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: 2019-02-28
Institutions: European Commission, Eurostat
Subjects: EU Member State, EU statistics, data collection, disclosure of information, economic activity, economic indicator, labour force, pay, statistical method, wage cost

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.2.2019  COM(2019) 113 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 establishes a common framework for Member 
States to produce comparable LCIs and provide them to the Commission. 

The LCI measures quarterly changes in total hourly labour costs borne by employers, making 
it  possible  to  monitor  developments  in  the  cost  pressure  arising  from  the  production  factor 
‘labour’.  It  belongs  to  the  family  of  euro-indicators  that  provide  information  on  economic 
developments in the euro area. The Commission (Eurostat) publishes a quarterly news release 
on  the  hourly  LCI  on  its  website2,  which  contains  a  complete  dataset  broken  down  by 
economic  activity  and  by  the  components  of  labour  costs  (wage  and  non-wage  costs).  The 
website also includes quarter-on-quarter and year-on-year growth rates. 

Article 13 of Regulation (EC) No 450/2003 requires the Commission to submit a report to the 
Parliament and the Council every two years. As back series were analysed in previous reports, 
this report focuses on the quality of the LCI data received subsequently. It examines the LCI 
data  provided  to  the  Commission  for  the  reference  quarters  from  the  third  quarter  of  2016 
(2016Q3) to the first quarter of 2018 (2018Q1). 

In July 2003, the Commission adopted Regulation (EC) No 1216/20033, setting out in greater 
detail  the  procedures  that  Member  States  must  follow  when  sending  their  LCIs  to  the 
Commission, the calendar and seasonal adjustments to be made and the content of the national 
quality reports.  

In  March  2007,  the  Commission  adopted  Regulation  (EC)  No 224/20074,  which  amended 
Regulation (EC) No 1216/2003 and extended the scope of the LCI to the economic activities 
in NACE Rev. 1 sections L, M, N and O. Those sections include mainly non-market services, 
the dynamics of which may differ from those of market services.  

In August 2007, the Commission adopted Regulation (EC) No 973/20075, which amended a 
number  of  regulations  on  specific  statistical  domains,  including  the  LCI,  in  order  to 
implement the statistical classification of economic activities in NACE Rev. 2. 

Annex  I to  Regulation  (EC) No 1216/2003  identifies the following criteria for assessing the 
quality  of  the  LCI:  relevance,  accuracy,  punctuality  of  delivery  of  data,  accessibility  and 
clarity, comparability, coherence and completeness. Accessibility and clarity were considered 

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 (in English, French and German); 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). 

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satisfactory  as  was  already  the  case  in  the  previous  report6.  Therefore,  we  focus  in  this 
document on relevance, completeness, punctuality, accuracy, comparability and coherence. 

2.  GENERAL PROGRESS SINCE THE LAST REPORT 

No legislative changes have been made since the publication of the last report. 

2.1   Improved standards for data collection 

A  new  version  of  the  Statistical  Data  and  Metadata  eXchange  (SDMX)7  data  structures  has 
been tested with Member States and implemented in production. It uses internationally agreed 
code lists that are accessible on the web through a dedicated registry8. It also makes it possible 
to collect new optional variables, such as quarterly labour costs and quarterly number of hours 
worked. The same SDMX data structures have been implemented to transmit LCI data to the 
European Central Bank (ECB). 

Thanks  to  SDMX  standardisation,  a  new  automatic  validation  tool  (STRUVAL)  has  been 
implemented that notifies Member States of any IT issue detected in their LCI transmissions. 

These initiatives have helped to simplify the production process and reduce the risk of errors 
due to wrong coding. 

2.2   Re-engineering of IT programmes 

The  programmes  used  to  validate,  aggregate  and  disseminate  LCI  data  have  been  entirely 
re-engineered, making it possible to: 

 

 

 

 

align internal code lists with SDMX standards; 

ensure  consistency  between  the  total  and  the  components  –  the  chained  indices  for 
wage and non-wage costs are first unchained, then aggregated into totals and finally 
chained back to the reference year (indirect aggregation);  

update the list of European aggregates; and  

disseminate new indicators. 

