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: 2017-02-14
Institutions: European Commission, Eurostat
Subjects: EU Member State, EU statistics, data collection, disclosure of information, economic activity, economic indicator, national accounts, pay, statistical method, wage cost

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 14.2.2017  COM(2017) 71 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)  
 
 
1. 

INTRODUCTION 

Regulation (EC) No 450/2003 of the European Parliament and of the Council of 27 February 
2003 concerning the labour cost index (LCI) (1) sets a common framework for Member States 
to  produce  comparable  indices  and  provide  them  to  the  Commission.  The  Commission 
(Eurostat) publishes a quarterly news release on the hourly labour cost index on its website (2) 
which contains a complete data set, broken down by economic activity and by the components 
of  labour  costs.  The  website  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  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  are  also  covered.  Non-market 
services  account  for  the  largest  proportion  of  the  economic  activities  specified  in  these 
sections  and  may  have  different  dynamics  to  market  services.  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  implement  the 
statistical classification of economic activities set out in NACE Revision 2. 

Under  Article  13  of  Regulation  (EC)  No 450/2003,  the  Commission  shall  submit  a  report 
every two years to the European Parliament and the Council. As back series were analysed in 
previous reports, the present report examines the quality of the labour cost index data for the 
reference  quarters  ranging  from  third  quarter  2014  (2014Q3)  to  second  quarter  2016 
(2016Q2). 

In Annex I of Regulation (EC) No 1216/2003, the quality of the labour cost index is defined 
using the following criteria: relevance, accuracy, punctuality of delivery of data, accessibility 
and clarity, comparability, consistency and completeness. 

The  previous  report  (6)  addressed  progress  on  accessibility  and  clarity  and  considered  them 
satisfactory.  This  report  will  therefore  focus  on  improvements  made  in  relevance, 

1 
2 

3 

4 

5 

6  

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  - available in English, French and German). 
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). 
COM(2015) 42 (http://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-42-EN-F1-1.PDF). 

2 

 
 
                                                            
completeness, punctuality, accuracy, comparability and will review the consistency between 
the labour cost index data and the national accounts. 

Particular  attention  is  given  to  the  problem  of  data  not  being  provided  by  Member  States 
within  the  deadlines  set,  and  the  consequences  for  the  quality  of  the  published  European 
aggregates. 

2. 

GENERAL PROGRESS SINCE THE LAST REPORT 

From a legislative point of view, no changes have been made since the publication of the last 
report in 2015.  

Over  the  current  reporting  period,  Eurostat  has  worked  on  simplifying  and  harmonising  the 
standards  relating  to  both  data  and  metadata  (quality  reports)  sent  by  Member  States  to  the 
Commission.  The  use  of  the  Statistical  Data  and  Metadata  eXchange  (SDMX)  (7)  standard 
(worldwide reference for sharing statistical information) for nomenclatures and variables used 
in  the  labour  cost  index  data  has  been  extended  to  all  Member  States.  Eurostat  has  started 
updating the SDMX data structure definition to a new version in order to allow more optional 
variables  to  be  collected  and  to  harmonise  the  LCI  data  collection  with  other  statistical 
domains.  Tests  to  implement  the  updated  standards  have  been  carried  out  with  12 Member 
States and the implementation of the update in production is envisaged, after further testing, 
for the next reference quarter (2016Q3). Also on the output side, the LCI data transmission in 
SDMX  format  to  the  European  central  Bank  (ECB)  has  been  tested  successfully.  Both 
initiatives have helped to simplify the production process. 

The quality reports submitted by Member States have been migrated to a new version of the 
European Statistical System Metadata Handler (v2.13), the 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. 

One of the areas that continues to receive attention is the consistency of the LCI with other 
statistics  on  labour  costs,  in  particular  with  the  quarterly  national  accounts  data  (see  §  3.6). 
This has been analysed from both a theoretical and an empirical point of view. 

