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: 2020-12-22
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, 22.12.2020  COM(2020) 819 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)   
 
 
I. 

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  labour  cost  index  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’.  The  LCI  belongs  to  the  family  of  euro-indicators  that  provide 
information on economic developments in the euro area. Eurostat publishes a quarterly news 
release  on  the  hourly  labour  cost  index  on  its  website2,  which  contains  a  complete  data  set 
broken  down  by  economic  activity  and  by  the  components  of  labour  costs  (wage  and  non-
wage costs). The website also includes both quarter-on-quarter and year-on-year growth rates. 

Pursuant  to  Article  13  of  Regulation  (EC)  No 450/2003,  the  Commission  has  to  submit  a 
report  every  2  years  to  the  European  Parliament  and  the  Council.  As  back  series  were 
analysed  in  previous  reports,  this  report  examines  the  quality  of  the  labour  cost  index  data 
received  afterwards:  from  second  quarter  2018  (2018Q2)  to  the  first  quarter  of  2020 
(2020Q1).  As  the  United  Kingdom  was  a  member  of  the  European  Union  until  31  January 
2020, the LCI data transmitted by this country have also been included in the present report.  

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  indices  to  the 
Commission, the calendar and seasonal adjustments to be made to the indices as well as the 
content of the national  quality reports.  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 in NACE Revision 1 Sections L, M, 
N and O. The latter sections  mainly include non-market  services, which  may have different 
dynamics to market services. Moreover, in August 2007, the Commission adopted Regulation 
(EC) No 973/20075 amending a number of legal acts 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. 

1 
2 

3 

4 

5 

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 
the  Eurostat  website  (http://ec.europa.eu/eurostat/web/main  —  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). 

1 

 
                                                 
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,  coherence  and  completeness.  As  accessibility  and  clarity  were  
considered satisfactory in the previous LCI report6, we will focus on relevance, completeness, 
punctuality, accuracy, comparability and coherence. 

II. 

GENERAL PROGRESS SINCE THE LAST REPORT 

From a legislative point of view, no changes have been made since the previous report was 
adopted.  However,  the  United  Kingdom’s  withdrawal  from  the  European  Union  had  an 
impact on EU aggregates. In particular, from 2020Q1 onwards, LCI releases reflect the new 
composition of the EU-27.  

LCI data continued to be collected using SDMX standards for improved data transmissions, 
and the annual quality reports were updated on schedule, before the end of the year following 
the reference period.  

LCI  data  were  rebased  to  the  new  reference  year  (2016)  for  which  new  benchmark  data 
obtained from the latest Labour Cost Survey (LCS2016) became available in 2019.  

Hourly labour cost levels data were updated within 3 months after the reference year, based 
on LCI data for 2019. 

Finally,  the  Labour  Market  Statistics  Working  Group  (LAMAS)  endorsed  a  new  template 
designed  by  Eurostat  to  collect  information  on  the  seasonal  adjustment  models  used  by 
Member States in the LCI context. 

Details on these developments are presented in the next paragraphs.  

2.1 Improved standards for data collection 

The  latest  version  of  the  Statistical  Data  and  Metadata  eXchange  (SDMX)7  data  structures 
continues to be used successfully for receiving Member State data and producing the LCI but 
also for transmitting LCI data to the European Central Bank. 

The automatic validation tool (STRUVAL) was used to notify Member States of the IT issues 
detected in their LCI transmissions. 

2.2 LCI rebasing  

Labour cost indices data are presented in the form of index numbers, expressed in relation to a 
given base year where their value is 100 by definition. As a result, index numbers provide the 
cumulated increase in labour costs back to the base year.  

6  
7  

COM(2017) 71. 
http://sdmx.org/(available only in English). 

2 

 
 
                                                 
The base  year is  chosen to coincide with the latest 4-yearly  Labour Cost Survey (LCS) that 
provides benchmark figures for labour cost levels. This way, LCI data expressed in that base 
year can be directly combined (multiplied) with LCS data to derive labour cost-level estimates 
for the most recent year for which LCI data are available.  

