1. Main points

The whole economy Index of Labour Costs per Hour (ILCH), seasonally adjusted, increased by 2.9% in Quarter 2 (Apr to Jun) of 2016, compared with the same quarter of 2015 and increased by 0.8% compared with the previous quarter, Quarter 1 (Jan to Mar) 2016.

Wage costs per hour worked increased by 3.1% in the second quarter of 2016 on the same quarter in the previous year and non-wage costs per hour worked increased by 0.8%.

Private sector labour costs per hour increased by 3.2% in the second quarter of 2016 on the same quarter in the previous year, while public sector labour costs per hour increased by 0.8%.

The arts, entertainment and recreation industry had the largest increase in Quarter 2 2016 compared with Quarter 2 2015, with an increase of 10.4%.

The chemicals and man-made fibres industry in the manufacturing sector had the largest decrease in Quarter 2 2016 compared with Quarter 2 2015, with a decline of 5.1%.

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2. 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. There are 4 versions of ILCH that are calculated for each aggregate, both seasonally adjusted and non-seasonally adjusted, measuring changes in:

  • total labour costs per hour worked
  • wage costs per hour worked
  • other labour costs, including benefits in kind and employer social contributions (pension and national insurance contributions, sickness, maternity and paternity pay) per hour worked
  • 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 the 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 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.

This bulletin provides information on the seasonally adjusted ILCH series. All seasonally adjusted series have been revised this quarter as a result of the seasonal adjustment review. This means some previously published figures have changed in this publication. Seasonally adjusted results were first published in March 2015 in the Quarter 4 (Oct to Dec) 2014 bulletin, which includes the full series from Quarter 1 (Jan to Mar) 2000. This will continue to be the case in all future ILCH bulletins. Non-seasonally adjusted data can be found on our website.

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3. Sector growth

Year-on-year

Whole economy labour costs per hour increased by 2.9% in Quarter 2 (Apr to Jun) 2016 compared with the same quarter a year earlier, before inflation is taken into account. 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 wage costs per hour worked on the same quarter a year earlier was 3.1% and non-wage costs per hour worked increased by 0.8%. The increase in non-wage costs is partly a result of an increase in pension and national insurance contributions. Wage costs include benefits in kind, wages and salaries. Non-wage costs include sickness, maternity and paternity pay, national insurance contributions and pension contributions.

Private sector labour costs (per hour) increased by 3.2% in Quarter 2 2016 compared with the same quarter a year earlier, and public sector labour costs (per hour) increased by 0.8%; this series can be volatile due to small numbers included in the sample.

Figure 1 shows the annual change in labour costs (per hour) for the whole economy, private and public sector.

Quarter-on-quarter

Compared with the previous quarter, Quarter 1 (Jan to Mar) 2016, whole economy labour costs per hour increased by 0.8% in Quarter 2 2016. Private sector labour costs also increased by 0.8%, while public sector labour costs decreased by 1.4%.

Total wage costs increased by 0.8% in Quarter 2 2016 compared with the previous quarter and total other costs decreased by 0.8%.

Figure 2 highlights the quarterly growth in labour costs per hour for the whole economy, private sector and public sector.

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5. Industry growth

Year-on-year

The industry with the highest growth in labour costs was the arts, entertainment and recreation industry, with labour costs per hour having increased by 10.4% in Quarter 2 (Apr to Jun) 2016 compared with a year earlier (Figure 4). This growth in labour costs is largely due to increases in wage costs.

The construction industry experienced the second largest growth in labour costs per hour in Quarter 2 2016, with an increase of 8.6% compared with a year ago. Other industries that experienced large growth in Quarter 2 2016 include agriculture, forestry and fishing and wholesale trade.

The chemicals and man-made fibres industry experienced the largest decline in labour costs in Quarter 2 2016 compared with a year earlier; labour costs (per hour) in this industry decreased by 5.1%. The transport and storage industry experienced the next largest decrease in labour costs compared with Quarter 2 2015, followed by the information and communication industry.

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6. Quarter-on-quarter

The industry with the highest quarterly growth in labour costs was retail trade and repairs, with labour costs per hour having increased by 3.8% in Quarter 2 (Apr to Jun) 2016 compared with Quarter 1 (Jan to Mar) 2016 (Figure 5).

Arts, entertainment and recreation experienced the second-largest growth in labour costs per hour in Quarter 2 2016, with an increase of 3.5% compared with the previous quarter. Other industries that experienced growth in Quarter 2 2016 include wholesale trade and basic metals and metal products.

Real estate activities experienced the greatest decline in labour costs in Quarter 2 2016 compared with Quarter 1 2016. Labour costs (per hour) in this industry decreased by 6.1% on the quarter. Labour costs per hour in chemicals and man-made fibres declined by 5.3%. The textiles, leather and clothing and information and communication industries experienced the next largest decreases in labour costs compared with the previous quarter.

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7. User engagement

We aim to constantly improve this release and its associated commentary. We welcome any feedback you might have and are particularly interested to know how you make use of these data to inform our work.

Please contact us via STER@ons.gsi.gov.uk.

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8 .Background notes

1. Quality

A Quality and Methodology Information Report for the Index of Labour Costs per Hour (ILCH) 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. International comparisons

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 main results in each quarter.

3. Seasonal adjustment

Like many economic indicators, the labour market is affected by factors that tend to occur at around the same time every year; for example, school leavers entering the labour market in July and whether Easter falls in March or April. In order to compare movements other than annual changes in labour market statistics, for example, compared with the previous quarter, the data are seasonally adjusted to remove the effects of seasonal factors and the arrangement of the calendar. All estimates discussed in this statistical bulletin are seasonally adjusted except where otherwise stated.

4. Experimental Statistics

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 Experimental Statistics. Further information on experimental statistics can be found on our website.

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9 .User engagement

We aim to constantly improve this release and its associated commentary. We welcome any feedback you might have and are particularly interested to know how you make use of these data to inform our work.

Please contact us using the details accompanying this release.

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Contact details for this Statistical bulletin

Katie Healey
STER@ons.gsi.gov.uk
Telephone: +44 (0)1633 456786