Eurostat  organised  in  May  2015  a  workshop  with  Member  States  to  discuss  the  quality  of 
statistics  on  labour  costs.  Topics  such  as  data  collection (sources  and  sampling  techniques), 
methodological  issues,  plausibility  and  consistency,  statistical  processes  (working-day 
adjustment),  user  needs  and  future  developments  were  evaluated  and  proposals  for 
improvement agreed. 

During  the  Labour  Market  Statistics  (LAMAS)  working  group  in  January  2016,  Eurostat 
presented  the  results  of  new  plausibility  checks  for  labour  cost  index  data.  LAMAS  fully 
supported these new quality checks and agreed to implement them at national level as much 

7  

http://sdmx.org/(available only in English). 

3 

 
 
                                                            
as  possible.  Countries  not  using  the  indirect  method  for  seasonal  adjustment  (wages  /  non-
wages and NACE aggregates) agreed during the LAMAS working group in October 2016 to 
implement this procedure within the next two quarters. 

Eurostat  has  also  started  publishing  annual  estimates  of  hourly  labour  costs  with  a  NACE 
breakdown in a news release which was first issued in April 2016. These estimates are based 
on both labour costs levels and labour cost index trends and are produced 3 months after the 
end  of  the  reference  period  already.  The  coverage  includes  NACE  breakdown  with  the 
exception of NACE section ‘L’ (real estate activities). 

While the Member States have implemented and maintained the necessary infrastructure for 
producing the labour cost index, Eurostat is continuously improving the system for receiving, 
verifying,  processing,  storing  and  disseminating  the  data.  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 

The indicator ‘changes in labour costs per hour worked’ is important for analysing short and 
medium-term economic developments. The Commission and the ECB 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  shortly  after  the  data  becomes  available,  for  each  Member  State,  for  the 
whole  European  Union  (EU)  and  for  the  euro  area  (EA).  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  had  published  early  estimates  of 
hourly labour costs in euros and in national currencies for the first time.  Eurostat added the 
NACE breakdown for its annual estimates disseminated in a news release in April 2016 and 
via the online database. 

The  publication  of  estimates  of  annual  labour  costs  with  NACE  breakdown  based  on  the 
labour  cost  index  increased  the  already  strong  user  demand  for  comprehensive  and  timely 
information  on  the  level  of  hourly  labour  costs.  The  Commission  has  received  positive 
feedback on the publication of these estimates and will continue to produce the annual labour 
costs with a NACE breakdown. 

8 

COM(2002)  661,  Communication  of  the  Commission  to  the  European  Parliament  and  the  Council, 
Towards improved methodologies for Eurozone statistics and indicators. 

4 

 
 
                                                            
3.2 

COMPLETENESS 

In  general,  the  availability  and  quality  of  the  labour  cost  index  has  continued  to  improve 
compared  with  the  previous  reporting  period.  Eurostat  received  working-day  adjusted  data 
and  seasonally  and  working-day  adjusted  data  from  all  Member  States.  All  Member  States 
delivered  also  non-seasonally  adjusted  data,  excepting  Denmark  and  Sweden  -  countries 
which were granted derogations from delivering non-seasonally adjusted data (9). 

Regarding European Economic Area (EEA) States  (10), Iceland did not send any labour cost 
index data for the reference period while Norway sent data for all quarters concerned. 

Despite  the  improved  coverage  of  seasonally  adjusted  data,  it  was  decided,  after  careful 
analysis of data quality and user needs, to continue publishing working-day adjusted data as 
headline figures. This, in particular, ensures clarity and consistency with other price statistics 
(e.g.  the  consumer  price  index).  However,  all  data,  including  seasonally  adjusted  estimates, 
are available online in Eurostat’s database. 

National quality reports for the reference year 2015 were provided by all Member States and 
are being validated before being made available to the public. 