After the new vintage of LCS data was published, for reference  year 2016, the LCI domain 
was rebased accordingly. Since June 2019, LCI data are expressed in the new base year 2016 
= 100.  

2.3 Hourly labour cost levels 

Eurostat  continued  publishing  with  success  the  annual  estimates  of  hourly  labour  costs  by 
NACE Rev. 2 section, since the first release issued in April 2016. These estimates are based 
on both labour cost levels and labour cost index trends and are produced 3 months after the 
end of the reference period. The coverage included all NACE sections with the exception of 
NACE Revision 2 section ‘L’ (real estate activities).  

2.4 Quality reports 

The  quality  reports  submitted  by  Member  States  were  timely  processed  using  the  latest 
version of the European Statistical System Metadata Handler and made available to all users8. 

2.5 Seasonal and calendar adjustments 

Eurostat  analysed  the  seasonally  (SA)  and  calendar  (CA)  adjusted  series  transmitted  by 
Member States and did a country comparison of the results that were presented at the Labour 
Market Statistics Working Group (LAMAS-LMI) of October 2019. 

Eurostat  also  presented  a  new  template  that  Member  States  will  use  from  2020  onwards  to 
report on the procedures and models used for the seasonal adjustment of their LCI series. In 
parallel, a special programme was developed as an add-on to the JDemetra+ software so that 
the template can be filled out in a harmonised and automated manner. 

III. 

DATA QUALITY 

3.1 

Relevance 

To  assess  possible  inflationary  pressure  caused  by  developments  in  the  labour  market,  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.  Shortly  after  the  data  becomes 
available, the index needs to be calculated for each Member State, for the EU as a whole 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 

8 https://ec.europa.eu/eurostat/cache/metadata/en/lci_esms.htm 

3 

 
 
                                                 
costs. The labour  cost  index is  one of the principal  European economic indicators9. Finally, 
LCI  data  are  used  for  the  indexation  of  prices  in  some  large  commercial  contracts  that  last 
several years. 

User  demand  continued  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).  Eurostat  continued  publishing,  in  April  each  year, 
estimates of hourly labour costs in euros and in national currencies with a NACE Revision 2 
breakdown. The annual growth rate of hourly labour cost levels as well as the share of non-
wage costs in total labour costs10 were included. The feedback received on the publication of 
these estimates is positive, and Eurostat will continue to produce the annual labour costs with 
the NACE Revision 2 breakdown.  

3.2 

Completeness 

In general, the availability and completeness of the labour cost index was satisfactory over the 
whole  reference  period.  Eurostat  received  calendar-adjusted  data  as  well  as  calendar  and 
seasonally  adjusted  data  from  all  Member  States  for  all  quarters  except  in  one  instance 
(Greece,  for  2019Q3).  Member  States  also  delivered  non-seasonally  adjusted  data,  except 
Denmark and Sweden, which have been granted derogations11.  

In  the  case  of  Denmark,  all  LCI  data  for  reference  quarter  2019Q4  were  transmitted  to 
Eurostat in time but published with a delay of 5 weeks, pending a decision on the recording of 
the new system of social contributions. 

Regarding European Economic Area (EEA) countries12, both Iceland and Norway transmitted 
LCI data for all quarters of the reference period. 

Switzerland does not collect quarterly LCI data. 

