Source publication:  National Income & Expenditure Annual Results, Macroeconomic Scoreboard

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Nominal unit labour costs (ULC), which are explained in more detail in the Appendix, are comparable to labour productivity trends. Nominal unit labour cost measures nominal hourly employee compensation relative to real labour productivity. Growth in an economy’s unit labour cost suggests that nominal employee income is rising relative to real labour productivity, resulting in decreased competitiveness. On the other hand, a decline in unit labour cost suggests that nominal labour compensation is declining relative to labour productivity, resulting in increased competitiveness.

The cost of labour in Ireland increased rapidly relative to overall output from 2000 to 2008. Since 2009, however, nominal unit labour costs have declined substantially to just under ninety percent of their 2000 level.

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The above chart explains the relationship between nominal employee compensation and labour productivity. Labour compensation per employee increased at a much faster rate than output relative to total employment from 2000 to 2007. This resulted in growth rates in nominal ULC that were often close to five percent. Labour compensation continued to increase in 2008 (although at a lower rate), while output relative to total employment fell. This resulted in the largest increase in nominal ULC of over seven percent. Since 2009, real output relative to total employment has had major increases. Labour compensation, which initially declined in 2009 and 2010, has grown. Since 2011 growth in nominal labour compensation has turned positive and since 2014 compensation has increased at a rate of two percent.

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Nominal unit labour cost for the Domestic and Other sector grew consistently at a rate of close to five percent between 2000 and 2008. This was a result of nominal employee compensation increasing well above real labour productivity throughout. From 2009 to 2011, nominal unit labour cost declined as a result of increased labour productivity and falls in labour compensation. Nominal unit labour cost fell again from 2014 to 2016. However, this time employee compensation increased with real labour productivity increasing at an even greater rate.

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Changes in nominal unit labour cost have been far more volatile for the Foreign sector than the Domestic and Other sector. The Foreign sector has had large and intermittent decreases and increases in nominal unit labour cost. For example, in 2002 there was a 15 percent decrease in ULC, and the years 2009 and 2010 were the only years that had falls in employee compensation. Moreover, nominal unit labour cost fell by over 40 percent in 2015 as a result of a major increase in labour productivity due to the extraordinary growth rate in that year.

Source publication: Macroeconomic Scoreboard

Get the data: Eurostat

This chart compares cumulative growth in nominal ULC for Ireland compared to the rest of the EU. Despite having had one of the highest levels of growth in nominal ULC from 2000 to 2008, Ireland is the only country in the EU to have had a cumulative fall in nominal unit labour cost over the entire period. This negative result is driven by developments in the Foreign sector of the Irish economy, in particular the dramatic additions to GVA in 2015. The Domestic and Other sector on its own has had the lowest increase in nominal unit labour cost relative to the rest of the EU.