LABOUR COST

The cost of services provided by employees performing labour, usually including wages and social contributions paid by the employer.

"Although the rising proportion of non regular workers lowers labour costs and increases employment flexibility, it has a negative impact on both equity and efficiency over the long term."
(Jones, R. The Labour Market in Korea. Enhancing Flexibility and Raising Participation, OECD Economics Department Working Papers, 2005, visited 2011-05-05)

The cost of labour includes any expenditure made by an employer in order to employ or maintain the labour force needed to complete the production process. These costs include wages (or salaries), fringe benefits, education and training, and travel where applicable.

Calculating the Labour Cost: the Key Indicators of the Labour Market (KILM)

"Two indicators are used to cover wages and labour costs. The first KILM 15 (real manufacturing wage trends) shows the movement of average real wages in manufacturing, while the second, KILM 16 (hourly compensation costs) shows the trend and structure of employers' average compensation costs for the employment of production workers in manufacturing. These indicators are complementary, in that they reflect the two main facets of existing wage measures, one aiming to measure the income of employees and the other showing the costs incurred by establishments for the employment of such employees."
(International Labour Organization (ILO), Key Indicators of the Labour Market (KILM), Committee on Employment and Social Policy, 1999, visited 2011-04-17)

Links to Offshoring

Labour-intensive activities, such as the assembly of consumer electronics and computers, have been relocated to Asia to take advantage of low labour costs. However, moving production overseas to an area with lower labour rates can increase costs for procurement, transportation and inventory, and reduce flexibility. Moreover, labour cost advantages may be quickly emulated by competitors. Continuously moving production from country to country seeking lower cost labour may not yield a sustainable competitive advantage.