PARIS (MNI) – Eurozone unit labor costs in 1Q were 0.5% below the
previous-year level, due to a slowdown in nominal wage gains and a
rebound in labor productivity, the European Central Bank said Thursday.

Available data suggest that wage gains remained moderate in 2Q, “in
line with weak labor market conditions,” the ECB said in its Monthly
Bulletin.

The decline in 1Q unit labor costs comes after a marked slowdown in
annual gains over the course of last year, from +5.9% in 1Q to +1.3% in
4Q.

As reported by Eurostat last month, the annual rise in hourly labor
costs recovered to 2.1% in 1Q from 1.7% in 4Q. This can be viewed as a
“normalization” after the sharp slowdown in 4Q from the 2.6% annual rise
in 3Q and was limited mainly to industry, the ECB commented.

“Even after the small acceleration in the first quarter, the annual
growth rate of hourly labor costs still remains at a level close to the
historical lows observed in 2005,” it noted.

The 1Q annual decline in unit labor costs — a key element in
inflation trends — resulted from an upturn in productivity and from a
0.7% annual upturn in the number of hours worked per employee, the first
after a series of often marked declines since the start of the crisis at
the end of 2008. This no doubt reflects the recovery in production and
the unwinding of reduced working hour programs launched to protect jobs
during the recession.

Productivity per hour was 1.3% higher on the year in 1Q and
productivity per employee up 1.9% after no change in 4Q and five
quarters of declines before that.

“Reflecting the sharp drop in hours worked per head, which started
in the fourth quarter of 2008, productivity fell more sharply on a
headcount basis than per hour worked,” the ECB said.

“At the same time, growth in compensation per head slowed down due
to the cut in working hours, while growth in compensation per hour
reacted with a longer lag to the economic slowdown,” it added. “The most
recent data suggest that reductions in hours worked per head are
beginning to reverse, supporting the rebound in productivity per head.”

A timely analysis of unit labor costs trends is now possible thanks
to a new quarterly series of data from Eurostat on hours worked, the ECB
noted. “This is a considerable improvement in data availability and one
which has been long awaited,” it said.

The series covers 95% of Eurozone employment (excluding data for
Greece, Luxembourg, Malta and partially Belgium), including agriculture,
public administration, education, health and other services.

“Low domestic price pressures” should help assure moderate
inflation rates next year, the ECB said.

–Paris newsroom +331 42 71 55 40; e-mail: stephen@marketnews.com

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