Despite the improved coverage of seasonally adjusted data, headline figures are still based on 
the  year-on-year  (Q/Q-4)  changes  in  calendar-adjusted  data  that  show  lower  volatility. 
However, all data, including seasonally adjusted estimates, are available on the relevant page 
of the Eurostat database, thus ensuring clarity and coherence with other price statistics (e.g. in 
particular the harmonised index of consumer prices).13 

9 

10  

11  

12  
13 

COM(2002) 661, Communication of the Commission to the European Parliament and the Council, 
Towards improved methodologies for Eurozone statistics and indicators. 
See the dataset lc_lci_lev in Eurobase (http://ec.europa.eu/eurostat/data/database, available in English, 
French and German). 
Pursuant to Regulation (EC) No 1216/2003, Denmark, Germany, France and Sweden are not bound to 
deliver non-seasonally adjusted data. 
Regulation (EC) No 450/2003 does not apply to Liechtenstein. 
See the dataset lc_lci_r2_q in Eurobase (http://ec.europa.eu/eurostat/data/database, available in English, 
French and German). 

4 

 
                                                 
All  Member  States  provided  national  quality  reports  for  the  reference  year  2018.  These 
reports have been validated and published on Eurostat’s corresponding webpage14. 

3.3 

Punctuality 

Member States’ punctuality in sending data to the Commission since the previous report was 
good,  and  all  data  were  transmitted  on  time  except  for  Greece  for  2019Q3;  its  data  were 
transmitted with a delay of 8 days. 

Regarding EEA countries, Norway transmitted LCI data on time, as did Iceland. 

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.  If  adjustments 
relate to the reference year, the whole series has to be revised. Revisions of the  EU headline 
figure  (year-on-year  growth  rate)  have  only  once  exceeded  0.1  percentage  points  since  the 
first quarter of 2018 (0.2 revision for 2018Q2, see Figure 1). This represents an improvement 
in accuracy compared with the previous report. 

Figure 1: Changes to the year-on-year growth rate 
between the first and the latest (2020Q1) LCI releases 
(EU-28, NACE Revision 2 Sections B to S aggregate, total labour costs, in percentage points) 

14  

http://ec.europa.eu/eurostat/cache/metadata/EN/lci_esqrs.htm (available only in English). 

5 

0.10.20.00.10.10.0-0.1Q1Q2Q3Q4Q1Q2Q320182019 
 
 
                                                 
3.5  

Comparability 

Comparability between countries is ensured through the detailed definitions and methodology 
included  in  the  LCI  legislation.  Member  States  fulfil  the  EU  requirements  with  the  data 
sources  available  at  national  level.  Most  of  them  use  either  surveys  or  a  combination  of 
surveys  and  administrative  data,  whereas  two  Member  States  exclusively  rely  on 
administrative sources. 

In order to publish comparable labour cost index data over time, it is important to correct for 
calendar  and  seasonal  effects.  The  headline  figures  are  adjusted  for  calendar  effects  while 
offsetting seasonality by comparing the same quarters over 2 consecutive years. 

Pursuant  to  Article  1  of  Commission  Regulation  (EC)  No 1216/2003,  labour  cost  index 
figures  must  be  provided  in  non-seasonally  adjusted,  calendar-adjusted  as  well  as  calendar 
and seasonally adjusted form. 

Regulation  (EC)  No 450/2003  does  not  explicitly  state  whether  calendar  and  seasonal 
adjustments have to be made using the direct or the indirect approach. An indirect adjustment 
means  that  the  basic  series  are  adjusted  and  then  used  to  construct  higher-level  aggregates, 
whereas a direct adjustment means that every single series, including higher-level aggregates, 
is adjusted individually. 

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

Eurostat  systematically  detects  inconsistencies  between  totals  and  components  of  0.1 
percentage point or more (after rounding) and reports them to the country concerned through 
a validation report. The total LCI is then recalculated on the basis of the wage and non-wage 
components  (indirect  approach).  This  harmonised  approach  also  ensures 
improved 
comparability across countries. 