3.3  

PUNCTUALITY 

Member  States’  punctuality  in  sending  data  to  the  Commission  has  improved  since  the 
previous  report  published  in  2015.  With  the  exception  of  Greece  and  Croatia,  only  minor 
delays  have  been  encountered.  Providing  data  on  time  is  of  the  utmost  importance  for 
producing the LCI, 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 were 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 

100,0%

99,5%

99,0%

98,5%

98,0%

97,5%

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

2014

2015

2016

9  

10  

Regulation (EC) No 1216/2003 - Denmark, Germany, France and Sweden are not bound to deliver non-seasonally 
adjusted data. 
Decision  of  the  EEA  Joint  Committee  No  134/2003  -  Regulation  (EC)  No 450/2003  does  not  apply  to 
Liechtenstein. 

5 

 
 
 
                                                            
LCI coverage was complete except during four quarters in which Greece (2015 Q1 and Q4, 
2016 Q1 and Q2) or Croatia (2016 Q1) did not send their data on time. 

On  average,  timeliness  has  improved  compared  to  the  last  reporting  period,  ensuring 
European Union coverage at or above 99 % for all quarters except one (2016Q1). 

Regarding timeliness, since the last reporting period Greece twice had a delay of more than 
two days for labour cost index data. Despite such delays, it was still possible to include data 
for Greece in the news release. Since 2016Q1, Croatia has resumed its timely transmission of 
labour cost index data. 

Regarding  EEA  States,  Iceland  did  not  send  any  labour  cost  index  data  for  the  period 
concerned while Norway submitted data in time with only one exception (2015Q4). 

3.4  

ACCURACY 

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 (11) (year-on-year growth rate) have exceeded 0.2 percentage points 
three times since the first quarter of 2014. In most quarters, the estimates have been revised 
upwards. Contrary to the previous reporting period, revisions of EU aggregates did not exceed 
0.3 percentage points. 

Figure 2: Changes to data between the first figure published and the 2016Q2 release 

- EU28, NACE Revision 2 sections B to S aggregate, in percentage points - 

0,3 

0,3 

0,3 

0,2 

0,1 

0,1 

0,0 

Q1

Q2

Q3

Q4

-0,2 

Q1

Q2

Q3

Q4

Q1

-0,1 

2014

2015

2016

Throughout  the  reference  period,  only  the  labour  cost  index  data  from  Greece  had  quality 
issues. Eurostat held a bilateral meeting with the Greek statistical office in May 2016, during 
which  a  roadmap  for  tackling  these  structural  issues  was  agreed.  Some  progress  has  been 
made since then towards improving the quality and timeliness of the data within the next two 
production rounds. 

11 

EU-27 up to and including 2013Q2, since then EU-28. 

6 

 
 
 
                                                            
3.5 

COMPARABILITY 

In  order  to  publish  comparable  labour  cost  index  data  across  countries  it  is  important  to 
correct for calendar and seasonal effects. 

Article 1 of Commission Regulation (EC) No 1216/2003 states that labour cost index figures 
shall  be  provided  in  non-seasonally  adjusted,  working-day  adjusted  and  seasonally  and 
working-day  adjusted  form.  There  are  some  exceptions  to  this  rule:  a  number  of  Member 
States have derogations for the delivery of non-seasonally adjusted data (12). 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.  While  for  indirect  adjustment,  the  basic 
series  are  adjusted  and  then  used  to  construct  higher-level  aggregates,  a  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  (13).  In  a  limited  number  of 
cases,  the  adjusted  index  of  the  total  cost  component  was  either  higher  or  lower  than  the 
adjusted index of both sub-components (wage and salary costs; labour costs other than wages 
and salaries). Eurostat has therefore systematically checked the data delivered by all Member 
States to ensure that the total index is consistent with its two sub-components for each NACE 
section.  Eurostat  continued  the  policy  of  publishing  only  the  total  index,  hiding  the 
components if these differ by more than 0.1 % from the total. 

Some progress has been made during the last two years when the practice during production 
has shown that the indirect method of adjustment produces better data quality. This analysis 
started in the May 2015 workshop and was concluded during the LAMAS working group in 
October 2016 where Member States agreed to switch to the indirect method of adjustment. 

3.6 

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 
(ESA2010 definition) (14). 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,  it  is 
informative to analyse the level of discrepancies between both datasets. When the levels are 
above a given relative threshold, this may indicate quality issues in either dataset. 

