Eurozone nominal hourly labour costs, workday-adjusted y/y:

total wage costs non-wage costs
1Q10 +2.1% +2.0% +2.1%

MNI survey median: +2.1% y/y
MNI survey range: +1.6% to +2.2% y/y

4Q09 +1.7% (2.2%) +1.6% (2.0%) +2.0% (2.7%)
3Q09 +2.6% (3.0%) +2.7% (2.8%) +2.6% (3.5%)
2Q09 +3.3% (4.3%) +3.2% (4.1%) +3.4% (4.7%)
1Q09 +3.1% (3.6%) +3.0% (3.4%) +3.9% (4.6%)

PARIS (MNI) – Eurozone labor costs rose much as expected in 1Q,
registering a pick-up in the annual increase to 2.1% from a downwardly
revised 1.7% in 4Q, Eurostat said Tuesday.

Nominal wages alone were up 2.0% on the year after +1.6% in 4Q.
Non-wage costs, which include social security contributions and
employment taxes, were 2.1% higher on the year after +2.0% in 2Q.

Annual labor cost gains picked up in the services to 2.2% from 2.1%
in 4Q and in industry to 1.8% from 0.6%. In construction, by contrast,
labor costs gains slowed to 2.1% from 3.3% in 4Q.

The uptick in nominal wages in the first quarter of a given year is
a typical seasonal pattern that does not alter the evident slowing trend
since the onset of the recession at the end of 2008.

Nor has the slowdown in wage gains run its full course, most
likely, as activity is still too anemic to prompt much new hiring —
especially since many firms still have labor reserves as a result of
public subsidies that encouraged labor hording during the recession.

The European Commission and the OECD both expect a further
contraction in employment this year of around 1% and a jobless recovery
next year. The OECD sees the unemployment rate stabilizing at 10.1% this
year and next, while the Commission expects a rise to 10.4% next year.

“Growing labor-market slack is to be expected, dampening wage and
inflationary pressures in the period ahead,” the Commission predicted
last month.

Sluggish wage growth is a double-edged sword for the economy. On
the one hand, as production recovers with the labor force on hand, firms
will profit from falling unit labor costs after the surge of nearly 8%
during the last two years. This will ease the squeeze on balance sheets,
generating financial leeway for investment.

On the other hand, tepid wage gains in period of rising food and
energy costs will weigh on household budgets, further dampening domestic
consumer demand for goods and services. Private consumption has
practically stagnated since the onset of the recession.

The OECD expects the rise in employee compensation to slow from
2.6% in 2008 to 1.1% this year and pick up to 1.5% next year. With
inflation projected 1.4% and 1.0% this year and next, real earnings
would be virtually flat through next year.

–Paris newsroom +331 42 71 55 40; e-mail:

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