At  the  LAMAS-LMI  meeting  held  in  2019,  Eurostat  informed  Member  States  of  its 
assessment  of  the  seasonally  (SA)  and  calendar-adjusted  (CA)  series  transmitted  for  the 
labour cost index. SA and CA data were analysed separately and checked for the presence of 
residual  seasonality  or  calendar  effects  respectively.  A  standard  template  was  proposed  and 
accepted  by  countries  in  order  to  document  their  seasonal  and  calendar  adjustment 
procedures.  Countries  showing  residual  seasonality  or  calendar  effects  in  their  series  were 
asked to check their adjustment procedures and report their findings.  

3.6  

Coherence with national accounts figures 

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

6 

 
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 
(ESA 2010  definition15).  The  datasets  are  not  expected  to  perfectly  match:  even  if  almost 
identical  definitions  of  labour  cost  are  used,  statistical  sources  and  treatments  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  sources. When the levels  are above a  given 
relative threshold, this may indicate quality issues in either dataset.  

For quality assessment, Eurostat continued to monitor the NACE Revision 2 Sections B to S 
aggregates  of  each  Member  State.  For  this  comparison,  non-seasonally  adjusted  LCI  data 
were used, except for Denmark and Sweden for which calendar-adjusted data were available. 
The median annual growth rate of the labour cost index was compared with that of the hourly 
compensation  of  employees,  over  10  quarters,  and  variations  of  more  than  two  percentage 
points  (pp) were considered to  warrant  further analysis. This  was the case for Hungary (2.1 
pp), Cyprus (2.5 pp) and Romania (4.1 pp) (see Figure 2, with countries ranked by increasing 
order  of  the  gap  in  absolute  value).  The  results  of  the  above  analysis  are  followed  up  with 
Member States, in particular with respect to data on hours worked. 

Figure 2: Median annual growth rates of the labour cost index (LCI) 
versus hourly compensation of employees (NA) 
(NACE Revision 2 Sections B to S aggregate, total labour costs,  
reference period: 2017Q4-2020Q1*, in %) 

*Except  Belgium  and  Denmark:  2017Q4-2019Q4.  NA  data  for  2020Q1  were  not  available  at  the  time  of 
drafting. 

15 

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). 

7 

0 %2 %4 %6 %8 %10 %12 %14 %16 %NetherlandsIrelandLatviaLuxembourgAustriaGermanyFinlandBelgiumLithuaniaDenmarkUnited KingdomFranceItalySloveniaSpainGreeceSlovakiaPortugalCzechiaMaltaEstoniaSwedenBulgariaPolandCroatiaHungaryCyprusRomaniaMEDIAN-NAMEDIAN-LCI 
 
 
 
                                                 
In  addition  to  the  medians,  Eurostat  compared  the  standard  deviation  of  the  annual  growth 
rates of both the LCI and NA series, as an indicator of volatility. 

In two cases, for Austrian and Estonian data, the standard deviation of the LCI series differed 
by 2 percentage points from the NA series. Both countries have been asked to investigate the 
sources of these differences and to inform Eurostat of the results. 

IV. 

CONCLUSIONS 

Overall, the quality of the labour cost indices of the Member States and of the EU aggregates 
has continued to improve since the previous report. This is the case in particular for the size of 
revisions. 

The quality reports submitted by Member States were processed using the latest version of the 
European statistical system metadata handler and made available to all users. 

Among other changes since the previous report, the LCI domain has been rebased to the new 
base  year  (2016)  and  a  new  template  was  agreed  for  a  better  reporting  of  Member  States 
practices  in  the  seasonal  adjustment  field.  Since  the  first  quarter  of  2020,  LCI  aggregates 
reflect the new composition of the European Union without the United Kingdom.  

Since 2017, Eurostat has been publishing annual estimates of the hourly labour costs levels by 
NACE  Revision  2  sections,  based  on  both  labour  cost  survey  levels  and  labour  cost  index 
trends.  Positive  feedback  was  received  from  users,  in  particular  institutional  users  who  use 
these data to monitor wage convergence within the European Union. 

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 
no  or  insufficient  improvement  is  seen,  the  Commission  will  closely  follow  up  with  the 
competent national statistical authorities. 

8