Eurostat carried a quality exercise for NACE Revision 2 sections B to S aggregates of each 
State except Greece and Croatia whose LCI data were not available. For this comparison non-
seasonally adjusted LCI data were used except for Denmark and Sweden for which working-

Regulation (EC) No 1216/2003 - Denmark, Germany, France and Sweden are not bound to deliver non-

12 
seasonally adjusted data. 
13 
The updated version of the guidelines include also a specific section on adjusting chain-linked indices 
http://ec.europa.eu/eurostat/documents/3859598/6830795/KS-GQ-15-001-EN-N.pdf (available only in English) . 
14 

Regulation (EU) No 549/2013. 

7 

 
 
                                                            
day adjusted data were available. The absolute average discrepancy between the growth rate 
of the labour cost index and that of the hourly compensation of employees over 10 quarters 
was  analysed  and  variations  of  more  than  two  percentage  points  on  an  annual  basis  were 
considered  to  warrant  further  analysis.  This  was  the  case  for  Bulgaria,  Denmark,  Latvia, 
Poland and Romania (see figure 3). 

The results of the above analysis will be followed up with the Member States concerned, in 
particular with respect to data on hours worked. The aim is to improve consistency across the 
different statistical domains. 

Figure 3: Growth rate of the hourly compensation of employees versus labour cost index  

- Difference in percentage points - 

4,5

4,0

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0

a
i
r
t
s
u
A

i

m
u
g
e
B

l

National Accounts vs. LCI - percentage points 
difference 

s
u
r
p
y
C

a
i
r
a
g
u
B

l

c
i
l

b
u
p
e
R
h
c
e
z
C

y
n
a
m
r
e
G

k
r
a
m
n
e
D

i

a
n
o
t
s
E

e
c
e
e
r
G

i

n
a
p
S

d
n
a
n
i
F

l

e
c
n
a
r
F

a
i
t
a
o
r
C

y
l
a
t
I

d
n
a
e
r
I

l

y
r
a
g
n
u
H

i

a
n
a
u
h
t
i
L

g
r
u
o
b
m
e
x
u
L

a
i
v
t
a
L

a
t
l
a
M

s
d
n
a
l
r
e
h
t
e
N

d
n
a
o
P

l

l

a
g
u
t
r
o
P

i

a
n
a
m
o
R

n
e
d
e
w
S

i

a
n
e
v
o
l
S

a
i
k
a
v
o
l
S

.

.

K
U

Note: Data for Greece and Croatia not available 

4. 

CONCLUSIONS 

Overall,  the  quality  of  the  labour  cost  indices  of  the  Member  States  and  of  the  EU  has 
continued  to  improve  since  the  previous  report,  published  in  2014.  Member  States’ 
punctuality remained good except for Greece whose labour cost index data were still behind 
the established deadlines. 

The use of SDMX standard has been extended and the latest improvements in SDMX format 
are being implemented. 

The quality reports submitted by Member States have been migrated to a new version of the 
European Statistical System Metadata Handler and have been made available to all users. 

8 

 
 
 
 
The  overall  quality  of  statistics  on  the  labour  cost  index  and  certain  technical  aspects  were 
evaluated and improvement proposals were agreed. The consistency of labour cost index data 
is expected to improve further, among others as result of the follow up actions implemented 
after  a  dedicated  workshop  and  subsequent  LAMAS  meetings.  In  particular,  countries  not 
using the indirect method for seasonal adjustment (wages / non-wages and NACE aggregates) 
and  whose  data  presented  sizeable  inconsistencies  between  components  and  total,  agreed  to 
implement the indirect method by mid-2017. 

The Commission (Eurostat) has also started publishing annual estimates of the hourly labour 
costs levels by NACE sections, starting from 2012 onwards, based on both labour cost survey 
levels and labour cost index trends. 

The Commission will continue to monitor 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  Commission  will  closely 
follow-up with the competent national statistical authorities. 

9