national survey.
[10]             EU-27 up to and including 2013Q2, since then EU-28.
[11]             The updated version of the guidelines will include a
specific section on adjusting chain-linked indices.
[12]             http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Labour_cost_index_-_recent_trends.