2.3   Hourly labour cost levels 

The  Commission  (Eurostat)  has  published  annual  estimates  of  hourly  labour  costs  with  a 
NACE Rev. 2  breakdown  every  year  since  the  first  release  in  April  2016.  The  estimates, 
which are based on labour cost levels and LCI trends, are produced three months after the end 
of the reference period. The coverage includes the NACE Rev. 2 sections with the exception 
of section L (real estate activities). With the new SDMX data structures, Member States that 
have  opted  to  transmit  their  national  data  instead  of  Eurostat’s  estimates  can  collect  annual 
labour cost levels in this standard. 

6   COM(2017) 71. 
7   http://sdmx.org/ (available in English only) 
8   https://webgate.ec.europa.eu/sdmxregistry/ (available in English only) 

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3.  DATA QUALITY 

3.1  Relevance 

The ‘changes in labour costs per hour worked’ indicator is important for analysing short- and 
medium-term  economic  developments.  The  Commission  and  the  ECB  use  such  an  index, 
which  shows  short-term  labour-cost  changes,  to  assess  possible  inflationary  pressure  from 
developments  in  the  labour  market.  The  index  has  to  be  calculated  shortly  after  the  data 
become available, for each Member State, the whole European Union (EU) and the euro area. 
The  LCI  is  also  important  for  social  partners  involved  in  wage  negotiations  and  the 
Commission  uses  it  to  monitor  short-term  developments  in  labour  costs.  It  is  one  of  the 
principal European economic indicators9. 

Users  have  continued  to  demand  information  not  only  on  quarterly  percentage  changes  in 
labour costs, as measured by the LCI, but also, increasingly, on labour costs in absolute terms 
(euros per hour). Every April, Eurostat publishes estimates of hourly labour costs in euros and 
in  national  currencies  with  a  NACE Rev. 2  breakdown.  In  addition,  it  has  started 
disseminating the annual growth rate of hourly labour cost levels and the proportion of total 
labour costs made up of non-wage costs10. 

The Commission has received positive feedback on the publication of these estimates and will 
continue to produce the annual labour costs with a NACE Rev. 2 breakdown. 

3.2  Completeness 

In general, the availability and quality of the LCI has continued to improve. Eurostat received 
calendar-adjusted data and calendar- and seasonally adjusted data from all Member States. All 
except  Denmark  and  Sweden  (which  were  granted  derogations11)  also  delivered 
non-seasonally adjusted data. 

As regards other European Economic Area (EEA) countries12, Iceland sent LCI data for two 
quarters  (2017Q2  and  2018Q1)  of  the  reference  period  and  labour  cost  weights  for  2017, 
while Norway sent data for all seven quarters concerned. 

Switzerland informed the Commission (Eurostat) that it had decided not to  collect  quarterly 
LCI data. 

Despite  the  improved  coverage  of  seasonally  adjusted  data,  it  was  decided,  after  careful 
analysis of data quality and user needs, to keep calendar-adjusted data as headline figures. All 
data,  including  seasonally  adjusted  estimates,  are  available  on  the  relevant  page  of  the 

9  Communication  of  the  Commission  to  the  European  Parliament  and  the  Council,  Towards  improved 

methodologies for Eurozone statistics and indicators (COM(2002) 661). 
10   See the dataset lc_lci_lev in Eurobase (in English, French and German); 

http://ec.europa.eu/eurostat/data/database 

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

non-seasonally adjusted data. 

12   Regulation (EC) No 450/2003 does not apply to Liechtenstein. 

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Eurostat  database,  thus  ensuring  clarity  and  coherence  with  other  price  statistics  (e.g. the 
harmonised index of consumer prices)13. 

All Member States provided national quality reports for 2016. These have been validated and 
made available to the public on the Eurostat website14. 

