Factoid of the day 20/5/2012: the not so large increase of wage costs in Spain
1. Contrary to popular opinion and taking into account that wage costs per hour of German industry in 1996 were the highest of Europe, the relative increase of wages in Spanish industry (companies with 10 or more employees) has been quite limited. Note that in 1996 West-Germany were even higher than the average for Germany! And note that the almost 10 Euro difference between West en East-Germany did not lead to a fast development of the East-German economy: up to today East-German unemployment is quite a bit higher than West-German unemployment. All the talk about irresponsible increases in Spain seem to be overrated, surely as Spanish goods exports increased (slightly) faster than German goods exports, post 2000.
2. However, German economy wide Unit Labour Costs did decline a lot, compared with other countries. This could have been caused by a fast increase of productivity. German productivity however increased less than the EU average. So, what did cause the decline of the relative economy wide Unit Labor Costs (graph 2)?
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Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
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Maria Alejandra Madi / Jack Reardon
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Real-World Economics Review Blog 
What about taxes on labor? I’ve heard the argument made that a significant part of the apparent decline in ULC in Germany relative to the rest of Europe is a result of cuts in employment taxes, which are counted as labor costs? Is there anything to this, do you think?
I use the Eurostat wage cost data, which include (quote): “Total labour cost consists of:
employee compensation (including wages, salaries in cash and in kind, employers’ social security contributions);
vocational training costs; other expenditure such as recruitment costs, spending on working clothes and employment taxes regarded as labour costs;
minus any subsidies received.” I’ll check if the Eurostat data have something on changes in employers social security contributions – but I don’t say when.
Labor market reforms: the Hartz reforms.
Click to access 07-16.pdf