Statistical bulletin: Index of Labour Costs per Hour (ILCH) Q4 2012 (experimental)

Key points

• The whole economy Index of Labour Costs per Hour (ILCH) decreased by 0.5% in the fourth quarter of 2012 compared with the same quarter of 2011. This means the cost of labour fell year on year in Q4 2012 even before inflation is taken into account.
• Wage costs per hour worked decreased by 0.8%, while non-wage costs per hour worked increased by 1.5% in Q4 2012.
• Public sector labour costs per hour decreased by 4.5% in Q4 2012. Growth is negative in the public sector because modest growth in labour costs in the public sector has been offset by an increase in hours worked per job.
• Labour costs per hour in the private sector increased by 0.3% in the fourth quarter of 2012.

Summary

The Index of Labour Costs per Hour (ILCH) is a measure of the cost of having an employee for an hour of work. It represents the total cost of employing an individual, which is primarily the earnings of the employee, but also includes non-wage costs. It is also known as the Labour Cost Index (LCI); the index is produced by all member countries of the EU and collated by Eurostat. Four versions of ILCH are calculated for each aggregate, measuring changes in:

1. Total labour costs per hour worked

2. Wages and salaries per hour worked

3. Other labour costs, primarily National Insurance contributions and occupational pensions, as well as sickness, maternity and paternity pay, per hour worked

4. Total labour costs, excluding bonuses and arrears, per hour worked

The labour cost component of ILCH is mainly drawn from the Monthly Wages and Salaries Survey (MWSS); the hours worked component of ILCH is drawn from the Labour Force Survey (LFS). Other costs are estimated using a range of other sources including the Annual Business Survey (ABS) and Annual Survey of Hours and Earnings (ASHE). ILCH index figures are estimates in current prices, meaning that they are published not adjusted for inflation. ILCH data are not seasonally adjusted.

ILCH statistics are currently designated as experimental. Experimental statistics are those official statistics undergoing further development work before they are submitted for assessment as a National Statistic by the UK Statistics Authority.

Main Results

Whole economy labour costs per hour decreased by 0.5% in Q4 2012 compared with the same quarter a year earlier. Total labour costs include wages and salaries, benefits in kind and employer social contributions (pension and national insurance contributions, sickness, maternity and paternity pay). 

The growth in wages and salaries per hour worked was -0.8% while non-wage costs per hour worked increased by 1.5%. Wage costs include benefits in kind, wages and salaries. Sickness, maternity and paternity pay are excluded from wage costs. Non-wage costs include sickness, maternity and paternity pay, national insurance and pension contributions.

Figure 1: Labour Costs per Hour year on year growth – whole economy, private sector and public sector Q1 2009 – Q4 2012

Source: Monthly Wages and Salaries Survey, Labour Force Survey - Office for National Statistics

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Private sector labour costs (per hour) increased, while public sector labour costs decreased. The growth in labour costs per hour in the private sector was 0.3% in the fourth quarter of 2012, compared with -4.5% in the public sector. The fourth quarter of 2012 sees the continuation of the decline in public sector’s labour cost per hour, which has seen a decline since the second quarter of 2012.

The steeper decline in public sector labour costs (per hour) has been caused by a combination of modest increases in costs and larger increases in hours worked. Hours worked per job increased by 6% in Q4 2012 compared to a year earlier. The timing of the LFS meant that less of the 2012 Christmas holidays were covered by the survey than in 2011. This is because ILCH makes use of LFS data before seasonal adjustment and as such includes survey effects like the timing of the survey.

Trends in whole economy labour costs

Figure 2 shows whole economy labour costs (per hour) referenced to 2000. The chart shows that labour costs at whole economy level has a seasonal pattern; total labour costs per hour tend to peak at quarter one. This is caused by large bonus payments that are paid mainly in the private sector in the first quarter of the calendar year.

Between 2000 and 2008, the trend for the economy as a whole was one of steady growth as labour costs per hour increased by approximately 5% a year. This means that the cost of employing a worker rose during this period.

Between Q1 2008 and Q1 2009, total labour costs decreased by 5%. This was caused in part by lower bonuses in 2009 brought on by the 2008 UK economic recession. Since the recession, the growth in whole economy labour costs has increased but more slowly compared with the earlier years. Between 2009 and 2012, whole economy labour costs increased by around 2% a year.

Figure 2: Whole economy Index of Labour Costs per Hour, Q1 2000 – Q4 2012

Source: Monthly Wages and Salaries Survey, Labour Force Survey - Office for National Statistics

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Results by Industry

The main industry with the highest growth was the mining and quarrying industry, with labour costs per hour having increased by 38% compared to a year earlier. Labour costs in this industry increased by 10% in this industry while total hours worked decreased by 15% in Q4 2012.

The agriculture, forestry and fishing industry experienced the greatest decline in labour costs per hour compared with a year earlier. Agriculture, forestry and fishing labour costs (per hour) decreased by 7%. Labour costs in this industry increased by 2% while hours worked increased by 10%.

Figure 3: Labour costs (per hour) year on year growth by industry, Q4 2012

Source: Monthly Wages and Salaries Survey, Labour Force Survey - Office for National Statistics

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Background notes

1. A Quality and Methodology Information Report for ILCH (148.9 Kb Pdf) is available. This report describes, in detail the intended uses of the statistics presented in this publication, their general quality and the methods used to produce them. 
   

2. The UK Labour Costs Index (LCI) is comparable with other Labour Cost Index numbers produced by other EU member states. Eurostat regularly publishes a news release detailing the key results in each quarter.

3. The Index of Labour Cost per Hour is not seasonally adjusted. This means that regular variations including effects due to month lengths are included in the analysis.
   

4. Experimental statistics are those which are in the testing phase, are not yet fully developed and have not been submitted for assessment to the UK Statistics Authority. ILCH is designated as an experimental statistic. Further information on experimental statistics can be found on the ONS website.
   

5. Details of the policy governing the release of new data are available from the Media Relations Office.
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6. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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