3.3  Punctuality 

Member  States’  punctuality  in  sending  data  to  the  Commission  has  improved  since  the 
previous report as data were transmitted on time by Greece while the transmissions of Croatia 
recorded a delay of 1 day maximum, over the whole reference period. 

Norway transmitted LCI data on time, as did Iceland (for the two quarters in question). 

3.4  Accuracy 

The LCI is the product of a number of 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  figure15  (year-on-year  growth  rate)  have  exceeded  0.2 
percentage  points  (pp)  twice  (upwards  in  both  cases)  since  the  first  quarter  of  2016  (see 
Figure 1). This was caused by major revisions being recorded in the United Kingdom during 
the transmission of March 2018. At that point, the UK started to calendar-adjust more series 
impacting  the  B  to  S  aggregate,  which  was  therefore  substantially  revised.  Only  two  other 
countries  (Germany  and  the  Netherlands)  recorded  noticeable  revisions;  these  were 
appropriately documented. 

13  http://ec.europa.eu/eurostat (available in English only) 
14   http://ec.europa.eu/eurostat/cache/metadata/EN/lci_esqrs.htm (available in English only) 
15  EU-27 up to and including 2013Q2; since then, EU-28. 

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Figure 1:   Changes to data between the first figure published and the 2018Q1 release for 
EU-28 NACE Rev. 2 sections B to S (aggregate in percentage points) 

Since the previous report, no large revision has been recorded in the LCI data transmitted by 
Greece,  a  result  of  the  cooperation  between  ELSTAT  and  the  Commission  (Eurostat)  in 
improving the country’s LCI methodology. 

3.5   Comparability 

Comparability  between  countries  is  ensured  by  the  detailed  common  definitions  and 
methodology laid down in the LCI legislation. Member States fulfil the EU requirements with 
the data sources available at national level. Most use surveys or a combination of surveys and 
administrative data; two rely exclusively on administrative sources. 

In order to publish LCI data that are comparable over time, it is useful to correct for calendar 
and seasonal effects. The headline figures are adjusted for calendar effects and seasonality is 
offset by comparing the same quarters over two consecutive years. 

Under  Article 1  of  Regulation  (EC)  No 1216/2003,  LCI  figures  must  be  provided  in 
non-seasonally adjusted, calendar-adjusted, and calendar- and seasonally adjusted form. 

Regulation  (EC)  No 450/2003  does not  stipulate whether  calendar and seasonal adjustments 
are  to  be  made  using  the  direct  or  the  indirect  approach.  Indirect  adjustment  involves 
adjusting  the  basic  series  and  then  using  them  to  construct  higher-level  aggregates.  Direct 
adjustment  entails  individual  adjustment  of  every  single  series,  including  higher-level 
aggregates. 

In  the  case  of  LCIs,  Eurostat  recommends  using  the  indirect  approach  in  order  to  avoid 
inconsistencies  between  total  labour  costs  and  components.  Such  inconsistencies  are  easily 
detected by users and may raise doubts as to the overall quality of the LCI. 

5 

0.50.0-0.10.3-0.10.10.00.0Q1Q2Q3Q4Q1Q2Q3Q420162017 
 
Using the new IT programmes (see section 2.2), Eurostat’s policy is systematically to detect 
inconsistencies  of  0.1 pp  or  more  (after  rounding)  between  totals  and  components,  and  to 
report them to the country concerned in a validation report. The total LCI is then recalculated 
on the basis of the wage and non-wage components (indirect approach). 

Indices  are  thus  calculated  using  a  harmonised  approach  for  all  Member  States,  so  as  to 
ensure greater comparability. 

3.6   Coherence with national accounts figures 

One  of  the  areas  that  continue  to  receive  attention  is  the  coherence  of  the  LCI  with  other 
statistics on labour costs, in particular the quarterly national accounts (NA) data. 

For the annual quality report, Member States are asked to compare the growth rate of the LCI 
with  that  of  employees’  hourly  compensation,  as  found  in  the  national  accounts  (ESA 2010 
definition16).  It  is  not  realistic  to  expect  the  figures  to  be  exactly  the  same.  Even  if  the 
definitions of labour cost are almost identical, statistical treatments and sources may differ. In 
both  cases,  it  is  very  difficult  to  collect  data  on  hours  worked.  Despite  the  methodological 
differences, it is informative to analyse the extent of discrepancies between the two datasets. 
If these are above a given threshold, this may indicate quality issues in one or other. 

Eurostat carried out a quality exercise for NACE Rev. 2 sections B to S aggregates for each 
Member  State.  For  this  comparison,  we  used  non-seasonally  adjusted  LCI  data,  except  for 
Denmark  and  Sweden,  for  which  calendar-adjusted  data  were  available.  The  median  annual 
growth rate of the LCI was compared with that of the hourly compensation of employees over 
10  quarters.  Variations  of  more  than  1 pp  were  considered  to  warrant  further  analysis.  This 
was the case for Croatia (5.1 pp), Greece (2.2 pp), Romania (2.1 pp), Ireland (1.4 pp), Malta 
(1.2 pp) and Slovenia (1.1 pp) (see Figure 2). 

The results of the analysis will be followed up with those Member States, in particular with 
respect to data on hours worked. 

16  Regulation  (EU)  No 549/2013  of  the  European  Parliament  and  of  the  Council  of  21 May  2013  on  the 

European system of national and regional accounts in the European Union (OJ L 174, 26.6.2013, p. 1). 

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Figure 2:   Median annual growth rates of the LCI vs. hourly compensation of employees 

(NA) – reference period 2015Q4-2018Q1* 

* Except Belgium and Ireland: 2015Q4-2017Q4. NA data for 2018Q1 were not available at the time of drafting. 

In addition to the median, we compared the standard deviation of the annual growth rates of 
the LCI and NA series, as an indicator of volatility. The standard deviation of the LCI series 
was more than 2 pp above that of the NA in one case only: Sweden, with deviations of 2.8 % 
and  0.6 %  respectively.  Sweden  will  investigate  the  causes  of  this  difference  and  inform 
Eurostat of its findings. 

4.  CONCLUSIONS 

Overall,  the  quality  of  the  Member  States’  LCIs  and  the  EU  aggregates  has  continued  to 
improve since the previous report in 2017 – in particular as regards the punctuality of Member 
States’ transmissions, which is now almost completely satisfactory. 

The  Member  States’  quality  reports  have  been  processed  using  the  latest  version  of  the 
European statistical system metadata handler and made available to all users. 

The use of SDMX standards has been extended and the latest improvements in SDMX format 
implemented. The complete re-engineering of IT programmes made it possible to: 

 

improve the reliability of the production chain; 

  ensure consistency between totals and components by design; and  

  produce  new  indicators  such  as  annual  growth  rates  and  the  size  of  the  non-wage 

component. 

In 2017, the Commission (Eurostat) started to publish annual estimates of hourly labour costs 
by  NACE  Rev. 2  section,  on  the  basis  of  labour  cost  survey  levels  and  LCI  trends.  It  has 
received  positive  feedback  from  users,  some  of  whom  used  the  data  to  monitor  wage 
developments in Europe and their impact on economic convergence. 

7 

-2 %0 %2 %4 %6 %8 %10 %12 %14 %16 %AustriaBelgiumBulgariaCyprusCzechiaGermanyDenmarkEstoniaGreeceSpainFinlandFranceCroatiaHungaryIrelandItalyLithuaniaLuxembourgLatviaMaltaNetherlandsPolandPortugalRomaniaSwedenSloveniaSlovakiaUnited KingdomMEDIAN-LCIMEDIAN-NA 
The  Commission  will  continue  to  monitor  compliance  and  data  quality  on  a  regular  basis, 
using the data delivered  and other national  documentation, including quality reports. Where 
there  is  little  or  no  improvement,  it  will  follow  up  closely  with  the  competent  national 
statistical authorities. 

8